AIRBUS Military has cancelled one of Denel Saab Aerostructure’s contracts for parts for the new A400M military transport plane, and placed two others on review.

This was done only months after Defence Minister Lindiwe Sisulu cancelled an order for eight of the aircraft.

The loss of the contract is a major blow to Denel Saab Aerostructure’s attempts to return to profitability after years of losses.

The cancellation comes despite assurances from Airbus *1, when SA cancelled its aircraft order, that work being done by local companies would not be affected.

However, Airbus is coming under intense pressure from European partners for work to be moved to the aerospace industry there.

The A400M is running several years behind schedule, and costs have surged.

This has required the partner countries ­ Germany, France, Malaysia, Turkey, the UK, Spain, Belgium and Luxembourg ­ to pump more funds into the programme.

The governments are in turn leaning on Airbus to provide more work for their aerospace industries.

“Airbus is under pressure from the other A400M programme partner countries to redistribute the industrial work packages that SA contracted for,” Airbus Military spokesman Linden Birns said yesterday.

“SA’s commitment to acquire A400Ms was tied to its earlier decision to join the A400M programme as a full industrial partner in 2005,” said Birns.

Although Airbus had withdrawn a smaller contract, “other more strategically important and valuable packages” with Denel Saab Aerostructures had been protected “for the time being”.

“We hope that the government will soon identify SA’s future airlift requirements, and engage with industry on the process for acquiring whatever equipment it specifies and selects to meet it,” Birns said.

Denel Saab Aerostructures is one of three Denel companies in Denel’s stable that weigh heavily on the financial performance of the group.

The unit notched up a R452m loss in the 12 months to March last year. It has invested millions i n building prototype parts and ramping up for production of the A400M, and it is not clear whether Denel Saab Aerostructures will be able to recoup any of these investments.

Denel Saab Aerostructures CEO Ismail Dockrat admitted yesterday that the cancellation was a huge blow to the group. “We still have running contracts with Saab and AgustaWestland. However, this was an important contract in our order book, and will have a major impact on our financial recovery.

“We are speaking to Airbus to ascertain why they have cancelled the contract despite assurance last year that they would not. We are seeking to have the cancellations reversed,” said Dockrat.

Denel Saab Aerostructures has already revised its restructuring strategy to deal with the loss of the Airbus contracts, and is due to submit it to the board in the next week. “We are also working with various government stakeholders in drawing up a long-term plan for the aerospace industry in SA which will inform the way forward for Denel Saab Aerostructures,” said Dockrat.

Private aerospace group Aerosud may also lose some of its contracts to design and manufacture components for the A400M, but MD Paul Potgieter is less concerned than his rival.

“We have a long relationship with Airbus over many years, and have several contracts for other Airbus products, including the A320 and A350 commercial aircraft *4. We are in the process of finalising several new contracts,” said Potgieter.

“We understand the pressure Airbus Military are under from their European partners. If the contract is cancelled, it will not be a unilateral decision by Airbus but rather by mutual agreement,” he said.

With acknowledgements to Julius Baumann and Business Day.

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*1       While cancellation of the sub-contacts might be expected under the circumstances, the main contract was cancelled for default and was not linked, at least directly, to the sub-contracts.

One can only ask what circumstances allowed EADS to cancel just one sub-contract with Denel.

The fact that it has other sub-contracts under review probably tells the story - i.e. that there is default or other contractual non-performance by Denel.

If and once the non-performance of the sub-contracts under review becomes clarified, these will also get cancelled.


*2      Being a private company Aerosud , it is certainly much cleverer and much more fearful of contract cancellation than the dinosaur that is Denel. Unlike the latter it cannot just pitch up at parliament on the next begging bowl day and demand a refill of its leaky coffers (typically R5 billion per year).


*3      Aerosud and Denel are hardly rivals.

Other than being private and public companies as explained above, they are more like peas in a pod.

A common denominator is their relationships with Professor Victor Verijenko and ex Dr Chippy Shaik.



Spot the defrocked Professor and the Aerosud man?


*4      These probably are IP projects arising out of the Arms Deal.

Assisted in their acquisition very nicely by the cosy relationship with Joe Modise.