Denel joins growing list of SOEs unable to pay salaries

State-owned arms manufacturer, Denel, has become the latest company to join a growing list that are telling employees funds for salaries are falling short. 

State-owned enterprises who went into lockdown in an already troubled financial state are increasingly pleading poverty when it comes to paying salaries. Employees of SA Express have already been forced to turn to the Unemployment Insurance Fund. There is no certainty whether South Africa Airways, which narrowly avoided liquidation last week, will have enough money to pay salaries in May. All its employees have been on unpaid leave since  the beginning of the month.

Cash flow crisis

Now Solidarity, the trade union which represents majority of Denel employees, says it was told by Denel on Monday that there is no money to pay salaries at the end of May. The trade union says it met with management on Tuesday, where it was informed that because Denel has orders to the value of R101 million that it cannot deliver due to the lockdown, it is now in a cash flow crisis.

"The current lockdown measures are aggravating the situation in which Denel already finds itself.

"As a result, no income is generated, and taking into account historic liquidity problems experienced by the company, cash flow has dried up to such an extent that salaries cannot be paid next week," said Helgard Cronje, sector coordinator for defence and aviation at Solidarity.

Failure to launch

Denel has found itself in a similar situation in the past - between 2018 and 2019, there were periods where it offered to pay a fraction of workers' salaries. But Solidarity is convinced that the current lockdown, which is now in its eighth week, has jeopardised the company's progress towards generating its own income so that it can stop depending on the state.

In the 2018/2019 financial year, Denel recorded a loss of R1.75 billion, R696m higher than the previous year. But the group said it was at a "critical stage" of transition that would help it become a respected business again. It had a promising order pipeline which it was counting on to starve off liquidity problems till 2024.

Solidarity said the orders that Denel now cannot deliver are what would have determined whether salaries can be paid or not.

"The current lockdown regulations exacerbate the financial plight of companies, loss of workers’ income, and contribute to a full-blown social crisis in South Africa. Companies must be allowed to do business and workers must be allowed to work without having to compromise their health," argued Solidarity's Cronjé.

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