Rolls-Royce is to cut 9,000 jobs, almost a fifth of its workforce, as the coronavirus crisis takes its toll on the aviation industry.
The jet engine manufacturer said it was targeting £1.3bn in annual cost savings to weather the protracted downturn caused by the Covid-19 pandemic that has grounded much of the world’s airlines. Head count cuts will account for about half the savings target.
Derby-based Rolls-Royce, which employs 52,000 staff globally, said the job losses would be felt worst in its civil aerospace business, with about 8,000 of the 9,000 roles being made redundant coming from that division. The company also makes fighter jet, ship and submarine engines but it said there would be no job losses at its defence businesses.
Speaking on BBC Radio 4’s Today programme, Rolls-Royce’s chief executive, Warren East, indicated that the UK would be heavily affected. The group’s civil aerospace division employs almost 16,000 people in the UK.
He said: “It’s fair to say that of our civil aerospace business, approximately two-thirds of the total employees are in the UK at the moment and that’s probably a good first proxy.”
In total, Rolls-Royce employs 23,700 staff in the UK, where nine of its approximately 17 main manufacturing locations are based. The company has a presence in over 50 countries around the world. “This isn’t only going to be a UK phenomenon,” said East, referring to the cuts programme.
The company has currently furloughed 4,000 UK staff, which East said was only a short-term measure to save cash this year.
East said the aim was to make “more than half” the job cuts this year. “We need to get on with it because we know it is a harsh reality about our future,” he said. “We hope to make a very good start on this in 2020, more than half at any rate.”
East said he expected new aeroplane engine production to be about a third less than last year, and it would take several years to fully recover, in line with demand from aeroplane producers.
The International Air Transport Association does not expect air travel to recover to 2019 levels until 2023, which will affect demand for airline tickets, plane orders and the engines that Rolls-Royce makes for those jets.
A key proportion of Rolls-Royce’s civil aerospace profits comes from aircraft owners paying regular engine service fees to the company. A global grounding of airline fleets has hit those revenues significantly.
Pre-lockdown, Rolls-Royce engines carried millions of airline passengers around the world every week. The company makes engines for the Airbus A330, A340, A350 and A380 jets, as well as the Boeing 777 and 787 Dreamliner.
“Governments across the world are doing what they can to assist businesses in the short term, but we must respond to market conditions for the medium term until the world of aviation is flying again at scale,” said East. “Governments cannot replace sustainable customer demand that is simply not there.”
When asked about what the government would do to help Rolls-Royce employees, the British justice secretary, Robert Buckland, said: “Clearly we will have to go to work with the employer to look at the options.
“All of us will be looking not just at Rolls-Royce but at the whole sector and the implications of this for the supply chains as well, let’s not forget them, to make sure we are doing everything we can in terms of plans and action to support what is a very high skilled part of our economy,”
East indicated that the company could also turn to the government’s taxpayer-backed Covid corporate financing facility, which lets big companies borrow up to £1bn.
“We will discuss that with the government,” said East. “In reality it would be a relatively small amount of funding.”
Rolls-Royce said its defence business, based in the UK and US, had been robust during the pandemic.
“The world on the other side of this pandemic will need the power that we generate to fuel economic recovery,” said East. “We are one of a very small number of companies that can do what we do.”