Rolls-Royce to reduce 2,500 jobs to extend efficiency drive

BLOOMBERG

Rolls-Royce Holdings Plc plans to eliminate as many as 2,500 positions worldwide and will streamline operations, enacting the deepest job cuts yet under Chief Executive Officer Tufan Erginbilgic.
The reductions will target 2,000 to 2,500 employees, or about 6% of the global staff, the company said in a regulatory statement, confirming reports of job losses. As part of the corporate overhaul, Chief Technology Officer Grazia Vittadini will leave the company in April next year, Rolls-Royce said. She was in the position since Nov. 2021, having joined from Airbus SE.
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 organisation. 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 rose as much as 2.3% to 218.4 pence in London trading. The stock is the best performer on the FTSE 100 Index this year.
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.
About half of Rolls-Royce employees are in the UK, 11,000 work in Germany and about 5,500 are located in the US. 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 £200 million ($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.