‘Regrettable’ Denel will not pay wages
Denel would not pay staff salaries for May and wages for June and July were in jeopardy, its CEO said, weeks after it emerged that the embattled state-owned arms maker missed the deadline to pay employee pensions and tax contributions as its longstanding cash-flow crisis deepens.
Denel would not pay staff salaries for May and wages for June and July were in jeopardy, its CEO said, weeks after it emerged that the embattled state-owned arms maker missed the deadline to pay employee pensions and tax contributions as its longstanding cash-flow crisis deepens.
“Our liquidity is under severe pressure and we have to implement drastic measures to save the company. It is highly regrettable that we will not be able to pay salaries this month, but we have no other options,” CEO Danie du Toit told Business Day in a statement.
Wages for June and July were “in serious jeopardy”, Du Toit said in a letter to staff that Business Day has seen.
Denel, a pillar of the country’s defence industry, is part of a long line of state-owned enterprises that are either in dire financial straits or on the verge of collapse after years of mismanagement and corruption because of state capture.
In 2019, it was handed a R1.8bn bailout after struggling to pay employees and suppliers and it raised another R50m via the sale of bonds to ease the cash crunch after suffering a R1.7bn loss in 2017/2018.
Du Toit said the company, which missed the deadline to make staff pension, Unemployment Insurance Fund and tax payments earlier in May, was unable to complete orders in time as only 19% of its staff were able to work from home and only 30% were permitted at factories under level 4 of the nationwide lockdown.
The reduction in the workforce comes as Denel needed “all hands on deck to secure a successful turnaround for the business”, Du Toit wrote in a letter to staff.
The turnaround includes cutting R1bn in costs and selling noncore assets with government approval.
He has also asked the parastatal’s executives to take salary cuts for the rest of the year.
“Denel’s liquidity challenges have grown, and the company has been pushed further into the red,” he said, adding that lower demand from global buyers has also worsened its financial position.
Lockdowns in countries across the world have led to reduced demand, with the International Monetary Fund predicting the deepest economic downturn since the Great Depression.
Trade union Solidarity, which represents about a third of Denel’s 3,000 employees, called for an end to the lockdown so that the company’s orders for export could be completed.
“The lockdown should be eased as soon as possible,” spokesperson Helgard Cronje said.
“Denel needs to finish its export orders, but they don’t have enough staff at work.” About 51% of staff are not working at all.
All ammunition required a permit for export, but the national conventional arms control committee had not been sitting under lockdown to approve permits, so the trade union was also concerned that completed shipments of exports were delayed, he said.