Saturday, June 15

Rolls-Royce is set to cut 2,500 jobs as part of its ongoing efforts to enhance operational efficiency

Rolls-Royce Holdings plc is embarking on a substantial restructuring effort, aiming to eliminate approximately 2,500 positions across the globe as part of its drive to enhance operational efficiency. This marks the most extensive round of job cuts under the leadership of CEO Tufan Erginbilgic.

The planned reductions will impact between 2,000 and 2,500 employees, accounting for roughly 6% of the company’s worldwide workforce, as confirmed in a regulatory statement following reports of impending job losses. As part of the corporate restructuring, Rolls-Royce will see its Chief Technology Officer, Grazia Vittadini, depart the company in April next year. Vittadini had held the position since November 2021, having previously worked with Airbus SE.

Erginbilgic is intensifying his turnaround efforts within the company, which have already included personnel changes in key management positions, such as the head of the civil engine subsidiary. The restructuring also entails consolidating functions within the engineering technology and safety divisions, with Simon Burr, a senior manager from the civil aerospace subsidiary, taking charge. This shift aims to unite functions like finance and legal services across the business.

Nick Cunningham, an analyst at Agency Partners, commented on the announced changes, stating, “All this seems pretty obvious, and it is surprising this hadn’t already been done.” He further noted that the anticipated effect of these changes would be to curtail the growth of costs relative to sales, enabling incremental revenues to translate into profits and cash flow more effectively.

Erginbilgic, who joined Rolls-Royce from BP plc, has engaged consultants to advise on streamlining the organization. The restructuring focuses on reducing role duplication across the company’s three main business segments: civil aerospace, power systems, and defense. Rolls-Royce is renowned for producing engines for the world’s largest commercial aircraft, and it derives revenue from their hours of use as well as lucrative service contracts.

During his tenure, Erginbilgic has introduced notable shifts in senior management, including the appointment of Helen McCabe as the Chief Financial Officer, and the elevation of Rob Watson to President of Civil Aerospace. This saw the previous head of the business, Chris Cholerton, taking on the role of Group President.

Rolls-Royce’s stock rose as much as 2.3 percent in London trading, making it the top performer on the FTSE 100 Index this year.

In recent years, Rolls-Royce has undergone several restructurings aimed at addressing bureaucratic structures and high costs, which have resulted in significantly lower profit margins compared to its closest competitors. The previous CEO, Warren East, faced challenges in his efforts to turn the company around, partially due to the impact of the COVID-19 pandemic.

Erginbilgic, who took the helm earlier this year, compared the company to a “burning platform” in the early days of his leadership. Since then, Rolls-Royce’s stock price has more than doubled in value as long-distance travel rebounds from pandemic lows, rekindling demand for large aircraft, particularly the Airbus A350, for which Rolls-Royce is the sole supplier.

Approximately half of Rolls-Royce’s workforce is based in the UK, with 11,000 employees in Germany and around 5,500 in the US. The company’s last major round of job cuts occurred in May 2020 when it announced plans to eliminate 9,000 jobs globally to adapt to the pandemic-related economic downturn.

Analysts at Citi suggest that the latest round of cuts could result in cost savings of up to £200 million annually, assuming a per-head cost of £80,000.

Rolls-Royce’s cash flow has increased significantly this year, which has lightened the burden of interest payments, particularly as interest rates rise, making borrowing more expensive. Accelerating its debt-reduction plans may lead to credit rating upgrades for Rolls, according to Bloomberg Intelligence.

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