Rolls-Royce Holding PLC (LON:RR.) shares tumbled on Monday on the back of news that the engine maker may cut more than a third of its UK jobs after being hit by lower demand from the airline industry because of the coronavirus pandemic.
The FTSE 100 company is reportedly eyeing job cuts of up to 8,000 of its 23,000 UK staff, mostly in the civil aerospace business, potential representing up to 15% of its global workforce.
Shares in Rolls-Royce fell 9% by Monday lunchtime to 284.4p, down more than 58% since the start of the year.
Rolls-Royce announced plans to make £750mln of savings last month as it said the civil aerospace aftermarket business, focused on the maintenance of existing aeroplane engines, was being hit by the pandemic as many airlines keep most of their fleets grounded.
While the company had been preparing for an anticipated reduction in engine delivery and maintenance, repair and overhaul volumes, it had kept its output of new widebody engines broadly stable in the first quarter of the year, as aeroplane manufacturers maintained production levels.
But aircraft manufacturers have since slashed production, with Airbus, for example, reducing production by a third, with airlines also slashing thousands of jobs.
Rolls-Royce senior management admitted in a statement that there will be job cuts as they “need to take further action”, though did not confirm or deny the 8,000 jobs reported by the Financial Times, saying staff would be given provided with more details at the end the month.
“Such action at some point appeared inevitable,” said analysts at Jefferies, forecasting full year group sales down 12% with civil aerospace revenue down 18% due to lower engine deliveries.
Boss Warren East last announced a big round of job cuts in 2018, when 4,600 jobs were done away with, predominantly in the UK, as part of a plan to simplify the business and save £400mln a year by the end of 2020.
However, any savings have been far more than offset by around a total of £3.2bn of costs and lost forecast earnings from the reliability issues affecting its Trent 1000 engines.
Trade unions urged the company to avoid a knee-jerk reaction.
Steve Turner, assistant general secretary for manufacturing at Unite, called for Rolls-Royce to “step back from drastic, short-term responses”.
“These are unprecedented times. We understand the challenges to our industries from COVID-19 and the impact of government measures to protect public health on both the immediate and longer-term outlook for manufacturing as well as the wider economy.
"However, at a time when we are working hard to protect jobs and businesses through this pandemic with pay protection, government loans and other industry specific packages backed by the Bank of England, right now we are asking Rolls-Royce, along with others across manufacturing, to hold firm and defer from short-term reactions that will both damage the economy and undermine our ability to emerge from this with job security and consumer confidence intact.”
"Our economy is changing and our manufacturing sector has to be in a fit shape to rise to these challenges. The demands of climate change and major public infrastructure projects will require engineering solutions and UK manufacturers stepping up and diversifying production to meet national demands.
“Our great manufacturing sector can and must be put to work developing and manufacturing for a cleaner, greener future; the heat pumps, domestic and commercial energy storage packs, carbon capture technologies, hydrogen and other green energy generation, including ramping up work on the world class small modular nuclear reactor developed by Rolls-Royce.
“We have an opportunity to showcase the best of British manufacturing that requires exactly the sort of research and development, design and engineering expertise possessed by the workforce at Rolls-Royce.”
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