Rolls-Royce will cut nearly a fifth of its workforce to survive the collapse in global demand for aircraft caused by the multi-year coronavirus pandemic.
The aircraft engine manufacturer is making deeper-than-expected cuts of at least 9,000 jobs out of a global workforce of 52,000, the largest workforce reduction in 30 years.
The radical restructuring of Rolls-Royce, first announced by the Financial Times earlier this month, could include plant closings and is expected to save £ 1.3 billion.
Warren East, chief executive, said the group was discussing using the government’s short-term emergency loan facility to deal with short-term problems. But he insisted that “we have enough cash at the moment”.
He said any loan would be “a small amount of short-term financing”.
The restructuring announced on Wednesday was aimed at preparing the company for the longer term, he said.
“Here we are trying to protect jobs for the future. It is not about our liquidity, it is about protecting this vital capacity that we have. We must ensure the medium-term viability of our business. “
The cuts will hit hardest in the civil aerospace workforce in the UK, particularly Derby’s historic engine production facilities. About two-thirds of the job cuts may be expected in the UK, East said, with half expected to be implemented this year.
Unions immediately denounced the cuts as “shameful opportunism” and urged Rolls-Royce, one of the UK’s largest industrial employers, to look for ways to alleviate job losses.
Assistant Secretary General for Unit Manufacturing Steve Turner called on government to create National Recovery Council to send “clear signal that there is a strategy to reposition the UK and exit Britain from this terrible situation. “
The job cuts follow a sharp contraction in demand, with airlines canceling orders for aircraft and streamlining routes to survive the collapse of air travel following the pandemic.
Airbus and Boeing are planning extreme job cuts, having cut production rates by more than a third between them.
The move has started to trickle down the aerospace supply chain as competitors from Rolls-Royce, GE Aviation and Safran have already downsized to meet what is expected to be a significantly aircraft market. smaller for several years to come.
In particular, the widebody market served by Rolls-Royce, which specializes in large aircraft engines, is expected to be the hardest hit and the longest to recover.
Aircraft manufacturers said it could take three to five years to return to 2019 levels.
Analysts said Rolls-Royce had acted quickly to adjust its workforce to expected demand, but some have suggested there may be further cuts to come.
With two-thirds of the world’s aircraft fleet immobilized, the Rolls-Royce business model of generating revenue from in-flight engines and after-sales has been badly affected.
But engine sales are expected to be higher and there were questions about the impact of the global downturn on other divisions, said Agency Partners’ Nick Cunningham. “There will probably be a new series of cuts. “
East said the group would protect research and development spending on next-generation programs such as UltraFan and its efforts in hybrid electric propulsion. However, the absolute amount of R&D spending should come back a little.
Of the £ 1.3 billion in savings expected per year, job losses will amount to £ 700 million. The group plans to reserve costs of around £ 800 million between this year and 2020 as changes occur.