Arms deal: new revelations

2011-08-30 00:00

A CONFIDENTIAL, and critical, report on Swedish company Saab’s involvement in the struggling South African arms manufacturer Denel has raised new questions about how much the country benefited from the multi-billion-dollar arms deal.

Media24 Investigations has obtained a government report into a Saab-Denel deal — for which Saab claimed a more than $1,7 billion (R11,9 billion) investment benefit from the state — after filing an application under the access to information law with the Department of Trade and Industry. The government has until now refused to make it public.

Saab’s role in the arms deal is currently under renewed scrutiny here and in Sweden after it was revealed in June that it was party to more than R24 million in payments to government-linked consultant Fana Hlongwane.

Saab and BAE’s contracts to supply Hawk and Gripen fighter aircraft to the air force comprised the lion’s share of the now-infamous arms deal. In terms of the deal, they were supposed to make reciprocal investments in South Africa to offset the costs of the arms deal and to create jobs.

The Saab investment in Denel’s operation formed part of that arrangement. The report to the Department of Trade and Industry was handed to the government in February 2010 and questioned whether Saab met all the obligations it claimed in terms of the $1,7 billion in investment “credits” it was awarded.

The joint business, Denel-Saab Aero­structures, was founded in 2006. Saab had a 20% share in it and was responsible for management.

It was hoped that Saab’s expertise could help Denel to profitability, bring in new business and stop it losing a major contract to Airbus to supply parts for the new A400M military cargo plane.

This report contains the first clear detail of Saab’s involvement with the Denel company.

Although significant portions of the 100-page report have been censored, it is clear that Saab’s intervention did not work even though the authors of the report acknowledged that Saab had passed on some benefits in manufacturing processes and management practices.

The findings included that:

• Saab could not reduce losses in Denel’s sales department;

• Saab’s interventions focused on processes rather than profitability;

• Saab’s team was too small to make a significant difference;

• Despite Saab’s help, Denel could not always deliver its products on time;

• A Denel official had noted that there was not a “political will” to commit to a well-co-ordinated effort at changing the company’s systems and procedures, and;

• Saab’s interventions were considered “ad hoc”.

In the end Saab was unable to save the Airbus supply contract and it was cancelled in May last year.

The report also contains some embarrassing findings about the Denel operations, which include observations that:

• Due to a lack of access control, staff were able to carry away valuable inventory from the warehouse;

• Staff did not always know how to deal with highly sensitive material, such as special airplane metals or chemicals;

• Denel’s global reputation was so bad as a buyer that it struggled to get raw materials and components on the international market.

Saab and Denel were approached for comment late yesterday but had not responded at the time of going to press.

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