Jet engine maker Rolls-Royce said Tuesday it’s cutting up to 2,500 jobs globally, or about 6% of the staff, as part of a corporate overhaul that its new CEO is carrying out.
The aerospace company was hit hard by the COVID-19 pandemic that decimated demand for air travel. Tufan Erginbilgic, who took over as chief executive in January, said the layoffs are aimed at making Rolls-Royce “more streamlined and efficient.”
Rolls-Royce, based in Derby, central England, didn’t disclose where jobs will be cut, but around half of its 42,000-person workforce is based in the United Kingdom.
The company is the third-largest manufacturer in the Indianapolis area with about 4,000 local employees, according to IBJ research. A spokesperson for Rolls-Royce North America declined say whether any area employees would be affected by the cuts.
“We are building a Rolls-Royce that is fit for the future,” Erginbilgic said.
The company slashed 9,000 jobs globally in 2020 as it grappled with the collapse of air travel during the pandemic.
The new turnaround plan also includes creating a new company-wide procurement division that can take advantage of Rolls-Royce’s size to cut costs and reduce supply chain delays.
Erginbilgic is driving his turnaround effort deeper into the company after already switching some key management positions, including the head of the civil engine subsidiary. The engineering technology & safety businesses will be unified and run by Simon Burr, a senior manager at the civil aerospace subsidiary who is joining the executive team as part of the shift. Functions such as finance and legal will be brought together across the business.
“All this seems pretty obvious, and it is surprising this hadn’t already been done,” Nick Cunningham, an analyst at Agency Partners, said of the announced changes. “The net effect should be to help to prevent costs growing as fast as sales and this should better enable incremental revenues to drop down to profits and cashflow.”
Having joined Rolls-Royce from BP Plc, Erginbilgic brought in consultants to advise on streamlining the organization. The restructuring is aimed at reducing duplication of roles across the company’s three main businesses of civil aerospace, power systems and defence. Rolls makes engines for the largest commercial aircraft and earns money based on their hours of use as well as with lucrative service contracts.
Erginbilgic’s tenure has already seen a shakeup to senior management, with the CEO bringing over Helen McCabe from his former employer to take over as chief financial officer. He also named Rob Watson as president of civil aerospace, and moved the previous head of that business, Chris Cholerton, into the position of group president.
Rolls-Royce has undergone several overhauls in recent years, aimed at tackling a bureaucratic structure and high costs that have led to significantly lower profit margins than its closest competitors. Previous CEO Warren East saw his efforts to turn around the company blunted by the coronavirus pandemic.
Early into his tenure at the start of this year, Erginbilgic likened the company to a “burning platform.” Since then, he’s presided over a stock price that has more than doubled in value, as long-distance travel rebounds from pandemic lows, reigniting demand for large aircraft like the Airbus A350, for which Rolls-Royce is the sole supplier.
The Unite union, which represents Rolls-Royce employees, said it was “very disappointed” to hear of the planned cuts via media reports and that while workers were briefed on Tuesday, there was no additional clarity on the job losses or where they are likely to occur
“Employees have suffered three previous transformations since 2016, resulting in thousands of job losses,” said Unite general secretary Sharon Graham. The UK workforce is “bearing the brunt of those losses, despite Rolls-Royce receiving hundreds of millions of pounds in taxpayers’ money via the UK government in support of the business.”
About half of Rolls-Royce employees are in the UK, 11,000 work in Germany and about 5,500 are located in the U.S. The company’s last round of major job cuts took place in May of 2020, when the manufacturer said it would eliminate 9,000 jobs around the world to adjust to the pandemic-related downturn.
Analysts at Citi suggest the latest cuts could achieve as much as $243 million in cost savings a year, assuming a per-head cost of $80,000.
Cash flow at Rolls has risen rapidly this year, lightening the burden of interest payments just as rate increases make borrowing more expensive. Accelerating its debt-reduction plans could lead to credit-rating upgrades for Rolls, Bloomberg Intelligence said in a report.