Local defence company confident it can ride out global downturn

10th May 2013

By: Keith Campbell

Creamer Media Senior Deputy Editor

  

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The global market for armoured and mine-protected vehicles has entered a downturn, local company BAE Systems Land Systems South Africa (Land Systems SA) reports. This is in part due to economics and in part due to a reducing operational tempo, particularly the start of the US and allied drawdown in Afghanistan. However, the company is confident of its ability to ride out this recession.
“We expect a downward trend,” says Land Systems SA MD Johan Steyn. “Since the Afghanistan drawdown started, the US government has been offering lots of its Mraps (mine-resistant ambush-protected vehicles) as donations to approved FMS (foreign military sales – government to government deals) countries. We see quite a tough market for Mraps.”
In addition, the international market for larger armoured vehicles – 6 × 6 and 8 × 8 vehicles – is also quiet at the moment and likely to stay so for a while.“All the armoured vehicle manufacturers, globally, are going through a very tough time,” he affirms. “Not only are there lots of defence cuts, but a lot of these are focused on the army light and medium armoured vehicle segments. Globally, it will be a very tough time. That’s just a fact of life.”
“We downsized last year,” states Steyn. “There’s no doubt that business activity levels will go down this year. And again next year. Then they should start increasing again.”
Further, more and more companies in more and more countries are trying to get into the armoured vehicle market and see Mraps or mine-protected vehicles (MPVs), as the company calls them, as a niche they can enter. “If you look at the amount of new companies, new vehicles, launched at every [recent defence] exhibition, in precisely that [MPV] category, it’s frightening,” reports company business development director Natasha Pheiffer. “A lot of countries have an ambition to enter this market.” One such example is the United Arab Emirates (UAE), where the government is undertaking a very strong push to develop a national defence industry. One result is the Nimr MPV.
Yet this very development is creating opportunities for the South African company. This is because it is composed of three divisions – OMC, which designs and manufactures armoured vehicles and MPVs, Dynamics, which designs and manufactures remotely operated weapons stations and turrets and associated systems, including sighting systems, and Gear Ratio, which designs and manufactures transmission systems for both military and civilian vehicles and heavy equipment.
Designing an MPV is one thing; designing a sophisticated weapons station or turret is quite another. Thus, the new MPV manufacturers are looking for such weapons stations and/or turrets to arm their vehicles. “They have a need for remote weapons stations,” she points out. “It’s a developing business. It’s a potentially growing business. Whatever vehicles countries have or are given [by the US], they still require weapons capability, including remotely operated weapons stations. These do provide the vehicle crews with situational awareness.”
“Gear Ratio is in a totally different market segment – it is much more stable,” explains Steyn. “It shows consistent growth. It has a good balance of new business and support business. Gear Ratio is state-of-the-art in South Africa. There’s not a Bell truck that doesn’t have a Gear Ratio transfer box in it. This includes all those made by John Deere in the US.”
OMC is also positioning itself to meet the upcoming market challenges. It still has a production backlog of at least 12 months, fulfilling orders from Finland, Sweden and the UAE, and is focusing on those types that show most promise for the future. The era of the Mrap-type MPV is ending, in terms of new production. (The typical Mrap is a big 4 × 4 vehicle, although there are some 6 × 6 versions). “The 4 × 4 Mraps market has fallen away,” he highlights. “We’re not banking on it.” Instead, the company is prioritising lighter MPVs and heavier, more flexible and multipurpose armoured vehicles.
In addition, OMC has a large support business, supplying spares, repairs and upgrades to vehicles already in service. “We have more than 4 000 vehicles in the international market,” reports Pheiffer. Most of these are Mraps and many will remain in service for years, even decades, yet. As a result, today, support provides some 40% of the company’s business – of which about 60% is international support and 40% is support for South African National Defence Force (SANDF) vehicles.
“We support the SANDF from Cape Town to up north, wherever the vehicles are,” affirms Steyn. “We supply parts, for some of our customers, straight into Afghanistan. It’s quite a complex business. We have to ensure that we send the right part to the right customer in the right place. A European customer can order a part to be delivered straight to Afghanistan. And we need all the permits from the National Conventional Arms Control Committee to do these things. You can’t just ship spares. Every part needs its permit.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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