Pretoria - Public enterprise minister Alec Erwin sang the praises of Denel chief executive Victor Moche when he announced to parliament on Friday that Moche would stand down as head of the defence parastatal.

However, Moche's departure follows severe criticism of his leadership, particularly by unions in the company.

Erwin said that contrary to uninformed comment, Moche was not leaving Denel under a cloud.

"I wish to sincerely thank him for the immense task he undertook and the diligence with which he carried out this challenge. I am confident that he will do well in his future positions.

"He earns my personal respect for his commitment to the interests of Denel and the country. Many could learn from his conduct," he said.

Erwin said the task facing the public enterprise department was to turn around Denel's fortunes.

Moche had led a process of restructuring in Denel that now had to be taken further and more focus engendered. "There is agreement that this will be best done by handing the change baton to a new chief executive," he said.

Moche would hand over to Shaun Liebenberg, the chief executive of Grintek, the listed defence and telecommunications manufacturer, at the end of May. Moche was unavailable for comment.

Erwin described Moche's departure and the appointment of Liebenberg as "a sensible business decision".

Liebenberg said he was very excited and honoured by the appointment.

If Denel was healthy, the rest of the defence industry could thrive "and hopefully I can add value in the process and look forward to the opportunity", Liebenberg said.

Despite Erwin's praise of Moche, UASA, the majority union at Denel, has claimed over many months that a pattern seemed to be emerging at the company where most of the experienced white general managers were suspended and reasons fabricated to take disciplinary action against them.

It said this appeared to be part of an orchestrated campaign to get rid of these managers in a bid to transform the company from an employment equity viewpoint instead of paying expensive retrenchment packages.

UASA claimed these and other actions, such as the centralisation of some key divisional functions at head office and Denel's alleged disregard and disrespect for the law, particularly labour legislation, damaged the parastatal's image and financial performance and raising concerns about the company's survival. As a result, many highly skilled staff had left.

Erwin alluded to this in his address on Friday, when he stressed that challenges facing Denel included attracting back "many of the skilled personnel that have been lost and [to] stabilise the financial situation of Denel".

There has been speculation that Denel would report a loss of more than R800 million for the year to end March this year. It reported a loss of R378 million in 2004 and only reporting a profit once in the past six years. That was in 2001, when it reported a profit of R26.7 million.

In February this year UASA urged Erwin to appoint an independent a commission of inquiry into the affairs of Denel.

Earlier this month UASA also sent a letter to all of Denel's board members, expressing its concern about the state of affairs at Denel, including the company's financial position.

Erwin said on Friday that the defence industry had specific characteristics in South Africa and worldwide, and these factors made a short-term turnaround "nigh on impossible".

"Accordingly, there was no expectation of a magic turnaround by Denel in the last year. Production, product development and order finalisation are all lengthy cycles in this industry. Assessing the position now, it is doubtful that Denel was sufficiently capitalised as a company when the previous government hastily formed it," he said.

The structural position of Denel had changed as South Africa's defence needs changed. About 58 percent of Denel's turnover last year was exports, and the impact of rand movements had been severe, Erwin said.

However, Denel had in its operations very valuable human and technological capacity. It would play an important role in the development of South Africa's technological capacity.

"This means that Denel can play an important role in the provision of defence and security equipment needs of the SA National Defence Force and other branches of our security services. This applies particularly to equipment that would enhance our peacekeeping capacity in Africa.

"Accordingly, the state sees the enterprise as being strategic and will retain it in state hands. An additional factor in this decision is the possibility of important strategic production alliances with companies in India and Brazil," Erwin said.

"In addition, we wish to fast track the disposal of non-core assets, which could realise up to R730 million."

With acknowledgements to Roy Cokayne and the Business Report.