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Denel offset deal seems safe as cabinet clips Airbus's wings
November 6, 2009
By Donwald Pressly
The decision by the cabinet to cancel the contract to buy eight Airbus A400M military transport aircraft does not look as if it will affect the offset deal with a subsidiary of the state-owned arms manufacturing company, Denel.
The cabinet opted to cancel the contract after the costs mounted and the first flight of the first aircraft - which was to have taken place in October last year - was delayed unduly and costs escalated, Defence and Military Veterans Minister Lindiwe Sisulu said yesterday.
The first estimate of costs at R17 billion - the price in December 2004 - escalated to at least R30bn, according to the minister, and beyond. Armscor chief executive Sipho Thomo warned two weeks ago that the costs would be nearer to R47bn.
The minister said she had had extensive discussions with Denel and Armscor and it was understood that there would be no negative impact on offsets. "The industrial participation will still continue," she said, noting that Airbus was the only entity that could cancel the contract with Denel.
Denel Saab Aerostructures and Aerosud are risk-sharing partners in the A400M programme. Armscor itself provides engineering services for the programme. The other two South African companies, Grintek and Omnipless, are respectively involved in providing monitoring systems and satellite communications antennae.
Sisulu said she believed that R2.9bn already spent on the programme by South Africa would be returned, but she could not offer timelines yesterday.
Denel chairman Popo Molefe said the contract still had to be carefully studied to determine whether penalties would apply to Airbus Military for failure to meet delivery targets. He said that a team of lawyers was looking at this matter.
The minister reported to the defence and military veterans committee yesterday that a payment "to the tune of R1.1bn" had already been withheld to Airbus Military. She said that if South Africa extracted further penalties "it will only be a bonus".
Sisulu said the government had cancelled the deal but this did not mean that it had terminated its quest for "the necessary capability" - signalling that the SA Air Force would still be seeking to update its aging fleet of C130 transport aircraft, which are decades old.
ANC MP Andrew Mlangeni said it was important that South Africa remained militarily "strong" and should have the appropriate capacity to carry out peacekeeping missions on the African continent.
Cabinet spokesman Themba Maseko said the cost escalation of the deal would have placed "an unaffordable burden on the taxpayer at a time when the national fiscus is under pressure due to the economic downturn".
The cabinet believed that the interests of the South African taxpayer would be best served by not proceeding with the contract.
ID leader Patricia de Lille said the cancellation would save the taxpayers "a lot of money". She said the ANC government appeared to have learnt its lessons from the arms deal debacle.
DA MP David Maynier said even though the contract had been terminated it should not mean that the contract should not be investigated.
"There have been serious questions for many years about the deal to acquire the eight Airbus A400Ms, and we have to properly understand how it is that we entered into a contract to acquire aircraft the defence force did not want and that the country could not afford."
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