CAV Annual Report 2021

ANNUAL REPORT 2020/2021

CENTURION

CAV AEROSPACE VILLAGE

an initiative of the dtic

“SUPPORT THE GROWTH OF THE AEROSPACE, DEFENCE AND ADVANCED MANUFACTURING INDUSTRIES”

CENTURION AEROSPACE VILLAGE NPC ANNUAL REPORT 2020-2021

“SUPPORT THE GROWTH OF THE AEROSPACE, DEFENCE AND ADVANCED MANUFACTURING INDUSTRIES”

CENTURION AEROSPACE VILLAGE NPC I ANNUAL REPORT I 2020/21

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CONFIDENTIALITY AND DISCLAIMER

THE MANDATE OF THE CAV Our Mandate The Centurion Aerospace Village (CAV) is the mandated implementation armof the Department of Trade and Industry and Competition ( the dtic ). in developing a sustainable Aerospace, Defence and Advanced Manufacturing Industrial Park to attract small and newentrants to contribute tomaking South Africa a Global Player in the Aerospace, Defence and Advanced Manufacturing Industries value chains.

The text in this document may be reproduced free of charge in any format or medium providing that it is reproduced accurately and not used in a misleading context or used for commercial gain. The material must be acknowledged as CAV copyright and the title of the document specified. Any enquiries relating to the copyright in this document should be addressed to the CAV. CAV Copyright, 2021

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TABLE OF CONTENTS

CONFIDENTIALITY AND DISCLAIMER

2

5. ORGANISATIONAL STRUCTURE

24

THE MANDATE OF THE CAV

2

5.1. Institutional Capacity – Organisational Environment

24

TABLE OF CONTENTS

3

TABLE OF TABLES

5

PART B: PERFORMANCE INFORMATION

27

TABLE OF FIGURES

5

1.1.Performance Information by Programme

28

FOREWORD BY THE DEPUTY DIRECTOR-GENERAL (DDG) OF the dtic 6 FOREWORD BY THE CHAIRPERSON OF THE CAV BOARD 7 CHIEF EXECUTIVE OFFICER’S REPORT 9

PART C: GOVERNANCE

35

1. CORPORATE GOVERNANCE REPORT

36

1.1. Introduction

36

1.2. Governance Structure

36

PART A: GENERAL INFORMATION

11

1.3. Compliance with laws, rules, codes and standards

GENERAL INFORMATION

12

37

GLOSSARY OF TERMS AND CONCEPTS

13

1.4. Drivers of good governance

37

1. STATEMENT OF RESPONSIBILITY AND CONFIRMATION OF ACCURACY OF THE ANNUAL REPORT

1.5. Board Composition

37

15

1.6. Tenure of the Board

38

2. STRATEGIC OVERVIEW 16 2.1. Linking the CAV Vision, Mission and Objectives 16 2.2. Vision of the CAV 16 2.3. Mission of the CAV 16 2.4. Strategic Objectives 16 2.5. Our Values 17 2.6. Company Profile 17 3. LEGISLATIVE MANDATE 18 3.1. Institutional Arrangements 18 3.2. Corporate Governance 18 3.3. Capital Development 18 4. SITUATIONAL ANALYSIS 19 4.1. The Aerospace and Defence Industry: Global Context 19 4.2. Aerospace and Defence Industry: African context 19 4.3. Aerospace and Defence Industry: South African context 20 4.4. The Aerospace and Defence Industry: Clusters and Industrial Parks 22

1.7. Skills, Knowledge, Experience, Diversity and Attributes of Directors

38

1.8. Board Sub-committees

38

1.9. Code of Ethics

40

1.10. Board Attendance

40

1.11. Board Induction

41

1.12. Attendance of Board and Subcommittee Meetings

41

1.13. Compliance with Laws and Regulations

41

1.14. Conflicts of Interest

41

1.15. Minimising Conflicts of Interest

41

1.16. External Audit

41

1.17. Internal Audit

41

2. RISK MANAGEMENT

42

3. AUDIT AND RISK COMMITTEE REPORT

44

PART D: HUMAN RESOURCES MANAGEMENT

47

1. HUMAN RESOURCES OVERVIEW

48

2. THE CORE HR FUNCTIONAL AREAS

49

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PART E: PROJECT INFORMATION

53

1. THE CAV CLUSTER DEVELOPMENT 54 2. CAV – A CONCENTRATION OF SUB-TIER INDUSTRY SUPPLIERS 54 2.1 Technical and Specialist Team 55 2.2 Service Providers 55 3. CAV AT A GLANCE 56 4. CAV OVERVIEW OF THE YEAR UNDER REVIEW 56 4.1 CAV Institutional Form and Structure 56 4.2 Sectoral Interventions 56 4.3 Investment proposition 56 4.4 Project delivery 57 5. OVERVIEW OF PAST DEVELOPMENT ACTIONS 57 5.1 Infrastructure, Services’ and Facility Development 57 5.2 Interaction with Interested Parties 58 6. THE CAV AS A VIABLE BUSINESS 58 6.1. Creating a Commercially Viable Entity 58 6.2. Creating a Responsible South African Company 58 7. FUTURE OUTLOOK 58 8. IMPLEMENTATION PLAN 59

PART F: FINANCIAL INFORMATION

61

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TABLE OF TABLES

TABLE OF FIGURES

Table 1: Table 2:

Figure 1: The Vision, Mission and Strategic Objective Statement

Annual Performance Reporting

28

16

Attendance of the Audit and Risk Committee Meeting

39

Figure 2: CAV Values 17 Figure 3: CAV Organisational Functional Structure 24 Figure 4: CAV Governance Structure 36 Figure 5: HR Functional Areas 49

Table 3: Table 4: Table 5: Table 6:

Attendance of the HR & RemCo Meetings 40

Attendance of Board Meetings

40

Top 7 Risks for CAV

42

Labour Relations

49

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FOREWORD BY THE DEPUTY DIRECTOR-GENERAL (DDG) OF the dtic

the dtic will continue to devote increased resource and policy support in pursuit of the huge ambitions we all have for the CAV. In the coming year, focus will be given to the incorporation of the CAV into the Gauteng Growth Development Agency. This process is critical to support the CAV to secure Capital Funding to service the growing needs of interested tenants. It is my expectation that the experienced CAV board and management team will continue to make 2020/21 another year of great achievements.

I am delighted to write the foreword for this edition of Centurion Aerospace Village (CAV) Annual Report. the dtic recognised the need for an aerospace and defence industrial park to be a key component in the industrialization plan, hence the birth of the CAV. The CAV is intended to offer a complete array of industrial real estate solutions to hand- picked selection of national and global industrial aerospace and defence leaders. I am proud to state that the CAV Value Proposition approach has already yielded some results where at least pre-lease agreements and letters of intents were signed. This renewed interest is as a result of increased marketing activities combined with bulk infrastructure construction activities taking place on the Landside Development site. The CAV has welcomed s new tenant, in its soon finished Aerospace Training and Certification Centre building.

…………………………………………….. Thandi Phele Deputy Director-General (DDG) Industrial Competitiveness and Growth Department of Trade, Industry and Competition

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FOREWORD BY THE CHAIRPERSON OF THE CAV BOARD

The Gauteng MEC for the Department of Economic Development (GDEA) was also engaged towards the realisation of the incorporation of CAV into GGDA. The Gauteng Department of Agriculture & Rural Affairs (GDARD) Affairs was also engaged by CAV within the year under review. Basedon these engagements, GDARD therefore approved the submitted Environmental Authorisation Technical Report for Bulk Water Services. The other report for Bulk Sewer services should be approved by GDARD within the first quarter of the next Financial Year. CAV also engaged Rand Water an entity of DWS, and this resulted in Rand Water to approve a Wayleave extension that will allow CAV to install a new bulk water pipe above the existing bulk pipeline of Rand Water. There were also engagements with the Council for Geoscience (CGS) an entity of the Department of Minerals & Energy. CGS is responsible for the approval of the conditions of construction site. CGS gave CAV a Record of Decisions (RoD) of approving the submitted technical report for the construction of the Aerosud Gatehouse. The strategic outlook for the CAV can be captured as follow: • Completion of the Township Establishment processes; • Initiation of the external utility services and infrastructure works for water, stormwater, roads and sanitation; • Start the construction of the Aerosud Gatehouse and the CAV Gatehouse including the taxi drop off area; • Start the construction of a Shared SMME Multi-Tenant Facility. My sincere appreciation goes to the stakeholders that make up the CAV project - the National, Provincial and Local Government and the aerospace and defence industries and its associations. A word of thanks is extended to all the contracted consultants and partners that have worked tirelessly to take this initiative forward. I would like to extend my gratitude to the CAV Board, the Audit & Risk Committee, and the Human Resources and Remuneration Committee (RemCo) as well as the Internal and External Auditors for their assurance in supporting the CAV Board in discharging its duties towards exercising its oversight role. It is indeed an

Sandile Ndlovu Chairperson of the Board

I am pleased to report that CAV’s project is growing from strength to strength towards realisationof a goal tohave a fully established Industrial Park. During the 2020/21 financial year the CAV team continued with critical development processes to initiate the township establishment programme. I am proud to say CAV continues to have good working relations with National Government Departments, Gauteng Provincial Government Departments and Government Entities. The National Government Departments that CAV interacted with during the year under review were the dtic as the shareholder, The Department of PublicWorks & Infrastructure (DPWI) and the Department of Water & Sanitation (DWS). The engagements with DPWI related to CAV obtaining a Power of Attorney (PoA) from DPWI as the landowners. The PoA from DPWI is a requirement for township proclamation processes. There were Technical Reports submitted to DWS and relate to the General Authorisation (GA) to approve the installation of the bulk water pipeline. In addition, the DWS pending approval is on the already submitted Technical Report for Water Use Licence Application (WULA) and this relates to the installation of the bulk sewer pipeline for CAV.

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honour to serve as a member of the Board in conjunction with committed board members I also extend my gratitude, on behalf of the CAV Board, to the CAV employees for their continued performance, dedication and support while the CAV’s mandate was executed over the past year despite the challenges that were faced. With the continued commitment of all the mentioned stakeholders and interested parties, CAV will be taken into full scale development as the next phase of project marks the preparation of the land to cater for tenant requirements.

…………………………………………….. Sandile Ndlovu Chairperson of the Board

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CHIEF EXECUTIVE OFFICER’S REPORT

bulk sewer were submitted. The Gauteng Department of Agriculture & Rural Development (GDARD) approved the Technical Report for water services. The Technical report for sewer services was being assessed by GDARD at the end of the Financial Year under review. The Department of Water Affairs was still busy with the assessments for the already submitted Technical Report for General Authorisation (water services study) and the Technical Report for Water Use Licence Application (WULA) (a sewer services study). Non-construction related activities included continuous engagementswithGautengProvincial Government andmore specifically, to the Department of Economic Development (GDAE) in relation to the proposed incorporation of CAV into the GGDA. This request was made to support the entity to secure Capital Funding that is required to address the attraction and retention of interested investors. The Inter- Governmental Relations (IGR) will undoubtedly strengthen support for investment as it will allow the CAV to access the suite of incentives that is available under the dtic , and in addition with a view on accessing SEZ incentives. The CAV has furthermore continued to receive strong support from our main member, the dtic and will not have achieved any success without this crucial partnership. The relationship with the City of Tshwane (CoT) Municipality continues as CoT assists the CAV to unlock critical development approvals and processes that facilitated the occupation of the new tenants in our existing building. The CAV will continue to forge strong partnerships with all the relevant role-players and departments at the National, Provincial and Local levels of Government as well as with the Aerospace and Defence industry as this will facilitate the development of the CAV’s future phases to support the medium to long-term stability of the local aerospace industry. The CAV’s future phases consist of an Airside Development Phase for tenants that require direct access to an airstrip as well as tenants offering Maintenance, Repair and Overhaul (MRO) services and an in addition to the Landside Development Phase, the CAV has identified land adjacent to its current development that could serve the long-term needs should the industry require more land for expansion purposes.

Shaun Moses Chief Executive Officer (Acting)

The Centurion Aerospace Village (CAV) continued to make steady progress during the past year on several construction activities in our quest to support growth of the Aerospace, Defence and Advanced Manufacturing Sectors. Several construction and non-construction related activities support the CAV to deliver on our mandate to establish an Industrial Park to support the growth and integration of local manufacturing into global supply chains. Our construction activities for Landside Development Phase are still ongoing. This phase will service tenants without a direct need to an airstrip and that offer products or services used in the manufacture of aircraft or defence related equipment, components and sub-assemblies. The minimum internal Bulk Earth Works and Infrastructure (BEWI) to support the future construction of manufacturing facilities in phase 1a and b has already been completed with the remainder of the BEWI programme still to follow in future Financial Years. The minimum infrastructure includes internal water reticulation, storm water channelling, electrical works and the first section of road infrastructure. External utility services works are underway and applications for various environmental approvals such as Water Use License approvals and Basic Assessment and General Authorisations for bulk and

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In conclusion, I would like to thank each member of the CAV for their hard work and dedication. For belief in our mission and unwavering support towards our cause. I also thank our executive authority, the CAV Board of Directors and our value industry partners for their patience, extremely valuable advice, oversight, support and guidance. The organisation is steadily progressing into a development that will see the Landside Development Phase of the CAV ready to support construction of new facilities in the coming year.

…………………………………………….. Shaun Moses Chief Executive Officer (Acting)

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PART A GENERAL INFORMATION

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GENERAL INFORMATION

Registered Name:

Centurion Aerospace Village

Registration Number:

2000/006996/08

Physical Address:

C/o Van Ryneveld Avenue and Van der Spuy Street Pierre Van Ryneveld Park Centurion 0045

Postal Address:

Postnet Suite # 69 Private Bag X25723 Monument Park 0105 (+27) 12 662 5379

Telephone Number: Email Address: Website Address: External Auditors:

info@cav.org.za www.cav.org.za

A2A Kopano Inc. Registered Auditors Investec Bank Limited

Bankers:

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GLOSSARY OF TERMS AND CONCEPTS

HRM HSE IAC IATA

A&D

HUMAN RESOURCES MANAGEMENT HEALTH, SAFETY AND ENVIRONMENTAL

AEROSPACE & DEFENCE

A&RC

AUDIT AND RISK COMMITTEE

AD AG

INTERNATIONAL AUDIT CHARTER

ACTIVE DIRECTORY AUDITOR GENERAL

INTERNATIONAL TRANSPORT ASSOCIATION INFORMATION AND COMMUNICATION TECHNOLOGY INDUSTRIAL DEVELOPMENT CORPORATION INDUSTRIAL DEVELOPMENT DIVISION INDUSTRIAL DEVELOPMENT ZONE INTERNATIONAL FINANCIAL REPORTING STANDARDS INSTITUTE FOR INTERNAL AUDITING INDUSTIAL POLICY ACTION PLAN JOINT AEROSPACE STEERING COMMITTEE MEMORANDUM OF AGREEMENT MEMORANDUM OF INCORPORATION MEMORANDUM OF UNDERSTANDING MAINTENANCE, REPAIR AND OVERHAUL MEDIUM TERM EXPENDITURE FRAMEWORK KEY PERFORMANCE AREAS

AISI

AEROSPACE INDUSTRY SUPPORT INITIATIVE AEROSPACE INDUSTRY SECTOR DEVELOPMENT PLAN AFRICAN NON-DESTRUCTIVE TESTING CENTRE AEROSPACE INDUSTRY DEVELOPMENT PLAN AEROSPACE TRAINING AND CERTIFICATION CENTRE ADDITIVE MANUFACTURING

ICT

AISDP

IDC IDD IDZ

AM

ANDTc ASDP

IFRS

ATCC

IIA

IPAP JASC KPAs MoA MoU MRO MTEF NEF NPC OEM OPEX MoI

BROAD-BASED BLACK ECONOMIC EMPOWERMENT

B-BBEE

BEWI BoD BOT BTS BTL CAV CEO CGS DDG DoA DoD

BULK EARTHWORKS AND INFRASTRUCTURE

BOARD OF DIRECTORS BUILD OPERATE TRANSFER

BUILD TO SUIT BUILD TO LEASE

CENTURION AEROSPACE VILLAGE CHIEF EXECUTIVE OFFICER COUNCIL FOR GEOSCIENCE DEPUTY DIRECTOR GENERAL DELEGATION OF AUTHORITY DEPARTMENT OF DEFENCE

NATIONAL EMPOWERMENT FUND

NOT FOR PROFIT COMPANY

ORIGINAL EQUIPMENT MANUFACTURER

OPERATIONAL EXPENDITURE

POA

POWER OF ATTORNEY

DEPARTMENT OF PUBLIC WORKS AND INFRASTRUCTURE DEPARTMENT OF TRADE, INDUSTRY AND COMPETITION ENVIRONMENTAL AUTHORISATION GAUTENG DEPARTMENT OF AGRICULTURE & RURAL DEVELOPMENT GAUTENG DEPARTATMENT OF ECONOMIC AFFAIRS GAUTENG GROWTH AND DEVELOPMENT AGENCY

PFMA

PUBLIC FINANCE MANAGEMENT ACT

DPWI

Q

QUARTER

REMCO

REMUNERATION COMMITTEE RESEARCH AND DEVELOPMENT

dtic

R&D

EA

SOUTH AFRICAN COUNCIL FOR PROJECT AND CONSTRUCTION MANAGEMENT PROFESSIONS SAUDI ARABIAN MILITARY INDUSTRIES SAFETY, HEALTH, RISK AND QUALITY STATE INFORMATION TECHNOLOGY AGENCY

SACPCMP

GDARD

SAMI SHRQ

GDEA

SITA SLA

SERVICE LEVEL AGREEMENT

GGDA

SMME WTTC

SMALL MICRO AND MEDIUM ENTERPRISE WORLD TRADE AND TOURISM COUNCIL

HR

HUMAN RESOURCES

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GLOSSARY OF CONCEPTS

SUPPLIER TENANTS:

Parts or component suppliers, as manufacturers or assemblers of components or parts of aircraft according to OEM specifications and delivery of such parts and components to the OEMs, leasing and using facilities from CAV services to OEMs and suppliers, e.g., waste removal, cleaning, transport and logistics, machinery maintenance, ICT, facilities management, etc.

SERVICE PROVIDERS: Providers of non-production

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1. STATEMENT OF RESPONSIBILITY AND CONFIRMATION OF ACCURACY OF THE ANNUAL REPORT

We confirm that to the best of our knowledge. All information and amounts disclosed in this Annual Report is consistent with the Annual Financial Statements audited by the Independent External Auditors. The Annual Report is complete, accurate and free from any omissions and has been prepared in accordance with the guidelines issued by National Treasury. The Annual Financial Statements (Part F) have been prepared in compliance with the applicable requirements of the Companies Act of South Africa, 71 of 2008 and in accordance with International Financial Reporting Standards (IFRS). The Accounting Authority is responsible for the preparation of the Annual Financial Statements and judgements made in this information. The Accounting Authority is also responsible for establishing and implementing a system of internal control designed to provide reasonable assurance about

the integrity and reliability of the performance and human resources information and the Annual Financial Statements. The External Auditors are engaged to express an independent opinion on the annual financial statements. In our opinion, the Annual Report fairly reflects the operations, performance and human resources information and the financial affairs of Centurion Aerospace Village for the financial year ended 31 March 2021.

__________________________

____________________________

Shaun Moses

Sandile Ndlovu

Chief Executive Officer (Acting)

Chairperson of the Board

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2. STRATEGIC OVERVIEW 2.1. LINKING THE CAV VISION, MISSION AND OBJECTIVES

The CAV’s Vision, Mission and Objective statements are displayed here:

VISION To develop a world-class industrial park promoting competitiveness and sustainability

MISSION To support the achievement of a sustainable aerospace & defence Industry and to contribute to making South Africa a global player to the aerospace and defence industry value chain.

STRATEGIC OBJECTIVE To stimulate economic development by the formation of an Industrial park cluster.

Figure 1: The Vision, Mission and Strategic Objective Statement

2.2. VISION OF THE CAV To develop a world-class industrial park promoting com- petitiveness and sustainability of the Aerospace, Defence and

2.4. STRATEGIC OBJECTIVES The strategic objectives of the CAV, in order to stimulate economic development through the establishment and operation of an Industrial Park, are as follows: • To become a hi-tech advanced manufacturing industrial park in support of the Aerospace, Defence and advanced manufacturing industry; and • To provide facilities, services and a technical environment to complement and promote the common interests of the Aerospace, Defence and Advanced Manufacturing industries in South Africa

Advanced Manufacturing Sectors 2.3. MISSION OF THE CAV

To support the growth of a sustainable aerospace, defence, and advanced manufacturing industry and to contribute to making South Africa a global player in the aerospace, defence and advanced manufacturing industry value chains.

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2.5. OUR VALUES

The Values of the CAV team are as follows:

We respect one another’s views, opinions, cultures and work ethics.

Dedicated teamwork is core to our culture.

We uphold open, cnadid and honest two-way communication that fosters relationship building between the CAV employees

Seek to add value to our partners and clients through innovation, synergies and partnerships.

We are passionate about the aerospace, fefence and advanced manufacturing industries and consciously seek to improve and develop our sector to ensure its continued success.

Strive for excellence and international best practice in all aspects of our business.

Figure 2: CAV Values

2.6. COMPANY PROFILE 2.6.1. The Company & its Development

• The local (national) aerospace and defence Industry will benefit from the development of the CAV that will contribute to the industry remaining internationally competitive. • Local Original Equipment Manufacturer (OEM) repre- sentatives: OEM suppliers of components, parts and tools, as well as service providers will likewise benefit from synergistic and economy of balanced applications; and • The Small, Medium and Micro-sized Enterprise (SMME) sector will likewise benefit from a numerous opportunity that will be identified for further development. The project consists of two areas namely: • Landside Development (Short, Medium and Longer term) CAV Landside is envisaged to house firms who do not require runway access that specifically conduct design and manufacturing operations; and • Airside Development (Longer Term) CAV Airside is envisaged to house industry sub-tier firms who require runway access that specifically do upgrades, aircraft maintenance, repair and overhaul (MRO) and aircraft refurbishments.

The CAV is an initiative of the Department of Trade and Industry and Competition ( the dtic ). It was incorporated as a company not for gain in 2006 in terms of section 21 of the Companies Act, Act 61 of 1973, which now is a Non-Profit Company in terms of the new Companies Act, Act 71 of 2008. This Industrial Park is aimed at strengthening the supply chain by bringing aerospace and defence industry suppliers in proximity to one another and to co-locate them next to tier 1 supplier companies and anchor partners. The CAV is being developed on State-owned land provided by the Department of Public Works (DPWI) for which a Head Lease Agreement was signed between the dtic and DPWI with agreed terms and conditions. The CAV was designed to unlock the growth potential of the aerospace and defence sectors in order to contribute to the above objectives in a meaningful way, amongst others, the following:

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• Ensure transformation through the participation and development of B-BBEE entities • Skills Development and Training is part of the CAV’s support programmes. • Focused on the encouragement of new small and medium (SMME) sized entrants; and • Directed towards innovation, technology development and support for associated infrastructure development. 2.6.2. Location CAV is located along the eastern boundary of the Waterkloof Air force Base (FarmWaterkloof 378 JR; portion 11, 97, 98, 34, 29 and the remainder of portion 28) in Centurion. of good governance. In determining good corporate governance and business practices, the Board is guided by: • Companies Act, 71 of 2008 and supporting Regulations, • The Public Finance Management Act, No. 1 of 1999 (PFMA) and supporting Treasury Regulations; and • King IV report on corporate governance. 3.3. CAPITAL DEVELOPMENT The development planning, construction and operations of the CAV are conducted within the prescribed statutory prescripts provided by the relevant levels of government.

Both Landside and Airside developments are planned to be implemented in phases. Both developments are to be made possible by the application of sourced funding that would be supportive of the industrial policy of the dtic , and will accordingly be aligned with the following key elements thereof: • Plan, develop and operate the Landside Development Phase of the CAV as an Industrial Park: The CAV strives to balance the pursuit and achievement of business objectives and compliance with the principles of good governance. • Unlock the Airside Development Phase to be developed in collaboration with the South African Air Force (SAAF) and the Waterkloof Air force Base. 3. LEGISLATIVE MANDATE 3.1. INSTITUTIONAL ARRANGEMENTS CAV is a Non-Profit Company in terms of the new Companies Act, Act 71 of 2008. It applies the governance principles encapsulated in the King Report on Corporate Governance in South Africa, (“King IV”) and continues to further entrench the recommended practices in its governance structures, systems, processes and procedures. 3.2. CORPORATE GOVERNANCE The CAV strives to balance the pursuit and achievement of business objectives and compliance with the principles

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4. SITUATIONAL ANALYSIS 4.1. THE AEROSPACE AND DEFENCE INDUSTRY: GLOBAL CONTEXT Global and African Aerospace and Defence (A&D) Industry trends 1 are of significant importance for the South African aerospace and defence industry and will influence the strategic outlook for CAV as it opens up new opportunities to provide support to the South African Aerospace and Defence sectors. The key findings of the report reveal that: • The commercial aircraft order backlog is at its peak of more than 14,000 with approximately 38,000 aircraft expected to be produced globally over the next 20 years. Manufacturers are ramping up production to accommodate growing aircraft demand and as OEMs increase production rates, suppliers are at risk to fail in ramping up production. • Geopolitical tensions are continuing to intensify and demand for military equipment is on the uptick, driving defence spending across the globe. • Changes in international trade agreements are likely to disrupt the global supply chains and increase costs. OEMs are seeking new solutions to develop international best- of-breed suppliers. Many of the latest breakthroughs and the most adaptable advances in new technologies are driven by and available not from A&D companies, but from the innovation clusters that are expanding their influence in virtually every large global seat of power. • Mergers and Acquisitions (M&A) activity remains strong as pressure on suppliers to reduce costs and increase production rates continues. • Though A&D industry growth is primarily led by the United States, few other regions including China, France, India, Japan, the Middle East, and the UK, will be contributing to the industry’s performance in the near term. Africa is predicted by the International Air Transport Association (IATA) to become one of the fastest growing aviation regions in the next 20 years with an annual expansion rate of nearly 5%. 2 Other regional A&D trends

include 3 : China’s defence industry spend projected to grow by 9%-10% in the future; France intends to increase military spending by 5% per annum; India has a demand for more than 2000 single-aisle aircraft; Japanese air traffic projected to grow sluggishly by 3,2% per annum; Middle East air traffic projected to grow by 5,2% creating a demand for almost 3,000 new wide-body aircraft; in the United Kingdom Brexit is expected to disrupt supply chains and the country’s aviation industry would seek new trade agreements with supplying countries. 4.2. AEROSPACE AND DEFENCE INDUSTRY: AFRICAN CONTEXT Over 4 the recent years, opportunities in the dynamic African aviation industry is steadily rising, thanks to the continent’s growing political stability and tourism potentials. The International Air Transport Association (IATA) has predicted that Africa will become one of the fastest growing aviation communities in the world over the next 20 years at a yearly increase of almost 5%. The continent continues to strengthen its aviation industry as it is considered one of the key drivers of Africa’s future economic development. Today, Africa accounts for around 3% of the global air transport sector, running 731 airports and 419 airlines. Aviation, to date, supports around 6.9 million jobs and USD 80 billion in economic activities. Commercial airlines, in particular, can capitalize and attain a significant market share in this vast market by taking advantage of the booming leisure and business travel and tourism. In 2018, the World Travel & Tourism Council (WTTC) declared Africa as the second-fastest growing tourism region next to Asia-Pacific. Challenges in the African Aerospace Industry: • While 5 it is evident that aviation in Africa has the potential to fuel economic growth, several barriers exist. Weak infrastructure, high ticket prices, poor connectivity and lack of liberalisation rank amongst the many challenges. • Safety and security. Safety is the most pressing challenge facing the aviation industry. 3 Deloitte: 2019 global aerospace and defense industry outlook: Robin Lineberger; 2018 4 https://www.atqnews.com/ng/opportunities-and-challenges-in- african-aviation-industry/ 5 https://oecd-development-matters.org/2018/10/29/unlocking-africas- aviation-potential/

1 https://www2.deloitte.com/global/en/pages/manufacturing/articles/ global-a-and-d-outlook.html 2 https://www.africanaerospace.aero/african-carriers-see-fastest-growth- of-any-region-in-august-for-air-freight.html

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in the continents needs by investing in facilities and skills development: • Nigeria’s Aero Contractors is engaged with the Nigerian government to attract private sector partners in a build- operate-transfer (BOT) MRO facility in Nigeria, • Ghana is proceeding with a US$400 million MRO project in Kumasi, • ST Engineering (Singapore) has announced contracts with national airline customers in Ivory Coast, Senegal and Mauritania, • Estonia-based MRO is expanding in Africa through Direct Maintenance (Dutch) with bases in Kenya, Zambia, Zanzibar, Tanzania and Kenya, and • Kenya MRO is supported by most West African countries for the maintenance of their Boeing 737 and Embraer aircraft. Kenya Airways does line maintenance in a growing number of other African airports. Commercial Aerospace movements in South Africa: • Solenta Aviation is moving into freight conversions with Swiss specialist IPR conversions. Solenta is looking at establishing a freight conversion facility in Johannesburg, • Canadian airframer, Bombardier, plans to get closer to its customers in SA by relocating is Q Series regional support to Airways Park, close to OR Tambo International Airport, • Lufthansa Technik (LHT) is the first foreign MRO provider to set up shop in South Africa to support the Comair fleet. LHT has set-up bases in Johannesburg and Cape Town in 2019 with plans for further expansion to other national airports, and • The Paramount Group is active in the South African A&D industry and is engaged with the Saudi Arabian Military Industries (SAMI) to develop technologies and capabilities across land, sea and air-based based platforms and systems integration. In terms of technologies, Additive Manufacturing (AM) is seen as having great application in MRO. This disruptive technology, also known as 3D printing, holds promise as a cost-effective way to reproduce legacy spares, reduce inventory and manufacture parts in situ. Lufthansa Technik has already embraced the technology and set up a facility in Hamburg to expand its MRO competence and experience in this technology.

• Airport infrastructure inmost African countries is outdated and not built to serve the growing volume of passengers or cargo. Airlines and airports are often managed by government entities or regulatory bodies and foreign investment is discouraged. Modernising infrastructure and operations require investment and expertise, ideally from public-private partnerships. Africa needs to open its doors for private capital investment. • Regulation and government actions: Despite growing awareness of the role that the aviation industry could play in the development of the continent, this industry is still not a priority of Africa governments. Liberalisation will bring strong outcomes – new routes, more frequent flights, better connections and lower fares. These improvements will increase the number of passengers, which will have both direct and indirect positive effects on trade, business travel and tourism. In turn, this has impacts for the broader economy, generating more tourismrevenues, jobs andproductivity. Theywill enhance the GDP of African countries and uplift the welfare of ordinary Africans. According to an IATA survey, if just 12 key African countries opened their markets and increased connectivity, an extra 155,000 jobs and USD 1.3 billion in annual GDP would be created in those countries. A study by InterVISTAS Consulting shows that in South Africa, liberalisation could yield an estimated 15,000 new jobs and generate USD 284 million contribution to national GDP’s. In the African A&D industry, the Leonardo and Airbus are challenging the Hercules tactical airlift supremacy in Africa and making their presence felt in North Africa. Chinese military equipment is growing in Africa with two thirds of African countries operating some Chinese equipment. USA, Russia and Israel as well as Europe are the other key players in the African A&D industry. 4.3. AEROSPACE AND DEFENCE INDUSTRY: SOUTH AFRICAN CONTEXT A case for South African MRO: The growing African aerospace industry raises the question on whether the airline operators can continue to afford spending their maintenance budgets abroad while establishing their own MRO facilities is prohibitively expensive. It is evident from the that Africa embodies great potential in aircraft MRO and a number of international operators are moving in to provide

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“SUPPORT THE GROWTH OF THE AEROSPACE, DEFENCE AND ADVANCED MANUFACTURING INDUSTRIES”

These trends highlight some immediate opportunities for the South African A&D industry such as: • The opportunity for South Africa to become a supplier country to the world A&D OEMs. The South African A&D industry is ranked 40th in a geographic assessment of manufacturing attractiveness by PwC 6 , above countries such as Turkey (41st), Saudi Arabia (45th) and Brazil (53rd). The attractiveness of South Africa as an investment destination for A&D players opens the opportunity to attract international OEMs and Tier 1 suppliers to CAV, • The increased demand for air traffic in Africa increases the demand for MRO and maintenance of aircraft at a suitable destination on the continent. South Africa is ideally positioned with its good infrastructure and skills base to provide such a service to several African airlines. The strategic plan of CAV is therefore also focussed on the establishment of supporting infrastructure (runway access) to MRO companies wishing to establish in South Africa, • The increased use of digital technologies, such as blockchain and Additive Manufacturing, artificial intel- ligence, virtual reality and other visualisation technologies creates an opportunity for CAV to reach out to high technology start-ups and create an enabling environment for these companies to engage with the OEM suppliers and MRO companies in the local and international A&D industries, and • The introduction of new technologies in manufacturing (e.g. AM) and digitalisation (e.g. VR and autonomous platforms, cyber security etc.) could be an opportunity for CAV to establish the high tech industrial park to support the industry by providing support for high bandwidth communication using broadband fibre optic network, incubation centres for high technology start-ups and conference and training facilities geared to support high tech entrepreneurs and engineers, IT specialists and material scientists. Challenges of the South African Aerospace and Defence Industry The previously mentioned Aerospace Industry Sector Development Plan (the AISDP) is characterised by specific challenges that will be addressed in the formulation of a

future strategy for the CAV. The development of CAV Landside and Airside facilities and services will allow CAV to capitalise on some challenges that are mentioned below: • The SA market for aerospace services is too limited to offer marketable justification for the existence of a SA industry, and the industry must thus position itself for global participation. The most accessible clients, and those that are best accessed through the Industrial Participation strategy of the dtic , are the major aerospace OEMs, • The OEMs are all attempting to reduce costs and to simplify their supply chain logistics through outsourcing functions that are niche and do not have an economic justification to retain them to the SMMEs . The SMME-type companies could successfully establish direct supply to these OEMs by physical positioning themselves closer to the OEMs and share supply chain logistics, thus rationalising the establishment of an industrial park such as the CAV, • The aerospace industry is characterised by the necessity for most stringent regulatory controls , mainly because of safety standards. Global supply requires of supplier’s major investment in quality and process approvals and specialist training. The costs of such approvals sometimes act as a barrier for smaller companies operating in isolation, • The aerospace industry is exceedingly dependent upon specialized competencies. These competencies are strongly dependent upon track record and established experience base. It is not realistic to base a strategy upon new entrants to immediately acquire the core competency necessary for participation in the higher tiers of supply. Core competency is historically presently vested in a few existing companies, not all of which can presently be considered B-BBEE-compliant, hence the need to support and create such SMMEs and B-BBEE compliant companies to achieve broadening economic participation and equity in the sector, • The industry is competing in the international arena and for it to be able to make inroads in this global industry, the local industry requires an Industrial Park Development of scale that should be able to allow a supplier competing in the local industry to market itself as an international role player,

6 https://www.pwc.com/us/en/industrial-products/publications/assets/ pwc-aerospace-manufacturing-attractiveness-rankings-2019.pdf

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4.4. THE AEROSPACE AND DEFENCE

• Further to the above challenges, the limited government stewardship in the South African industry is currently perceived to be the biggest issue by aerospace industry players , followed by sporadic demand . Accordingly, government should strengthen its participation in supporting the aerospace industry by various means, including leveraging on Public Procurement and other methods of funding. In this regard, the Joint Aerospace Steering Committee (JASC) has been established to coordinate the aerospace industry for collective gain, • The aerospace industry also requires a significant investment in terms of machinery plant and equipment . For South Africa to be able to deepen its manufacturing capabilities and move into knowledge- intensive value chain, a tremendous amount of industry upgrading will be necessary. The various governmental incentive schemes such as the Industrial Policy Action Plan (IPAP), the Black Industrialist Program, Invest SA, the Aerospace Industry Support Initiative (AISI) as well as, financing opportunities offered by agencies such as Industrial Development Corporation (IDC) and National Empowerment Fund (NEF) at national, provincial and local government levels are very handy in strengthening and upgrading the technological and industrial manufacturing capabilities, • Slow progress within the made toward transformation . The sector is not representative of the South African population and the new B-BBEE codes require a more aggressive approach to Broad-Based Black Economic Empowerment , • High barriers to entry for new entrants into the market due to various reasons such as access to funding, high complexity vs. low volume-based sector, sector in South Africa is relatively small, etc., and • Finally, there is an insufficient pipeline of incubated sub-tier supplier companies and skilled personnel to absorb current knowledge and experience, and an insufficient intra-governmental co-ordination for industry-specific and structured support. The limited availability of funding for the development of infrastructure, bulk services and facilities at CAV needs to be evaluated and challenged for the CAV Landside and Airside Developments to succeed in contributing to the selected sectors of the economy meeting the mentioned challenges.

INDUSTRY: CLUSTERS AND INDUSTRIAL PARKS Cluster type developments in South Africa include the development of Industrial Development Zones (IDZs), e.g. Coega and East London IDZ as established IDZs, as well as the new generation IDZs at Saldanha in the Western Cape, Dube Trade Port in Kwa-Zulu Natal (KZN) and the Maluti-A-Phofung (MAP) IDZ in the Eastern Free State. The IDZs are expected to migrate to Special Economic Zones (SEZs). The Aerotropolis (Aerospace + Metropolis) type developments that are being undertaken at Ekurhuleni (around the OR Tambo Airport) and the Dube Trade Port seek to leverage off the combined and synergistic economic and demographic developments in an area. The development of industrial parks across a variety of industries and areas have taken place to attract investors, tenants and users of facilities and to leverage off local and foreign investment, availability of shared services and phased development of infrastructure and utility services. Benchmarked industrial park type developments are the Automotive Supplier Park in Rosslyn (Northern part of the City of Tshwane’s geographical Area) and the Nelson Mandela Bay Logistics Park at Uitenhage (near Port Elizabeth in the Eastern Cape). Acursoryglanceatexperiencesbothlocallyandinternationally indicate that there is more scope of commercial sustainability of cluster and industrial park developments if projects of this nature are operated outside of government administration structures albeit with government initiation and even funding of the process, at least initially with infrastructure and services’ development funding. The following examples of global industrial parks of cluster concept developments with comparable mandates and similar goals were identified as follow: • Hi-Tech Industrial Parks with a similar focus on the Aerospace, Defence and Advanced Manufacturing Sectors: -- Aeropolis, Aerospace Technology Park of Andalusia in

the province of Seville, in the South of Spain, -- Aerospace cluster in Chihauhau, Mexico, -- Aerospace Valley in Toulouse, France and -- Midparc Casablanca Free Zone in Morocco.

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“SUPPORT THE GROWTH OF THE AEROSPACE, DEFENCE AND ADVANCED MANUFACTURING INDUSTRIES”

• Hi-Tech Industrial Parks where a close working relationship exists between a private development and the Department of Defence or Country’s Airforce 7 : -- Northolt Airforce Base, and -- Edward’s Airforce Base. • Aerospace Cluster Concepts as a Value-Added service to the Aerospace, Defence and Advanced Manufacturing Sectors 8 : -- PIEMONTE AGENCY, -- LAZIO CONNECT, -- Moravian Aircraft Cluster, and -- Hamburg Aviation.

7 Both these Industrial Parks were developed by the military with a strong focus on supporting the strengthening of military supply chains – both are good supporting developments in support of the CAV’s future Airside Development Phase. 8 These clusters are often structures in support of infrastructure developments and operate autonomously as in the case of Piemonte and Lazio.

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5. ORGANISATIONAL STRUCTURE 5.1. INSTITUTIONAL CAPACITY – ORGANISATIONAL ENVIRONMENT

Our team is composed of highly trained and experienced staff, who are working together to achieve our goal of becoming the number one aerospace and defence Industrial Park in Southern Africa.

The CAV team is committed to excellence, ethics, and integrity, which improves our business performance and serve the interest of our stakeholder.

5.2. FUNCTIONAL STRUCTURE

CEO

BUSINESS DEVELOPMENT AND MARKETING FUNCTION

HUMAN RESOURSES FUNCTION

CORPORATE GOVERNANCE FUNCTION

OPERATIONS FUNCTION

FINANCE FUNCTION

Tenant and Investment Management

Treasury and Working Capital Management

Company Secretariat and Legal Counsel

Park Development and Construction

Human Capital

Marketing and Communication

Financial Reporting and Control

Monitoring and Evaluation

Park Operations

Payroll

Facilities Management

Financial Planning and Analysis

Compliance

Information and Communications Technology

Supply Chain Management

Operations Management Function

Business Development Function

Corporate Services Function

Bookkeeping and Payables/ Receivables

Figure 3: CAV Organisational Functional Structure

The functional structure of the CAV includes three main areas of focus namely: “Business Development”, “Operations” and “Support” functions. The intention is to appoint a responsible

manager in each area who would drive the function to ensure that the CAV continues to deliver world-class, result oriented services and facilities.

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