Rolls-Royce to Cut 4,600 Jobs -- 2nd Update
June 14 2018 - 4:53AM
Dow Jones News
By Robert Wall
British aircraft-engine maker Rolls-Royce Holdings PLC, facing
investor pressure to boost competitiveness, said it would shed
4,600 jobs even as it grapples with mounting problems with an
engine powering Boeing Co. 787 Dreamliners.
The cuts announced Thursday, which represent 8.4% of the
company's 55,000 workforce, will be implemented out over the next
24 months, the company said. The job cuts are Rolls-Royce's largest
since October 2001 when the company shed 5,000 jobs in response to
a downturn in the global economy after the Sept. 11, 2001 terrorist
attacks in the U.S.
The move is the latest by Chief Executive Warren East to improve
profitability at Rolls-Royce, which lags its U.S. rivals such as
General Electric Co. The effort has been beset by setbacks,
including faster wear-and-tear on components used on different
engine models, including those used on some Dreamliner long-haul
jets and others powering Airbus SE A380 superjumbos.
Rolls-Royce said it would incur GBP500 million ($670 million) in
costs associated with the staff reductions through 2020. Annual
savings by the end of the program should reach GBP400 million, it
said.
Rolls-Royce, no longer affiliated with the luxury car maker, has
previously announced thousands of job cuts in recent years and also
reduced its dividend after profit slumped.
Rolls-Royce is under pressure to improve. U.S. activist investor
ValueAct Capital Management became its largest shareholder in 2015
and a representative joined the board in 2016. An agreement with
the company to refrain from openly criticizing Rolls-Royce's
strategy expired this year. Rolls-Royce has said it is prepared to
sell its marine unit, which has been struggling, and earlier this
month completed the sale of its fuel injector business to Woodward
Inc.
Activist investors have already driven big changes at U.S.
industrial giants such as GE, where Trian Fund Management has
pushed for cost cuts and a revamp of operations. Last year,
Honeywell International Inc. said it would spin off its home and
transportation businesses, winning over activist investor Third
Point, which had pushed the Morris Plains, N.J.-based company to
streamline.
Mr. East told reporters the restructuring marked "a pivotal
moment" for Rolls-Royce to prepare for the future and boost cash
generation. He signalled this could be the end of a series of job
cut announcement since he joined in 2015. Shares in the company
rose 2.3% in early trading in London.
Mr. East stuck to his target of delivering around GBP1 billion
in free cash flow in about two years, though the figure strips out
the restructuring costs. Free cash flow this year should be between
GBP350 million and GBP550 million, the company said, as it
reaffirmed previous guidance.
Rolls-Royce also is grappling with customer complaints because
of engine problems that have forced some carriers to park planes
for repairs and rent alternative jets to continue flying. Some have
had to fly longer routes to handle flight restrictions regulators
have imposed on some Dreamliners because of engine problems.
Rolls-Royce in March estimated it would face GBP340 million in
cash costs from additional inspections and fixes. The company said
it would cut some travel, information technology and
research-and-development expenses to mitigate the cost impact.
But since it first announced the belt tightening in April new
problems have emerged. The company on Monday said the problems with
its Boeing 787-powering Trent 1000 engines had widened. An
additional subset of engines would need to be checked, forcing
airlines to idle planes. The engine maker said it didn't know, yet,
the cost impact.
Mr. East said none of the job cuts would impact efforts to fix
its engines. Efforts to boost production of new engines also would
be unaffected, he added.
Rolls-Royce has said it could take until 2021 to fix all
affected engines.
The company said Thursday about a third of the job cuts would
take place before the end of the year and should be completed in
mid-2020.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
June 14, 2018 04:38 ET (08:38 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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