Rolls-Royce Plans 9,000 Job Cuts on Collapse in Air Travel

Rolls-Royce Plans 9,000 Job Cuts on Collapse in Air Travel

© Photographer: Adam Berry/Getty Images
An employee inspects a Rolls-Royce Trent XWB engine in Berlin.

(Bloomberg) — Rolls-Royce Holdings Plc Chief Executive Officer Warren East’s five-year bid to revive earnings has been shattered by the coronavirus as the U.K. engineering giant moves to scrap 9,000 jobs and considers closing sites.

Jet-engine-maker Rolls will cut 17% of its workforce and boost savings goals amid a travel slump that’s wiping out vital maintenance revenue and prompting airlines to scale back years of plane orders, it said in a statement Wednesday.

Rolls-Royce is particularly exposed because of its focus on larger aircraft facing a reduced role in global fleets as the pandemic depresses economies and alters travel habits. East said before the outbreak that the London-based company 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.

The airline must protect future jobs by acting now, the CEO said on a conference call. “It’s been increasingly clear the impact of the virus will last much longer than just 2020,” East said.

Rolls-Royce shares traded 1.9% lower at 262.6 pence as of 8:03 a.m. in London, taking their decline this year to 62% and valuing the business at 5.1 billion pounds ($6.2 billion).

Norbert Kretlow, an analyst at Commerzbank AG, said in a note that the high number of job cuts suggests Rolls isn’t expecting a quick “v-shaped” recovery, while Sandy Morris at Jefferies International 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 will predominantly impact the civil aerospace business but also have implications for central support functions, Rolls-Royce said. No details of the sites affected will be provided while discussions are ongoing with staff and unions.

The company also said it’s carrying out a detailed review of its facility footprint. Its main civil engine plants are in Derby, central England, Singapore, and Dahlewitz near Berlin, though 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 pounds this year as it faces the biggest challenge since the 1970s, when it was nationalized after entering liquidation. That figure will now be extended to 1.3 billion pounds on an annualized basis, 700 million pounds from job cuts.

Rolls Royce previously said it plans to produce 250 plane engines this year, down from its previous estimate of 450.

It was reported earlier this month that Rolls was considering a 15% cut to its workforce.

(Updates with shares in fifth paragraph, analyst comments in sixth)

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