Page 1

Centurion Aerospace Village (CAV)

CAV Presentation: Portfolio Committee on Trade and Industry

CAV CEO

03 November 2015

Page 3

What is the CAV? (Centurion Aerospace Village)

Inter-governmental Opportunities: An “Initiative” of the Department

of Trade and Industry (the dti) A GPG Industrial development

opportunity “Special Project Status” with CoT

CAV is being purpose built as a hi-tech advanced manufacturing and defense cluster

CAV is an implementation strategy for the phased approach establishment of an Aeronautical, Space and Defense Industry support mechanism to create related clusters

Aim to position South Africa as a platform for global exports through attracting foreign and local investments in Aerospace & Defense Industries

Land made available by the Department of Public Works (DPW) through the dti for 99 years effective as of 2009

Adjacent to Waterkloof Air Force Base in Centurion

Current Development Phases- Landside Development

For tenants who do not require runway access-13.6 Ha

Proposed Future Development Phases-

Airside Development Tenants who require runway access-

36 Ha Lay claim to other property

For future tenant and user requirements

Green Design

Optimised shared services’ environment and

unique value proposition in a world-class establishment

Page 4

The Turnaround Plan

A Forensic Audit was conducted of the Centurion Aerospace Village (the CAV): - Questions were put to the Minister of the

dti by the DA in Parliament

5 point repositioning of CAV in respect of the turnaround plan and hence regularisation of the business activities. These include inter alia:

– Strategic alignment with Aerospace Sector Development Plan

– Robust Policy framework in line with the PFMA, Companies Act, King III and other statutory prescripts

– Meeting ALL legal, zoning and permit processes for current (and future) operations

– Achieving the requisite institutional arrangements, board composition and investment for medium and long term sustainability and growth

– Strong focus on Human Capital development at CAV

Key elements of the turnaround business plan:

1) Objectives have been established to mitigate ALL audit findings.

2) Products and services, with emphasis on their distinguishing features and the market needs they will meet

3) Estimate of market potential and assessment of the competition

4) Board and Management Team’s experience and talent:

a) Executive changes to augment the structure and “anchor” CAV

5) Acquisition of products and services :

a) Shared services will be performed.

6) Projected financial results compared with pre-turnaround financials

7) Capitalisation of CAV by the dti (slide 18)

8) Investor framework is being developed including the dti, SEDA, leveraging off-set agreements, IDC

Page 5

Desired End State

The Desired end-state of the CAV is two-fold: – To stimulate economic development of the aerospace and defence sectors of the

economy by the formation of an industrial park cluster that business will prefer to locate in, in order to gain a competitive and cost effective advantage

– To develop a sustainable sub-tier supplier base and contribute to the growth of the Aerospace and Defence Industry by:

Creating economies of scale & agglomeration Creating logistics efficiency through co-location Identifying and relocating key Industry leaders as anchor tenants Contributing improved export performance by Aerospace & Defence Industries Promoting shared services efficiency Providing opportunities for Developing and mentoring of SMEs and B-BBEEs Providing facilities and services to complement hi levels of Technical

Competence Stimulating technical competence and R & D Providing opportunity for New Entrants to the Industry

Page 6

Strategic Goal 1: Maintain an integrated developmental model for the aerospace and defence cluster in CAV:

•Facilitation of strategic leadership in the aerospace and defence value chains through the development of the necessary strategic perspectives

•Input into other strategic frameworks of Government (i.e. IPAP VI, PGDP, SDP, SDF, Incubation ) through improved Intergovernmental and stakeholder coordination

•Governance and Compliance , including monitoring of policy and legal statutes

•Development and maintenance of the necessary Research and monitoring systems for both aerospace and defence sectors in respect of supplier co-agglomeration

Strategic Goal 2: Ensure effective implementation of the Sector Development Plan within the CAV development:

•Tenant acquisition( Ensuring right mix for sustainability, CAV branding, product portfolio marketing, special packages)

•Optimise linkages between the aerospace industry and the socio-economic benefits to be derived by Government

•Achieving wide scale economies of scope and scale – “critical mass”

•Effective Business Development

•Infrastructure management

•Investment promotion inline with commercialisation strategies of CAV

•SMME development and empowerment of B-BBEE through tenancy, services and users

Strategic Goal 3: Ensure excellence in business and resource management of the CAV:

•Business Management and Leadership

•Strategic positioning (strategic and operational planning)

•Organisational culture

•Corporate governance practices

•Business performance management

•Human Resource Management

•Financial Management

•Information and Communication Technology (ICT) Management

•Information/Knowledge Management

•Asset Management

Strategic Objectives

Page 7

Minister of Trade and Industry

CAV Board of Directors

Audit & Risk Committee

Human Resources & Remuneration

Committee

Nomination & Governance Committee

Executive Authority

Accounting Authority

Governance Sub-Committees

Governance Structure

Page 8

Challenge Mitigation

Strategic alignment with new direction

• Ensure that the CAV strategy is tangible and objectives understood • Seek Government & industry to contribute to strategic drivers through consultation

Internal and External Communication

• Adopt a “people first” approach & ENGAGE stakeholders • Ensure a detailed communication plan with roles & responsibilities • Develop a marketing and media plan (highlight results of CAV) • Make effective use of web & social media • Provide regular feedback using SMART principle

Stakeholder & brand perception • Conduct frequent communication with all stakeholders • Use surveys to test needs and market • Adopt a CRM and KAM plan • Develop a strategic advisory council to guide and provide leadership to CAV

Human resource insecurity • Deliver communication frequently • Provide job enrichment/enlargement • Promote staff career development and fair benefits/compensation

Enterprise Architecture and Change Management

• Develop and manage risk e.g. SLA /delegation frameworks • Ensure compliance to audit, risk and remco committees • Conduct frequent revision of policies and procedures • Review the enterprise architecture and develop support • Enforce disaster recovery systems

Key Challenges and Mitigation

Page 9

Pillars For Achieving

Financial Sustainability

Essential

Requirements Steps To Implement

Strategic and Financial

Planning

Business Plan

CAPEX

• Develop a 5 year strategic business plan

• Instil speed of decision making

• Secure budget commitment for 5 year periods from stakeholders

• Review overhead cost structure and management time to core

activities

Income Diversification Investment of

Time and Money

• Seek suitable tenant pipeline to achieve the critical mass

• Invest surplus cash into money market

• Seek additional funders for development i.e. SEDA, National

Tooling Initiative, DST, NYDA, DFI’s

• Facilitate with the dti to source seed capital

• Create initiatives to support “incubation programmes”

• Align management responsibility to corporate structure (change)

Sound Administration And

Finance

Long-term

Commitment

• Enforce strict debtors policy, cost reduction & tax efficiency

• Ensure cashflow positive situation

• Ensure compliance to PFMA, Treasury regulations and business

control (M&E)

Own Income Generation Effective

Leadership &

Management Team

• Drive an expanded mandate (Industrial Policy, etc), Involvement in

Provincial plans.

• Seek shareholder to cover full overhead budget

• Seek partnerships that provide in-kind and financial support

(leverage)

Strategic Profit Improvement Team Work • Enforce performance based reward & Business Balanced Scorecard

Financial Stability Considerations

Page 10

CAV is embarking on a Journey from an uncertain past into a sparkling future

CAV: The Past

Eighteen Months

CAV: The

Current programme

CAV: The Future

is Bright

What happened?: PFMA Listing Process Business Case and Bill was

developed Landside BEWI contractor

appointed ITC2 building Completed Record of Decision obtained Township Establishment MOI prepared Governmental Interaction

(IGR) Air Force interaction Establish CAV Business and

Organisation Structure

What is happening?: CEO appointment complete Finalise Business Case Conclude PFMA Listing Maintain BEWI contract Conclude Township

Establishment Process Target interested sub-tier

supplier tenants Re-establish the CAV Board Governmental MOU (IGR) Plan revenue streams &

Funding opportunities Strong focus on Human Capital

Development Meeting all legal, zoning

process for current options

What ought to happen?: Obtain Funding Implement Business Case Explore options for

institutionalisation Government IGR Rejuvenate the BEWI contract Establish the Township Conclude the Landside Phase

1a BEWI works Obtain occupancy certificate for

ITC2 Build and maintain relationship

with stakeholders Explore and obtain PPP Roll-out CAV Structure Manage revenue streams

Past, Present and Future

Page 11

Unqualified, clean audit since 2006/07

Detailed engineering design:

o For various interested parties:

o As prep for intended signing of pre-lease agreements.

o SMME support building: ITC2

o Non-destructive testing and standards:

o African NDT

o Electronic harnessing:

o Amphenol Contactserve

o Tooling:

o Quad

Architectural views:

o Per interested party

o In anticipation of future needs

Footprint layout:

o For various interested parties

o Denel Aviation

Basic general layout:

o Land and Airside

o As per area plan submitted for township establishment purposes, including:

o FAR requirements

o Bulk Earthworks

o Infrastructure

o Utility Service requirements

o EIA

o TIA

o Geo-Technical processes

CAV Achievements

Page 13

The existing and increasing levels of technical complexity associated with each product line and/or technology stream have resulted in the formation of a tiered supply chain in aerospaceThe CAV and the identified / potential tenants cover a wide variety of Aerospace and

Defense Industry technology work streams AS WAS DEFINED in the Industry Sector Development Plan (the SDP)

Sector Development Plan (SDP) Technology Streams

Page 14

Order placed by an Airline

to an OEM

Airlines Tier 3

Supplier

Value adding products

supplied to higher tier

Tier 2

Supplier

Sub-contract work to lower tiers

Core Competencies

Inside South Africa

Tier 1

Supplier

Manufacturing Activities

Outside South Africa

OEM Airlines

Completed aircraft

Supplied to Customer

Aerospace Industry Supply Chain Overview

Page 15

CAV Shared Services

• ICT

• Security

• Logistics

• Warehousing

• Packaging

• Transportation

• Customs

• Facilities Management

• Conference

• Cleaning

• Maintenance

• Waste Management

• Landscaping

• Cafeteria

• Others

OEM

Denel

Tier 1

Aerosud

Tier 1

Tier 2 Tier 2 Tier 2

Tier 3 Tier 3 Tier 3 Tier 3

• MRO

• Aircraft Refurbishments

• Aircraft Upgrades

• Maintenance, Repair & Overhaul

• High-level Sub-Assembly

• Final Assembly • Tooling, Jigs & Ground Support

• Precision & Multi-axis Machining

• Non-Destructive Testing

• Vacuform

• Composites

• Plastics

• Aircraft, components & parts painting

• Electrical & Looming

• Small Parts supply

• Paint Supply

• Bolts, screws, washers

• Engineering Services

Tier 4 down

• Airbus

• Boeing

• BAE Systems

• Airlines

• Others

Aerospace Customers

Aerospace Activities in SA

• SA Defence

• Augusta Westland

• Eurocopter

• Spirit Aerospace

• SAAB

Deployment of Aero-mechanical Activities at CAV

Page 17

Capital Funding Requirements

The capital funding requirements for CAV is stated below:

MTEF Periods (2015/16 to 2017/18)(2018/19 to 2020/21) and two additional years

GBA

(m²)

GLA

(m²)

GLA

(%)Project Cost

Expense to

date Balance 2015/16 2016/17

2017/1

82018/19 2019/20 2020/21 2021/22 2022/23

Total

Cashflow

1 Landside Infrastructure (13.60ha) - - - 314 21 293 24 117 129 23 293

2 Landside Building including designs 50 888 44 781 88% 535 41 494 162 78 106 138 10 494

3 Airside Infrastructure (37.06ha) - - - 592 1 591 71 167 207 38 108 591

4 Airside Buildings including designs 88 778 84 339 95% 1 954 4 1 950 84 194 340 187 572 573 1 950

139 666 129 120 92%

R'm

Equity Funding Infrastructure ( the dti) 884

Equity Funding Building ( the dti) 444

Tenant Funding building 1 730

External Funding 275

3 333

Assumptions

The funding assumptions are based on 2012 calculations

Funding requirements excludes C-side and Hill-side

573 3 328

Source Funding

Total

350 458 530 516 305 572SUBTOTAL R' million 3 395 67 3 328 24

CENTURION AEROSPACE VILLAGECAPITAL FUNDING REQUIREMENTS

PHASE DEVELOPMENTS

AREA PROJECT COSTS (R'm) CASHFLOW REQUIREMENTS (R'm)

Page 19

CAV Landside

CAV C-Side

Landside X-tension

CAV Airside

Future Expansion?

CAV’s Development Areas

Page 20

The First CAV Building: ITC2

Page 22

The current tenant pipeline satisfies the requirement of filling the critical mass

The requisite timing for the delivery of turnkey operations are satisfied within the investment requirements

The first stage of development includes the following:

– African NDT

– Mini-factories’ Interest by smaller potential tenants

– Training and Incubation Facility

– AMD

– Permanent Exhibition Centre

– CSIR / Aerosud Manufacturing

– Aerosud Aviation

– Aero Services

– Electrothread

– Business & Conference Centre

Airside Interest:

– The SARA Project

– MRO Opportunities

– Aerosud extension

– National Airways Corporation (NAC):

Would re-locate building structures (from Lanseria and Grand Central Airports)

Potential Tenants

Page 24

Direct & Indirect Jobs: Socio-Economic Impact Assessment*

CAV and Tenant CAPEX and OPEX Direct jobs

Estimated total direct and indirect jobs

Impact on direct job creation at CAV and its tenants is illustrated to include:

Total CAV and tenant direct jobs in year 3 (2018/19) is expected to reach 2817 jobs, excluding the expected 335 construction jobs:

Tenant and CAV direct jobs are expected to reach 2764 jobs by 2018/19

Tenant and CAV Service Provider jobs are expected to reach a level of 53 by 2018/19

Impact on indirect job creation is illustrated with the application of a factor 7 as a multiplier:

The 2817 direct CAV and Tenant jobs, as well as the 335 construction jobs would generate some 22 000 indirect jobs in the broader economy by 2018/19

NOTE: * Based on Economic Impact Assessment of 2011

Page 26

Appointments: Technical Team Appointments:

Principal agent, engineers, quantity surveyor, architects

Specialist Team Appointments: Town planning, EIA, TIA, geo-technical survey, land survey

Procurement Process concluded for the following: Bulk Earthworks and Infrastructure (BEWI) ITC2 building

Legal processes: Head Lease Agreement between the dti and DPW

Powers of Attorney were issued by DPW Power of substitution was exercised for CEO to sign agreements with CoT Head Lease Agreement is being reviewed

Occupancy certification for ITC2 Building: Legal Opinion obtained CAV to approach CoT Building Inspectorate for Occupancy Certification Pending bulk service agreements and contributions paid to CoT Engagements with CoT Township establishment process underway

Compliance with CIDB Status: Legal opinion is being obtained CIDB grading for the appointed BEWI contractor is being investigated CIDB interaction is to follow legal opinion Status of contract with BEWI contractor is to be confirmed

Regularising lease agreement for first CAV tenant building

Legal Processes and Appointments

Page 27

Questions and Answers