Rolls-Royce on Wednesday confirmed plans to eliminate 9,000 jobs from its global workforce of 52,000 people in direct response to the collapse in demand for civil aircraft triggered by the Covid-19 pandemic. The aircraft engine maker indicated that the bulk of the cuts will likely be made on the civil aerospace side of its business and mainly in the UK, where much of this activity is concentrated.
Full details on the workforce reduction are still subject to further negotiations with trade unions. As part of a wider plan to achieve annualized savings of more than £1.3 billion ($1.6 billion), Rolls-Royce also intends to reduce expenditure on plant, property, capital, and “other indirect cost areas.”
The company expects the 9,000 job cuts to contribute around £700 million ($854 million) to this figure. As a result of the restructuring, it anticipates incurring one-off costs of around £800 million ($976 million) on its balance sheet through 2022.
A company statement explained that the restructuring plan will have implications for its Our Power Systems and ITP Aero product and customer support activities, which have been impacted by reductions in airline flying activity of as much as 90 percent. It added that the defense side of Rolls-Royce’s business has not yet been impacted by Covid-19.
Along with many other UK companies, Rolls-Royce has been able to furlough part of its workforce with the government covering 80 percent of salary costs. This program has now been extended through October, but CEO Warren East said that the company faces an urgent need to “respond to market conditions for the medium-term until the world of aviation is flying again at scale.” He added that “governments cannot replace sustainable customer demand that is simply not there.”
In recent weeks, Rolls-Royce has stepped up cost-saving efforts rapidly. On April 6, it announced a goal for saving at least £750 million ($915 million) in 2020. On May 7, when the group held its annual general meeting, it said that this amount had been increased to £1 billion ($1.2 billion), with savings including the cancellation of a final shareholder dividend payments of £137 million ($167 million).
Unite, the trade union representing Rolls-Royce's UK manufacturing workforce, denounced the job cuts as "shameful opportunism" and said that it estimates 3,375 of the layoffs will be in the UK. Steve Turner, assistant general secretary for manufacturing, said that the union will seek to reverse the decision in talks. "This company has accepted public money to furlough thousands of workers," he commented. "Unite and Britain's taxpayers deserve a more responsible approach to a national emergency. We call upon Rolls-Royce to step back from the bring and work with us on a better way through this crisis."