Eagle Ottawa to close one of their plants

16 October 2006

Eagle Ottawa South Africa have finally taken the decision to close. While this action has long been anticipated, in compliance with SA labour legislation, at this stage the company have only informed customers and suppliers that they have 'commenced a consultation process with our employees on the possibility of closing our manufacturing facilities.' They have also declined to comment for publication on the same grounds. The closure, which would probably be after it has completed contracts with Volkswagen and Land Rover, should have relatively little impact on the industry, because Eagle Ottawa have been processing at relatively low levels since January 2005. Late last year, managing director Kevin Velik said the tannery had been producing 1,800 hides/week and was expecting to increase to 3,000/week this year. It is rumoured, however, that production has not reached those figures - at least not consistently, and that at times it has been producing as little as 900 hides/week. The capacity of the Centurion finishing plant is around 2,500 hides/day (12,500) in a five-day week. 'We took the pain in January last year', said one supplier. 'There shouldn't be much of an impact now.' The impact on South Africa's status as an automotive leather producer, however, may be much more profound, although Dawid Bezuidenhout, convenor of the Joint Action Group on Automotive Leather Interiors (JALI) - the interface between the automotive leather industry and government - played down its significance. 'I wouldn't say our auto leather tanning industry is facing a demise', he said. 'You have ups and downs in this industry. Current tanning capacity utilisation is not what it should be, and is a real concern. 'The industry is doing its level best to try to keep the Eagle Ottawa leather work in South Africa.' He said he didn't think Eagle Ottawa's decision would discourage investment by other automotive leather producers. 'Their withdrawal decision seems an internal one and … I also don't think it will persuade (other) multinational companies not to invest in South Africa - there is ample evidence of that also in other manufacturing sectors. 'In the automotive sector, a number of large investments in plant and equipment have taken place. It must be remembered that auto leather tanneries benefit from the MIDP only indirectly. A contraction in business is felt first at the sewing side. Currently the MIDP is continuing and the DTI has promised a decision, at least in principle, on the matter this month. We will take the matter from there.' In a letter to suppliers and customers, signed by Dr Udo Schnell, president, Eagle Ottawa Europe/South Africa, and Alan Ross, director sales and marketing, Eagle Ottawa Europe/South Africa, the company said: 'In the last years Eagle Ottawa has continuously been assessing and if necessary adjusting the global footprint of its manufacturing locations. For several months we have been analysing the financial situation of our South African operation and the future outlook of Eagle Ottawa South Africa as a competitive location to produce automotive leather. 'The competitive environment in South Africa has changed significantly and, based on historical data and future prospects, the Eagle Ottawa board of directors is of the view that the South African operation is no longer financially viable. We have, therefore, commenced a consultation process with our employees on the possibility of closing our manufacturing facilities in South Africa. 'It goes without saying that we are working closely with our current customers in South Africa to avoid any supply risks during the coming months.' A supplier added: 'It couldn't have been an easy decision for Eagle Ottawa. At a guess, the company invested about R200 million (US$ 27 million) in this country.'

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