UK-based engine maker Rolls-Royce announced Wednesday (20 May) that it was shedding 9,000 workers from its global workforce of 52,000 and entering into a major reorganisation to deal with the ‘new normal’ in aviation wrought by the COVID-19 global pandemic that has all but shut down international flights and dramatically cut domestic traffic.
The company said the cuts will mainly impact the aviation side of the company’s business but said it would not provide details on the countries or the specific areas of that sector that will be affected. The company said in a statement that it is “increasingly clear that activity in the commercial aerospace market will take several years to return to the levels seen just a few months ago” and it must address “these medium-term structural changes, as demand from customers reduces significantly for our civil aerospace engines and aftermarket services”.
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The company called the move a “”major reorganisation” of its aviation business and said in addition to the 9,000 job cuts, the company cut spending across the business to generate annualised savings of more than £1.3 billion (US$1.59 billion), of which the job cuts will save £700 million. The cash restructuring costs related to these actions are likely to be around £800 million, with outflows incurred across 2020 to 2022, the company said.
CEO Warren East said “this is not a crisis of our making. But it is the crisis that we face and we must deal with it. Our airline customers and airframe partners are having to adapt and so must we. Being told that there is no longer a job for you is a terrible prospect and it is especially hard when all of us take so much pride in working for Rolls-Royce. But we must take difficult decisions to see our business through these unprecedented times.
“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, and governments cannot replace sustainable customer demand that is simply not there. We have to do this right, which means we will work closely with our employee and trade union representatives as appropriate, look at any viable alternatives to mitigate the impact, consult with everyone affected and treat our people with dignity and respect.”
The company said while the cuts mainly affect the aviation side of the business, other units are also developing plans to deal with the crisis. “Our Power Systems business and ITP Aero are currently developing, negotiating and executing extensive measures to deal with the current situation,” the company said. “Our defence business, based in the UK and US, has been robust during the pandemic, with an unchanged outlook, and does not need to reduce headcount. As part of the reorganisation, we will ensure that our internal civil aerospace supply chain continues to support our defence programmes and explore any opportunities to move people into our defence business.”
Analysts said Rolls-Royce really had no way around the job cuts.
“Rolls-Royce arguably had no choice in the matter. Its business, as a pure-player of the engine and power system industry, is one of the most badly touched by the COVID-19 outbreak and is almost entirely reliant on the output of plane manufacturers Airbus and Boeing,” said Nicolas Jouan, an aerospace analyst at GlobalData. “The two companies have themselves announced staff and production cuts. The A350 and the B787 have dropped respectively to six and 10 units per month. Both models fly with Rolls-Royce’s Trent engine, whose market share in the widebody segment climbed above 50 percent before the crisis…The reality is that Rolls-Royce needs to adapt its production to the demand from plane makers, or takes the risk to stockpile engines for non-existent aircraft.”
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