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Opposing the cash injection is a terrible idea. Let me explain why it's necessary, and why should be supported even if you want Denel to be broken up & privatised. In short, the alternative is Denel going bankrupt in an uncontrolled way, costing taxpayers more, not less 1/
First, and most important, none of the executive team and board who drove Denel into the ground remain. All were sacked & some now face legal proceedings. The new c-suite & board had to present a restructuring plan to National Treasury & the DPE before receiving support. 2/
Second, Denel's cash flow crunch is a peculiar one. It has billions in unrealised revenue from signed orders, but can't complete them because it doesn't have the cash for the required material & parts. Being able to complete deliveries on these would improve its cash flow. 3/
Third, Denel has R3.3 bn in outstanding bonds, mostly govt-guaranteed, most held by the PIC. In the event of bankruptcy these become due & either govt (taxpayers) or the PIC (pensioners) are going to have to pay up. Getting order revenues flowing means those can be paid off. 4/
Fourth, the SA Air Force is completely reliant on Denel for most depot-level maintenance of its aircraft, esp as it's the Oryx & Rooivalk OEM. If Denel Aeronautics goes under, aircraft availability will plummet. Foreign maintenance contracts are largely unaffordable long-term. 5/
Given enough time & stability perhaps Denel Aeronautics could be privatised or a JV set up with another maintenance company. But none have the available cash in this economy to absorb it immediately should Denel go bankrupt. The impact on would be substantial and costly. 6/
Fifth, the effect of a sudden bankruptcy would be devastating on a strategically vital group of specialist high-tech engineering companies which are largely reliant on Denel & preserve scarce skills. Too many have already closed because of Denel's inability to pay suppliers. 7/
Sixth, as we saw in 2006 with Liebenberg's successful restructuring of Denel, you need stability and ongoing operations in order to split the group and create joint ventures or part privatisations like RDM & Hensoldt Optronics. The same is true today. 8/
Seventh, despite claims to the contrary this is the first cash injection Denel has received in more than ten years. The rest has been guarantees on bond rollovers, meaning no new cash entered the business and that taxpayer money would only be spent if there was a default. 9/
I can't emphasise that last point enough. None of the R3.3bn in guarantees was spent, it was effectively the govt signing surety. It's also dwarfed by the R300bn+ in guarantees held by other SOEs. The R1.8bn is the first actual disbursement of money from the revenue fund. 10/
To sum up: Letting the SOEs go bankrupt means all those guarantees quickly become due, at far greater cost than stabilising & then privatising them. Provided the restructuring plan is sound, giving Denel a comparatively small cash injection saves SA money in the long term. 11/11
Late addition because I didn't think it needed to be specified, but this doesn't mean we should give SOEs a blank cheque. Both the public & Parliament must hold govt & the SOEs to account to ensure that reforms take place as promised rather than this sustaining business as usual.
