Global engine maker Rolls-Royce reported Thursday (27 August) that it lost £5.4 billion (US$7.12 billion) in what it called a “significant (first half) impact from the COVID-19 pandemic that has virtually shut down international commercial aviation and said the “shape of industry recovery remains uncertain”. As a result of its poor performance and the uncertainty facing the entire aviation industry, the company also announced a number of moves that will consolidate some operations in Singapore from the UK and close some UK operations. The company declined to say whether any jobs will be lost in Singapore.
The company told Singapore media outlets in July that it would cut about 240 jobs or 24 percent of its Singapore workforce. Mostly technical roles will be affected by the layoffs, which will start in mid-August as part of a global restructuring, the company told The Business Times. Rolls-Royce employs about 1,000 people in Singapore making fan blades and assembling and testing engines at Seletar Aerospace Park. This excludes its maintenance, repair and overhaul joint venture with SIA Engineering.
Rolls-Royce said earlier this year it planned to cut at least 9,000 jobs across its global workforce and on Thursday it confirmed plans to close factories in Nottinghamshire and Lancashire in the United Kingdom. The company said its engine components plant in Annesley would shut because of the “significant reduction” in demand and said it would merge two factories in Barnoldswick, Lancashire, and move some operations to Singapore. About 1,500 jobs are expected to be lost from the manufacturer’s Derby headquarters this year and more than double that number have expressed interest in voluntary redundancy.
A Rolls-Royce spokesman told the BBC that “demand for our civil aerospace products and services has fallen significantly and we’ve had to take difficult but necessary decisions to position ourselves for the future. Today we have told our employees that we are proposing to close some of our sites, and some will see significant reductions in workload.” He added Rolls-Royce was still reviewing the potential impact of coronavirus at its other Nottinghamshire site in Hucknall.
In Singapore, Bicky Bhangu, Rolls-Royce’s president for Southeast Asia, the Pacific and South Korea said “today Rolls-Royce announced that we will be consolidating our advanced Wide Chord Fan Blade manufacturing volume in our Fan Blade Singapore facility at Rolls-Royce Seletar Campus. We also announced that our aero engine assembly and test volume in Singapore will be consolidated into Derby, UK. These decisions are driven by the significant and unprecedented impact of COVID-19 on the global aviation industry and on demand for our civil aerospace products and aftermarket services. We believe it will deliver an operationally effective and sustainable solution for the reduced level of demand in the commercial aerospace market that is expected to take several years to recover. We will now begin the detailed planning work to support the transition of engine assembly and test volume, which we anticipate will commence in Q3 2021. Our people have key skills and capabilities and we will proactively seek opportunities within the Rolls-Royce ecosystem in Singapore for our colleagues from assembly and test unit.”
Bhangu said the company would be in discussions with Singapore’s Economic Development Board, the Singapore Industrial & Services Employees’ Union and NTUC’s Employment & Employability Institute. “We value our significant and long-term partnership with Singapore and we remain fully committed to Singapore as a strategic hub for high-value manufacturing; research & technology; supply chain; our regional power systems business; and as the service centre for our civil aerospace customers in Asia-Pacific,” Bhangu said.
Rolls-Royce in its earnings statement reported underlying revenue of £5.6 billion, down 24 percent and reported revenue of £5.8 billion down 26 percent from the same quarter a year ago. It said its underlying operating loss of totalled £1.7 billion including one-off charges of £1.2 billion for civil aerospace, largely related to COVID-19. It also reported an operating loss of £1.8 billion including a £1.1 billion impact from impairments and write offs and £366 million restructuring charges partly offset by a £498 million exceptional credit on the Trent 1000 programme, driven by COVID-19.
The company said the most pronounced effect from COVID-19 was seen in civil aerospace with large engine deliveries and flying hours both down around 50 percent in the first half including a 75 percent reduction in engine flying hours in the second quarter. The company also said its aftermarket revenue fell and spare engine sales fell as well because of the pandemic and the effects commercial aviation.
Fundamental restructuring of Civil Aerospace
Rolls-Royce said it expects annualised pre-tax savings of at least £1.3 billion across the group by the end of 2022 from its restructuring programme, with approximately £700 million of these savings directly related to headcount reduction and the rest from reduced expenditure across plant and property, capital and other indirect costs. The phasing of the expected £800 million implementation cash costs will be approximately £400 million in 2020, £300 million in 2021 and £100 million in 2022.
As previously announced, in order to adapt to the new level of demand from customers, the company will cut at least 9,000 people from the payroll. By 27 August, more than 4,000 people had left the business, with at least 5,000 expected by the year-end, spread across the group in UK, Germany, Singapore and other global locations. This includes more than 2,500 voluntary severance and early retirement agreements in the UK, substantially reducing the need for compulsory redundancies.
The company said it was also “making significant progress on the consolidation of our manufacturing, enabling us to balance our capacity with the new levels of demand”. This includes proposals to:
- Consolidate widebody engine assembly and test from three global sites to one in Derby, UK;
- Consolidate advanced Trent fan blade production from two global sites to one in Singapore;
- Focus our advanced disc and turbine blade machining in the UK, including the consolidation of advanced turbine blade machining from two global facilities to one in Derby;
- Consolidate blisk production from three sites to two facilities in Derby and Oberursel, Germany.
“As we reorganise our aerospace activities to reflect the expected market size post-COVID-19, we are also assessing significant changes in our make-versus-buy strategy, focusing on high value manufacturing, increasing the use of third parties for other components, and reducing overall capital intensity,” Rolls-Royce said.
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