April 17, 2019 / 2:42 PM / 3 months ago

South Africa's Denel aims to end Airbus A400M work within 18 months

JOHANNESBURG (Reuters) - South African state arms firm Denel aims to wind down production of parts for the Airbus A400M military aircraft over the next six to 18 months to achieve an annual cost saving of around $18 million, a company presentation showed.

FILE PHOTO: A Denel company logo is seen at the entrance of their business divisions in Pretoria, South Africa, December 4, 2018. REUTERS/Siphiwe Sibeko

Under a new management team Denel, a cornerstone of South Africa’s once mighty defense industry, is battling to emerge from a financial and operational crisis.

It said last month it could wind down production for the A400M as part of a turnaround plan but did not mention the estimated timeframe or financial impact.

But in a presentation dated March 29 and seen by Reuters Denel said a “managed exit with Airbus” could bring it an annualized benefit of 250 million rand ($17.9 million).

Denel, which made a 1.7 billion rand loss in the 2017/18 financial year, said in its annual report for that year that the Airbus contract was historically loss-making and that liquidity challenges had hampered its ability to deliver parts on time.

A Denel spokeswoman said terms were not yet finalised with Airbus about stopping production for the A400M.

A spokesman for Airbus said: “The agreement to withdraw the A400M work packages is a mutual one. Airbus and Denel are discussing how best to proceed.”

The presentation also said Denel wanted to reduce its staff numbers by around 400 employees.

As of this week around 200 Denel staff had agreed voluntary severance packages (VSP), two trade union sources told Reuters, adding that further severance packages were being discussed.

“With regards to the VSP process, it’s important to note this is done in such a way that we retain critical and scarce skills,” the Denel spokeswoman said.

“A reduction in our headcount cannot be avoided if long-term growth and profitability is to be achieved.”

Reporting by Alexander Winning and Joe Bavier; Editing by Alexander Smith

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