Denel blows Christmas: arms dealer runs out of cash to pay staff
Workers face bleak festive season after state-owned arms maker admits to severe financial challenges
State-owned arms dealer Denel does not have enough money to pay its staff their December salaries, union officials told The Times on Tuesday.
An emergency meeting between trade unions Solidarity, Uasa, the National Union of Metalworkers, Denel CEO Zwelakhe Ntshepe and CFO Odwa Mhlwana did not bring any clarity on the fate of some 4000 employees.
"We have been told [by the Denel CEO and CFO]: 'We don't have money'," said Uasa spokesman Willie van Eeden. "The cash shortage had been a long time coming."
Solidarity deputy general secretary Deon Reyneke said his shop stewards reported that Denel needed about R350-million to pay both suppliers and December salaries - but had only R60-million. He said no clear answers were given in the meeting.
"The fact is [Denel management] could not answer the question: 'Will members be paid on December 22?'"
Denel spokesman Pamela Malinda said it was experiencing "severe liquidity challenges".
"We can confirm that a meeting was held [on Tuesday] between management and organised labour," said Malinda. "This was a long-standing scheduled meeting for management to provide a business update to labour.
"We can further confirm that Denel is experiencing severe liquidity challenges, of which we are currently engaging with key stakeholders including the government."
The Treasury did not respond to requests for comment by the time of going to print.
A Denel employee, who did not want to be named, said: "I must tell the kids there is no Christmas."
Their salaries are supposed to be paid on December 22.
Signs that not all was well started to emerge last month. Some Denel employees were told they would not receive their "13th cheque" due to cash-flow problems. But, said Reyneke and Van Eeden, the so-called 13th cheques were not bonuses. They were part of a savings scheme for staff in which a percentage of their salaries had been put aside every month for a payout before December.
Denel is experiencing severe liquidity challenges, of which we are currently engaging with key stakeholders including the government.Pamela Malinda
In a letter to staff, dated December 7, Ntshepe said: "Denel is currently experiencing severe liquidity challenges . our suppliers are not getting paid, which results in delays on programmes . our operating costs are way too high.
"It is unfortunate and was unavoidable that the 13th cheque could not be paid on time this year.
"Management is doing everything possible to resolve this to ensure that the business is able to operate as optimal as it can under the circumstances."
Ntshepe asked for "your support and understanding to overcome these challenges".
Van Eeden said Denel had a history of asking the Treasury to extend debt guarantees so it could take out more bank loans.
"It looks like they are relying on the Treasury too much," said Van Eeden.
Reyneke said Denel's top management had a meeting with Treasury officials on Tuesday morning.
Denel lost potential billions after it cut ties with Gupta-linked company VR Laser, a venture that was supposed to open huge markets in Asia as local defence spending dries up.
Gupta lieutenant Salim Essa was the sole shareholder in both the local VR Laser and the Asian branch of VR Laser. Denel cut ties with VR Laser in August after Finance Minister Malusi Gigaba reportedly told it to stop a court bid challenging the Treasury's decision to block the deal.
Financial Mail reported that, as the SA Defence Force slashed its demand for arms, Denel had frequently had to look abroad for funds.
"We've lost valuable time in terms of positioning for opportunities," Mhlwana told the magazine in August.
"Now we have to think quite creatively of how to regain that lost time. So the risk of us losing some of those opportunities is heightened."
He said it was a "cause for concern" that Denel's order book had shrunk from R30-billion to R18-billion in the year to March 2017.
In November, the Sunday Times reported President Jacob Zuma had been in talks with Qatar Defence Minister Khalid bin Mohammed Al Attiyah about selling a stake of the arms manufacturer "in a bid to stave off finance woes".
The newspaper said Denel was in a precarious financial position and, although due to repay R1-billion to a local bank, it did not have the money.