Rolls-Royce Holdings PLC CEO Warren East’s five-year bid to revive earnings has been shattered by the COVID-19 pandemic as the UK engineering giant moves to scrap 9,000 jobs and considers closing sites.
Jet engine maker Rolls-Royce yesterday said in a statement that it is to cut 17 percent of its workforce and boost savings goals amid a travel slump that has wiped out vital maintenance revenue and prompted airlines to scale back years of airplane orders.
Rolls-Royce is particularly exposed because of its focus on larger aircraft, which face a reduced role in global fleets as the pandemic depresses economies and alters travel habits.
Before the outbreak of the novel coronavirus, the London-based firm was turning a corner after years of restructuring that saw it eliminate about 10,000 posts in an effort to become more agile and productive, East said on a conference call.
The airline must protect future jobs by acting now, he said.
“It’s been increasingly clear the impact of the virus will last much longer than just 2020,” East said.
Rolls-Royce shares slid 2.5 percent in morning trade in London, taking their decline this year to 62 percent and valuing the business at ￡5.1 billion (US$6.2 billion).
Commerzbank AG analyst Norbert Kretlow said in a note that the high number of job cuts suggests that Rolls-Royce is not expecting a quick “V-shaped” recovery, while Jefferies International Ltd analyst Sandy Morris wrote that the cuts are an “essential step,” but that the company needs to do more to provide clarity on the cost base.
The reorganization would predominantly affect the civil aerospace business, but also have implications for central support functions, Rolls-Royce said.
No details of the sites affected would be provided while discussions are ongoing with staff and unions.
The company also said that it is carrying out a detailed review of its facility footprint.
Its main civil engine plants are in Derby, England; Dahlewitz, Germany; and Singapore, although it also has maintenance sites in other locations.
East, who joined from semiconductor developer ARM Holdings PLC, has told investors that Rolls-Royce needs to save ￡1 billion this year as it faces its biggest challenge since the 1970s, when it was nationalized after entering liquidation.
That figure would now be extended to ￡1.3 billion on an annualized basis, ￡700 million from job cuts.
Rolls-Royce previously said that it plans to produce 250 airplane engines this year, down from its previous estimate of 450.
The firm was earlier this month reportedly considering a 15 percent cut to its workforce.
Additional reporting by AFP
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