State-owned arms maker Denel will undertake major changes to stay in business, says new CEO Shaun Liebenberg.

“Denel is not viable under the current model,” Liebenberg said yesterday at a press briefing on the company’s turnaround strategy.

Liebenberg’s plan sees Denel trying to push up revenue by partnering its smaller business units with leading international arms companies and re-establishing itself as the dominant supplier of arms in the domestic market.

Rather than competing head-on with large arms companies, Denel will seek to supply them.

Head-hunted from technology group Grintek to reverse the fortunes of the ailing parastatal, which has not made a profit since 1996, Liebenberg took up his post in May.

Denel is expected to incur losses of between R800m and R850m this financial year and also expects a loss in the next year.

Productivity below international standards, “inconsistent political support” from government, and a drop in support in the domestic market had all played a role in creating the crisis Denel was in, Liebenberg said. Productivity was low because the company had more employees than it should need as it was using outdated technology.

Liebenberg said that updating Denel’s technology by going into partnership with global arms companies might lead to job cuts, but this was a “last resort”.

Labour unions said they were not concerned about job losses resulting from the restructuring. Denel had promised there would be “no major job cuts”, said National Union of Metalworkers of SA (Numsa) spokesman Dumisa Ntuli.

While Denel’s turnaround plan met with Numsa’s approval, Ntuli said the union was taking a wait-and-see approach over how Denel dealt with allegations of racial discrimination.

Numsa said it had previously accused Liebenberg of not being tough enough on addressing “white tokenism and patronage”.

Solidarity national organiser Jack Loggenberg said his union supported the turnaround strategy and was willing to give Liebenberg the benefit of the doubt on how he dealt with Denel’s labour problems.

Liebenberg said that changing Denel’s culture was one of his top priorities. He planned to introduce a more commercial business culture, away from what he called the “subsidy mindset”.

Denel’s stakeholders — unions, government, its board and management team — had all accepted the turnaround plan, Liebenberg said.

Public Enterprises Minister Alec Erwin said the national treasury had provided Denel with more than R1bn in financial guarantees. While government was prepared to provide Denel with financial support, it would not be done “in an open-ended way”, Erwin said.

Denel could also gain from the state arms procurement cycle changing to favour the kind of products Denel makes.

The multibillion-rand arms deal concluded in 1998 did not buy the sort of arms Denel made.

When the state issued new arms tenders, Denel would not be unduly favoured and would have to be competitive, Erwin said.

Bringing in international partners at the business unit level would not lead to Denel selling off holdings, Liebenberg said.

While Denel would act as a holding company for its various business units, it would always retain a “golden share” in all its subsidiaries.

Denel was in the process of reaching an agreement with Swedish aviation group Saab, Liebenberg said. Saab bought out the minorities in Grintek this year and had it delisted from the JSE.

Denel is also looking at concluding agreements with the UK’s BAE systems and Thales of France.

With acknowledgements to Larry Claasen and the Business Day.