The SAAF Forum

DSA TO EMBARK ON RESTRUCTURING PLAN

4 August 2010

Denel Saab Aerostructures (DSA), a subsidiary of Denel is embarking on a turnaround plan to reduce costs and reach breakeven on its balance sheet within five years.

The restructuring involves a renewed focus on core business activities, a reduction in its current workforce and a sharing of services with Denel Aviation, another subsidiary within the Denel group.

DSA is responsible for the design and manufacturing of advanced aerostructures for the aviation industry.

The global recession and delays to the Airbus 400M program have had a negative impact on DSA's order book in recent years. DSA made a nett loss of R328m during the 2009/10 financial year.

The restructuring should ensure the longer-term survival of the business and enable it to meet its contractual obligations. To achieve this certain functions within DSA, such as design-to-build, will be downscaled significantly.

Among the main cost drivers identified by DSA are material- labour- and rental costs. DSA has already embarked on an initiative to reduce significantly its material costs through developing long-term agreements with suppliers and scaling down its rental footprint through the optimization of space.

The company is also investigating the possibility of outsourcing certain production processes such as sheet-metal manufacturing and conventional machining to domestic and other industry players to further reduce fixed costs.

This will enable DSA to focus on its core activities of assembling, high-end machining and special processes in the future.

DSA is further consulting with Denel Aviation on how to share support services in functions such as human resources and information management to reduce overhead costs further.

As part of the turnaround plan, DSA management is considering a reduction of the current workforce of approximately 670 by an estimated 300 positions. These reductions will be achieved through the concluding of fixed-term contracts, the termination of foreign contractor agreements and exiting unemployed learners. Should further reductions be required the company will consider forced retrenchments in terms of section 189A of the Labour Relations Act.

Management is currently consulting with stakeholders, including organized labour, on the progress made on the turnaround plan. Once
approval has been given DSA will initiate a S189A process during August 2010.