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Business Unusual: The Private Defense Industry

Indian Air Force AH-64E manufactured by TATA Boeing Aerospace Limited in India. This joint venture has established a new manner of increasing foreign sales through joint venture production which allows the end-user to benefit from industrialization experience and greater OEM economies of scale in terms of lifetime support and upgrades.

The first half of 2022 was dominated by the Russian invasion of Ukraine which in turn provided thorough insight into how everyone, including the major G7 powers (excluding the US), have evolved during the past two decades following the end of the Cold War into neglected arms development and manufacturing capabilities. Thanks to globalization, the majority countries which were beneficiaries of advanced homegrown military industrialization during the early 1990’s have become nearly totally dependent on foreign military supply due to globalized consolidation during an era when all nations naively believed that the world was entering a phase of peace, and that grand strategy warfare was something of the past. For that reason, which includes the likes of the US Department of Defense, military strategies and doctrine shifted towards fighting low-intensity wars countering global terrorism and insurgencies in far-reaching austere environments fighting predominantly low-tech adversaries. Enter 2022, and the whole world suddenly fell into a divide last seen during the Cold War between the then communist USSR alliance and the capitalist West. Within a matter of weeks, all military planners were studying the reckless Russian operations unfolding in Ukraine, while at the same time observing the resilience of the Ukrainian population to resist the vastly superior Russian aggressors. The main lesson learnt by everyone, including Russia and the Ukraine, was that no nation was prepared for the war and its global effects that unfolded within the territories of Ukraine. One of the main lessons leant so far is the critical importance of maintaining a functional domestic military industrial capability, and how vulnerable sovereign integrity becomes when such capabilities have been lost. A classic case in study in Africa is the near total collapse of the South African Defense Industry (commonly referred to as SADI), now only a shadow of its once capable reputation in armaments research and development up to as recent as a decade ago, thanks to political interference, targeted corruption, uncontrolled distribution of classified IP to competitors, and gross mismanagement (Read: 5th Generation Warfare: The Evolution of War beyond the controls of the Nation State).

To understand how the private defense industry works, and how it can be maintained as a sustainable strategic asset and deterrence for future conflict, we need to understand the two dominant factors distinguishing the military industry as for-profit corporations from any other commercial activities, namely:

- Guidelines for Military Brand Success; and

- Armament Systems Design Principles and Considerations.

Guidelines for Military Brand Success:

Throughout the years we have observed many new start-up ventures offering the ‘next best thing’ for fighting the so-called ‘wars of the future’. Some of these ideas were good, the majority not so good. The problem was that in the absence of any large-scale conflicts comparable to what we observe now as the Russo-Ukraine war, the global arms industry started influencing military planners (as a means of facilitating sales during times of peace) on how future wars would be fought based on current and future anticipated armament developments, rather than the traditional (and more reliable) method of the military providing requirement specifications to solve emerging capability gaps on the battlefield based on experiences gained. Consequently, many systems came into existence as temporary solutions to political restrictions instead of doctrinal deficiencies on the battlefield (such as single-use loitering munitions), and some systems just exist because some people know the right people responsible for signing off [for payment] on profitable defense ‘research and development’ projects. The reality is that in the global defense industry there is no such thing as corruption, but there are extensive responsibilities in terms of payments for facilitation fees, brokerage fees, sales commissions, referral fees, and consultation fees (all which adds up to inflating the final procurement costs).

USMC training with the Switchblade 300 (Inert/Practice) loitering munition system. Loitering munitions originated from a demand by US SOCOM to provide alternative rapid precision strike options to SF/SOF to bypass time consuming politically restrictive procedures implemented during the Obama administration to limit civilian casualties in Afghanistan. The system does not solve any doctrine deficiencies, and the tactical advantages of its capabilities are still being debated compared to proven legacy systems available in service.

During the height of the Cold War, arms development was mainly a privilege amongst the global superpowers constituting either NATO or the USSR alliance, with a few exceptions being South Africa (as a result of being subjected to an arms embargo while engaged in a multiple front low-intensity hybrid conventional-irregular war for nearly three decades), Brazil, Israel (also subjected to minor forms of sanctions while resisting aggression from its Arab neighbors), South Korea (bordering a hostile and nuclear armed North Korea while still being technically at war), Taiwan (resisting a growing threat of invasion by the PRC) and Turkiye (trying to keep the peace as a growing regional power bordering various countries currently engaged in conflict). Japan also maintains an advanced domestic military industrial complex, but not as a global supplier due to its self-imposed restrictions on arms exports (which might change soon). However, before the end of the Cold War, arms development used to be a privilege of the State, but after the end of the Cold War as government budgets got cut to reprioritize spending on social development and infrastructure development, opportunities arose for the privatization of arms development. It was also during this era where private funding became available for defense research and development (instead of government funding), and private corporations rapidly expanded its military technologies IP (intellectual property) assets as globalization of the arms industry evolved. What followed was the rapid decline of traditional State enterprises, with much of their IP being sold off to the highest [international] bidder, also associated with a major exodus of skilled and experienced engineers to better paying opportunities abroad. Basically, the decade between 1990 to 2000 could be considered the period of consolidation in the global arms industry, for what happened during that period shaped the current landscape of global arms development and [regulated] supply. The only global power (other than the USA), which retained its domestic multi-domain arms industry is France. Russia saw a major decline in new systems development for a period spanning a decade since the collapse of the USSR, but resumed research and development programs during the early 2000’s choosing to incorporate many Western off-the-shelf technologies in new systems to limit development costs.

So, fast forward into the present, and we find a situation where the global arms industry has become dependent on the mercy of only a few dominant enterprises, namely Boeing, Lockheed Martin, BAE, Rheinmetall, General Dynamics, Textron, Nexter, Thales, SAAB, etc. These multi-national corporations collectively dominate the majority private owned defense IP, the impact thereof being that if a new entrant to the private defense industry does not become part of the value chains of these extremely influential enterprises, the likelihood for success would be low. However, technology is a catalyst for constant evolution and improvement, and the science of warfare is also a constantly changing variable, why there will always be opportunities to enter the lucrative business of arms development within a limited scale. To be successful and sustainable over the long term requires a totally different business management mindset as traditionally applicable to the global consumer goods and services industry, and this is one of the major factors causing many good defense technology developers to fail, namely, inappropriately qualified management. To understand this better, we will explain three basic guidelines for brand success in the defense industry, namely:

1. Business edge over competitors:

2. Niche product offering:

3. Making money is not the primary objective:

(An example of alternative remuneration is the provision of company housing to employees, where the company owns the house as an asset reflected on its assets register (with associated tax benefits). If the monthly value of this arrangement equals $ 5,000 (for example), the benefit from this arrangement to the employee would be a saving of $ 5000 (whereas a $ saved equals a $ earned), and for the company, instead of paying $ 5,000/month additional as a salary to the employee with little to show in return other than employment, by providing housing of equal value the company now owns an asset that appreciates in value which can also serve as collateral when bridging finance is required for future production orders exceeding cash availability at the time).

A critical requirement for success in the private defense industry is long-term sustainability. In many cases, prospective customers value long-term sustainability as more important than product specifications. The reason for this is that defense systems in general have an anticipated lifespan of between 10 to 40 years, and therefore prospective customers need to be satisfied that the OEM (Original Equipment Manufacturer) will still be available during the product’s anticipated lifetime in terms of technical support, mid-life upgrades, and resupply when necessary in times of crisis. Also, a defense customer is more likely to procure newer variants of a proven system from the same OEM if the product fits the customer's capability needs instead of procuring from an alternative supplier. Again, South Africa is an example of a defense industry that was owned by the State but neglected into insolvency causing for most capital equipment and supporting systems in service with its armed forces becoming obsolete, with original OEM support abruptly discontinued due to lack of OEM capacity to fulfill its obligations. The consequences of such political negligence, as applicable to South Africa, is that it would be cheaper just to replace obsolete equipment with new foreign procured off-the-shelf equipment when compared to the costs of upgrading to a modernized baseline required to extend the current service life of existing hardware. The grounded SAAB JAS-39 Gripen fleet is an example of what happens when a customer neglects to upgrade its hardware periodically in line with OEM baseline developments. What further complicates the SAAF JAS-39 Gripen fleet serviceability is that the platforms are equipped with obsolete components which are not supported by the OEM anymore due to the OEM having migrated to sustaining modernized systems in use with its majority customers who are maintaining their fleets in line with OEM specifications. The SAAF variants also feature components which were produced domestically by OEM's (not SAAB affiliated) that do not exist anymore.

The TATA Boeing Aerospace Limited production facilities for the Indian Air Force and Indian Army AH-64E Attack Helicopters in India. South Africa would benefit much by partnering with Boeing to build AH-64E Attack Helicopters to replace its obsolete fleet of Denel Rooivalk CSH-2 combat support helicopters, and thus becoming a regional support center in Africa for Boeing helicopters to increase regional sales, and to revive the local defense industry (with US government support in terms of FMS and FMA financing). The costs to maintain and modernize a limited production batch of 11 [remaining of 12 initially procured] Rooivalk CSH-2 systems in service with the SAAF is not economically viable, especially taking into consideration that the OEM cannot guarantee remaining service life support, including sustainable supply of munitions and other unique mission systems.

However, as a result of the South African SOE's rapid decline (as primary OEM of the majority armed forces capital equipment), various opportunities arose for its largest privately owned competitor to expand its portfolio. However, this enterprise (name intentionally withheld), now South Africa’s largest privately owned defense services group, is successful and sustainable for the reason that defense products and services are not its primary sources of revenue. The group's sustainability is derived from its extensive international (the emphasis being on outside of South African government controls) real estate portfolio, and the sole purpose of its military sales is to expand its real estate derived revenue which in turn sustains its defense services portfolio between sales (which is far and wide competing within the global space). However, as a relatively small player within the international defense industry, it has also partnered with the likes of Boeing by becoming part of its value chain in emerging economies where South African defense products still enjoy relative success. However, what is important now for surviving defense manufacturers in South Africa to achieve success and sustainability is to diversify manufacturing infrastructure away from the South African political controlled environment to reduce political interference and effects of unfavorable political policies, especially now that the South African government is considered a supporter of Russia in the Russo-Ukraine war due to its damaging ‘neutral-but-biased’ foreign policy towards Ukraine.

Armament Systems Design Principles and Considerations:

The second differentiating factor which distinguishes the private defense industry from conventional business models, is the relevance of armament systems design principles and considerations. As previously mentioned, armament design follows user design specifications derived from actual problems that exist within the ever-evolving battlefield, and it is not a game of designing a product, and then adapting the means of warfare to conform to the product specifications. Armament design is a highly complex science, and it is much more complicated than the design principles applied to day-to-day consumer products. Basically, to understand how armaments are designed, we need to understand the different design phases, namely:

  • Phase 1: Prototype (the first attempt product designed to meet the prescribed user specifications. During prototyping, various models are built to various specifications to determine the ideal baseline specifications).

  • Phase 2: Baseline Specifications (the product version combining all the tried and tested specifications conforming to the desired user requirements to enable operational testing and certification. This phase includes final modifications and change orders to the point where the end-user is satisfied with the specifications to enter serial production).

  • Phase 3: Production Model (the end-user certified production model conforming to all user design specifications, with no further change orders).

During Phase 1 and Phase 2, the OEM needs to understand that the following principles and design considerations will be applied by the end-user before acceptance of the production model specifications, namely:

1. Is the system going to do anything different to the enemy compared to anything else currently in service?

2. What does the design offer to improve on other similar systems that are available and tested in terms of:

  • Added capability?

  • Simplicity of use?

  • Reliability?

  • Longevity of design in terms of future relevance?

3. Evolutionary, but not revolutionary. In other words, is the product a result of gradual evolution of design for improvement of an existing concept range rather than a radical change in design from anything currently in existence. What this implies is that evolutionary products are usually more successful in terms of sales and adoption compared to revolutionary products. Military procurement is still very much conservative in terms of adopting revolutionary designs, hence the reason why start-ups should focus on evolutionary designs (improvement of existing concepts) instead. Basically, from a revolutionary perspective, the first of a new concept is usually undesirable due to reliability concerns and not being proven yet, whereas from an evolutionary perspective, the newest version of an existing but proven older system is considered most ideal.

4. What is the field survivability of the system when used by low skilled operators with limited logistical support, and how simple is the system operation under these conditions?

5. The ‘perfect’ design comprises a balance of compromises between:

  • Weight,

  • Ammunition design,

  • Performance,

  • Maintenance requirements,

  • User experience,

  • Simplicity of design,

  • Durability,

  • Reliability under harsh field conditions,

  • Transportability,

  • Logistics, and

  • Costs of procurement and support over lifetime.

6. In terms of a weapons system, the ‘system’ implies:

  • Hardware,

  • Support Equipment,

  • Maintenance,

  • Training, and

  • Tactical Application Doctrine.

7. What problem does the system solve from a doctrinal perspective, and how does it solve the problem?

8. How evolved is the design in terms of new system induction with a credible end-user in terms of the following phases of induction:

  • Phase 1: Embedded

  • Phase 2: Accepted

  • Phase 3: Proven

9. Does the system fit the current end-user doctrine, and if not, what are the requirements to achieve integration into existing doctrine, or does the system necessitate any doctrine changes?

10. How complex is the system? In other words, more components equate to increased complexity in terms of operability, maintenance, technical support, logistics, and costs. These factors usually constitute the metrics for measurement of design quality.

Other Considerations:

The last major obstacle to achieving success as a supplier in the defense industry is access to funding, but more specifically, financing options for prospective customers to purchase your products. At present, governments all over the world are leaning towards government-to-government funding mechanisms, and the traditional method of governments dealing directly with international arms suppliers are starting to decline. One of the reasons for this is due to major international arms procurements being more political than economic, and by following a government-to-government approach allows both the purchaser and the seller to renegotiate more favorable trade agreements at national level to the benefit of both economies since the cost of initial capitalization offers great leverage at the political level to negotiate/renegotiate other trade arrangements not necessarily related to defense. However, large off-the-shelf purchases from foreign suppliers also require guarantees to the end-user that the capital equipment procured will receive lifetime support from its OEM and its regulatory government (who is responsible for approving exports of controlled technologies). It is for this reason why the United States, United Kingdom, Israel and France are presently dominating the international arms industry due to their respective governments' commitments to ensuring that beneficiary nations are always rewarded over the long-term for purchasing defense hardware from their respective industries. The implications of such high-level support means that a beneficiary nation is not only purchasing weapons systems, but they are in fact also 'purchasing' protection from the respective [supplier] governments. Sweden and South Africa are examples of advanced defense technology developers who are subject to governments that do not understand the importance of maintaining domestic defense industrial capabilities, why SAAB of Sweden is struggling to sell its advanced technologies globally. The SAAB JAS-39 Gripen system is an example of how an extremely capable weapons system is being killed by lack of government support in facilitating government-to-government sales, to include undesired political interference at times. The result over time is that SAAB has lost the edge in successfully marketing its JAS-39 Gripen E to prospective customers, and due to the rapid rate of US government funded R&D into the Lockheed Martin F-35 Lightning II program to achieve continuous milestone successes, along with the continued advancement of the older F-16 system into the 4th Gen Plus F-16 V Block 70/72, the SAAB JAS-39 Gripen E/F cannot effectively compete against the economies of scale offered by the US competitor systems anymore. Looking at 2022, a major hindsight failure for SAAB was the failed bid by Ukraine to license manufacture the SAAB JAS-39 C/D Gripen in Lviv, Ukraine, which was abruptly halted when Russia annexed Crimea, mainly due to Swedish Government indecisiveness in approving the go-ahead for technology transfer. The Government of Ukraine confirmed during 2022 that SAAB was still a contender to provide frontline light multi-role fighters, but in reality the proven F-16 systems from the US (along with improved US government support) would benefit Ukraine more in the long-run. Unfortunately, the only means of remaining relevant in the arms industry under such restrictive economic conditions is to gradually diversify risk away from the traditional [domestic] manufacturing base by establishing production facilities in the countries where the host governments are more favorable to support continued future sustainability and development. SAAB commenced with diversifying its production base away from Sweden through partnering with Boeing to win the USAF T-X contract to supply the newly developed Boeing-SAAB T-7A Red Hawk as a replacement for the aging USAF Northrop T-38 Talon trainer. SAAB also unsuccessfully attempted to sell its SAAB JAS-39 Gripen E/F to Canada with full production and technology transfer, but unfortunately SAAB cannot compete against the Lockheed Martin F-35 Lightning II which enjoys full US Government support. Lastly, there is also a belief that government-to-government arms procurement minimizes the risks for corruption. Unfortunately, this belief is much debatable, and better left for another discussion.

South Africa, on the other hand, is a major lesson to be learnt in how to destroy a capable defense industrial capability in a relatively short period of time. The main causes for failure based on the South African experience are as follows:

1. Political Interference:

The most damaging factor to the domestic armaments industry in South Africa was the post-1994 leftist vs right-wing political debates regarding the necessity of maintaining a domestic military industrial complex. From a leftist perspective, the South African arms industry was not observed as a strategic asset for enabling the export of high-value manufactured goods as a source of foreign currency, but rather a remnant of the pre-1994 'apartheid' political dispensation. The first mistake made by the post-1994 political dispensation was to add a negative political label to the arms industry, consequently disregarding the value that an advanced arms industry offers as a tool for reinforcing and extending political power. In general, the arms industry is a business with no political preferences, similar to how general commerce has no direct political affiliation. The right-wing politicians, however, favored South Africa producing its own capital equipment requirements, while at the same time increasing foreign sales to increase foreign earnings which in turn supports growth in the economy.

Shortly after the political transition period post-1994, the majority leftist ruling party members demanded a gradual demilitarization of both the armed forces capabilities, to include the defense industry, which was at the time still considered 'white dominated', and by no means could the new government see the strategic value and importance of maintaining a [regulated] domestic defense industry in expanding South African interests abroad. This was partly fueled by the ruling party's foreign sponsors during its period as a revolutionary movement, why immediately after 1994, the SANDF became beneficiary to foreign 'military advisory training teams' embedded in its structures to guide and supervise the integration of all statutory (SADF, TDF, VDF, BDF, CDF) and non-statutory forces (MK, APLA) into the South African National Defence Force (SANDF). It was during this period when the SANDF was 'rationalized' into a "non-offensive defence" force (Reference: Disarmament and Defence Industrial Adjustment in South Africa, SIPRI, 1998), having lost much of its pre-1994 SADF specialized offensive capabilities (in addition to having lost the whole of its SOF capabilities in the form of 32 Battalion by 1993, which is comparable to losing the 75th Ranger Regiment in US Army terms). During this transformation period the SANDF was inflated in personnel numbers to accommodate all integrated personnel, and to reduce the unsustainably high manpower, the majority experienced SADF personnel were retrenched via severance packages and early retirement. This phase lasted nearly the whole of the 1990's, and during this period the majority primary equipment R&D programs were either cancelled or delayed, with payroll expenses being prioritized. At the same time, 'racial inequality' was used as the perfect justification by the political government wanting the so-called dominant 'white image' changed in the defense industry through expedited affirmative action policies (since it was government owned entities), forcing the inclusion of inappropriately qualified and inexperienced ruling party affiliated members (referred to as 'cadres' by the ruling party) to be given formal employment in inflated management positions which were unsustainable on the payroll of enterprises struggling to maintain solvency without government funding.

When the Mbeki administration came into power during 1999, it was concerned about the influence the domestic military industrial complex was exercising on South African foreign policies via the then Department of Foreign Affairs (renamed DIRCO after exposure of its politically misleading tactics during the 1990's), especially when he faced humiliation during the Mandela administration as the then Deputy President, when South Africa was identified as a supplier of various armaments shipments to UNITA after 1992 by various defectors and captives who served as senior officers in UNITA during that period. UNITA failed to gain the majority vote during the 1992 general elections, and consequently returned to civil war as the belligerents shortly after its failed elections bid in Angola. The UN Sanctions Committee on Angola later found that during 1997, UNITA received up to 50 flights per month originating from South Africa, which then drastically reduced by 1998 as these activities became more exposed to public scrutiny and foreign oversight by institutions such as SIPRI and HRW (and any other pseudo NGO's manipulated through government funding to promote narratives). The majority supplies were managed via its diverse international proxy network originating from the era of 'sanctions busting', to include characters such as the convicted Russian arms dealer, Viktor Bout. However, what the South African supply network to UNITA also exposed was the large scale involvement of the diamond mining industry since UNITA paid for its supplies in diamonds (below international market value, and free from regulatory controls usually associated with conventional mining operations), with the general supply chain leading to Brussels from South Africa via London. In short, reckless activities by the South African arms industry eventually contributed towards its expedited 'adjustment'.

However, during the Mbeki administration, the South African government implemented various reforms to tighten control over its foreign policies, especially as exercised through the influence of the military industrial complex. As the regulatory oversight framework improved and foreign sales increased, the number of experienced [white] employees were reduced to make space for affirmative action appointments enforced by stricter government employment regulations, leading to profits being spent on increasing payroll benefits instead of reinvestment into the business models to improved future revenue sustainability between sales. Gradually, the top management structures were filled with inexperienced politically connected 'cadres', and the South African defense industry (state owned) became an employment rewards program for continued political loyalty by its members. Based on the feedback provided by the last experienced [white] employees responsible for managing primary development projects, working conditions became unbearable due to a culture of political toxicity within the state owned enterprises, why the majority decided to leave for better opportunities in the Middle East (KSA, UAE). As sales declined due to reduced investment into new R&D and product improvements, foreign customers started shopping elsewhere, consequently ending in constant government bailouts to sustain these enterprises as 'strategic assets' while enabling the expansion of politically connected cadres to benefit from extracting tax payer funds via corrupt supplier tenders. The same model was applied to the South African national carrier, SAA, over the same period of time which resulted in the total collapse of a once profitable airline. During the Zuma administration (2009 - 2018), which is also better known as the period of 'state capture', Denel Land Systems appointed a sub-contractor, VR Laser Services, as the single source contractor for armored vehicle manufacturing. The appointment was for a 10 years period, but it was found to be illicit due to the contract award being done as a result of political connections rather than performance and capability. This agreement drew the attention of whistleblowers who were concerned about the ability of VR Laser Services under its post-2013 leadership to perform the highly complex steel fabrication, especially after Denel Group purchased a specialized armored vehicle manufacturer, LMT, for the purpose of having the required capacity to produce the Badger IFV. VR Laser Services was eventually liquidated under questionable circumstances. The project was initially awarded to Denel Land Systems during 2013, and to date the SANDF had already paid R 7,6 Billion (US$ 440 million) towards a total program cost of around R 16,2 Billion (US$ 930 million) for 244 units consisting of 5 different variants (Section, Mortar, Command, Missile, Fire Support) to modernize the mechanized infantry forces of the SA Army.

Project Hoefyster, the South African Army requirement for the replacement of its aging Ratel 6x6 range of IFV's with the modular Badger 8x8 IFV based on the Patria design. The model illustrated here is the final Section (Squad) variant baseline specifications.

This program, however, is the product of more than 10 years' research and development prior to the production contract award in 2013, and due to the demise of DLS' capacity as the primary contractor, the SANDF is on the verge of cancelling the contract (with penalties) due to DLS' inability to guarantee deliveries by 2026. Furthermore, DLS still has not finalized Stage 1: Production Baseline Development for the Section (Squad) variant yet for reasons relating to lack of funds, lack of skilled personnel, and obsolescence of critical sub-systems caused by a program being a decade late. The consequences of Project Hoefyster is that past and prospective customers have lost total faith in Denel to deliver on any major capital equipment, why Denel Group is failing to gather any foreign orders. In the mean time, the SANDF was considering reallocating Project Hoefyster to an alternative manufacturer in South Africa, which unfortunately does not exist. The consequences of such a move would also cause for Denel's bank guarantees to be called up, which would immediately result in total liquidation of Denel's assets by the affected banks. This would consequently end the South African government's domestic arms manufacturing capabilities as OEM of the majority SANDF hardware, why this eventuality is unlikely to realize.

2. Intellectual Property Misappropriation:

Misappropriation of classified intellectual property (IP) is one of the major causes for Denel Group's eventual failure. The main problems caused by IP misappropriation is that both past and prospective customers lose faith in an OEM if it fails to secure the confidential data relating to the advanced weapons systems it has/intends to procure for fear of such data falling into the hands of its adversaries. The following list summarizes the most prominent [exposed] incidents relating to the unintended loss/theft of Denel controlled IP:

(a) 2018: One of the major [alleged - still under investigation] corruption losses sustained by the state arms manufacturer, Denel, is the [alleged] unlawful transfer of classified missile IP to the Saudi Arabian Military Industries (SAMI) during 2018. The incident was exposed by Denel employees after a February 2018 meeting with SAMI representatives at Denel Group facilities, after which senior management staff and around 20 senior missile technology engineers left the services of Denel for direct employment with SAMI. Based on current evidence suggesting probable cause, it is suspected that the extent of the unauthorized transfer of missile technology data relates to the following Denel Dynamics systems:

  • ZT-6 Mokopa: Air-to-Ground laser guided Anti-Tank missile. Also capable of being ground- and ship launched, and can be adapted as an Anti-Ship Missile (ASM) with 10,000 m operational range.

  • ZT-3 Ingwe: Laser beam riding anti-tank guided missile (ATGM), 250 m - 5,000 m range.

  • Umkhonto: Short- to Medium Range Surface-to-Air Missile (SAM). 20 km, 30 km and 60 km ranges in three different variants.

  • V3-E A-Darter (Agile Darter): 5th Generation short range infrared homing air-to-air missile (AAM), 22 km range.

  • Marlin: Active radar homing beyond visual range air-to-air missile (BVRAAM) with 100 km range. Can also be developed as a surface-to-air missile (SAM).

  • Umbani: Precision guided glide bomb kit for NATO Mk 81, Mk 82, Mk 83 free-fall bombs with 40 km, 120 km, and 200 km range options.

  • Cheetah C-RAM: Radar guided Counter-Rocket, Artillery, Mortar (C-RAM) short range air defense system designed for integration with the Oerlikon Skyshield Very Short Range Air Defense (VSHORAD) system.

Some of the concerning details which emerged in the investigation suggests that network security protocols were ignored when the SAMI delegation was allowed to connect to the Denel Group network with unauthorized devices, which explains a possible method how proprietary data was transferred to SAMI. This was revealed after junior members in Denel were instructed by the senior members (now in SAMI employment), to download all related data packs for the systems requested. This event occurred after an initial meeting on February 19, 2018, ended abruptly due to the SAMI delegation refusing to sign a compulsory non-disclosure agreement (NDA) as a condition prior to being allowed access to proprietary information. Based on confidential information shared by a Força Aérea Brasileira officers with knowledge about the A-Darter joint venture development with Denel Dynamics during that period, this incident (along with major concerns about overall Denel mismanagement and negative publicity) was considered the final cause for cancellation of the Brazilian interest in the A-Darter development, and why Denel Dynamics has lost most of its credibility for any future partnership developments due to the high associated risk of development data being lost/stolen/misappropriated by Denel staff for personal gains. Of most concern is how exposed Denel data storage protocols are, allowing for individual members of the organization to access complete proprietary data packs without proper audit trail procedures. Although this incident is under investigation, it is most likely that nothing will come from it as an attempt to avoid sharing of embarrassing details how the incident transpired, to include avoiding any written record of the incident which may count against future prospective sales, and to avoid any political embarrassment while preparing for the next presidential elections in 2024. This breach also caused for top secret SANDF critical systems data to be exposed to unintended foreign analysis.

(b) 2012: Denel Dynamics (South Africa) engages in a joint venture with Tawazun Holdings (UAE) to create Tawazun Dynamics (Denel: 49%, Tawazun: 51%). The original intention of the JV was for the UAE to develop a precision guided munitions manufacturing and integration capability for the Air Force of the UAE based on Denel Dynamics' products IP and development experience. However, through a complicated series of rebranding and consequent IP transfer events after the initial industrialization milestones of Denel Dynamics products in the UAE were achieved, Tawazun Dynamics became Barij Dynamics, and Barij Dynamics transferred all products IP to its successor Halcon during 2017 (independently registered juristic entity), which is a subsidiary of another company, EDGE Group, which is owned by Tawazun Holdings (UAE), Denel Dynamics' original JV partner in Tawazun Dynamics. During all the legal entity changes that followed after the various UAE entities acquired the IP they were after, Denel Dynamics was excluded from the original joint venture agreement terms and conditions, which in effect became void. During the [suspected] SAMI IP theft investigation by the SIU in South Africa, it was determined that the UAE transfer was done under the disguise of a letter signed by a senior executive that was implicated in the [suspected] SAMI IP theft incident, who is now employed by SAMI in Saudi Arabia. Of further concern was the number of ex-Denel employees that were employed with EDGE and Halcon in the UAE (directly and indirectly). During IDEX 2021 in Abu Dhabi, Halcon revealed its SkyKnight "first UAE designed and manufactured counter-rocket, artillery, and mortar (C-RAM) missile system" which can be integrated with the Oerlikon Skynex Air Defense System.

Halcon SkyKnight C-RAM

Denel Dynamics Cheetah C-RAM

Although the Halcon SkyKnight missile is slightly larger than the Denel Dynamics Cheetah C-RAM, the missile system was developed by the original Denel Dynamics Cheetah C-RAM development team (who was not employed with Denel Dynamics anymore), suspected to be based on the Cheetah C-RAM data with similar specifications, and it is also no coincidence that an ex-Denel Dynamics engineer who was part of the Cheetah C-RAM development team, is now employed with EDGE Group, the major shareholder of Halcon. However, at the heart of these developments we find Rheinmetall AG (Germany) who partnered with EDGE Holdings (UAE) to "develop" a short-range missile system that can be integrated with its existing Rheinmetall Air Defence (Switzerland) Oerlikon Skynex Air Defense System, using munitions manufactured by Rheinmetall Denel Munitions (South Africa) in which Rheinmetall AG owns a 51% majority stake. During the original Denel Dynamics Cheetah C-RAM development (which pre-dates the Halcon SkyKnight C-RAM by at least 2 years), all these Rheinmetall subsidiaries were involved with the original development for the exact same reasons. However, what Rheinmetall realized in South Africa was that a critical system technology they required to expand their product capabilities was being compromised by gross mismanagement in Denel Group, along with South African government incompetence and political interference, why Rheinmetall (as a partial IP owner with Denel Dynamics) had to diversify its risks away from South Africa's Denel, and consequently partner with the UAE to obtain supply stability in the desired C-RAM system. This decision by Rheinmetall might also explain the change in naming protocols from Oerlikon "Skyshield" (in partnership with Denel Dynamics) to "Skynex" (in partnership with Halcon/EDGE) to avoid legal liabilities, since both systems are theoretically the same.

(c) 2010: Israeli intelligence services, Mossad, obtained stolen South African anti-tank missile technology data packs, and consequently returned it to its South African counterparts for investigation. Two unidentified South African citizens were arrested years later under a veil of secrecy as an attempt to cover up the incident to avoid international embarrassment, as well as to limit prospective foreign buyers (especially in the (Middle East) from knowing that the top secret missile technology was already compromised. The concerning details that followed was that the relevant data packs were offered to unidentified Israeli businessmen by individuals connected to the manufacturer, Denel Dynamics. The Israeli citizens accepted the offer, and handed the data packs over to Mossad for analysis. According to the details of a cable 'leaked' to Al Jazeera in 2015, the data packs belonged to the ZT-6 Mokopa: Air-to-Ground laser guided Anti-Tank missile (which can also be used as an anti-ship missile). This leak, however, was most probably done intentionally as a means to deter Middle Eastern (Arab) customers from purchasing the weapons system since it is compromised by Israeli intelligence services (assuming that the relevant data packs are being studied by Israeli defense intelligence). The data packs for this missile system was also indicated as part of the suspected unlawful SAMI data transfer incident of 2018. No foreign nationals were prosecuted for this incident. Of the two South Africans prosecuted, one accused was convicted and sentenced to 5 years imprisonment, and another became a state witness and walked free subject to a 5 years suspended sentence and a R 500,000 (US$ 45,000) fine. During this incident, the government attempted (via its security cluster), to hide the details of this incident from the public through an attempt to draw the local media's attention away. Unfortunately, this incident could not be contained when the details were [probably intentionally] leaked to a foreign news agency as "leaked Mossad cable", which resulted in a thorough investigation.

(d) 2009: During a 2010 testimony given at the US-China Economic and Security Review Commission Hearing about China's emergent military aerospace and commercial aviation capabilities, it w