Reviving Rolls-Royce: Unveiling a Strategic Overhaul with Up to 2,500 Job Transformations
Rolls-Royce to cut 2,500 jobs worldwide, aiming to streamline operations and address years of underperformance in the aircraft engine manufacturing sector
Aircraft engine manufacturer Rolls-Royce plans to reduce its workforce by up to 2,500 employees globally in order to streamline its operations and address years of underperformance. The leading engineering company in Britain, responsible for producing engines for Boeing (BA) and Airbus aircraft, announced on Tuesday that these job cuts are a key component of a more extensive strategic restructuring aimed at eliminating redundancy and achieving cost-effective operations.
The restructuring will result in the elimination of approximately 2,000 to 2,500 jobs, which represents a reduction of around 6% from our global workforce of 42,000. (Please note that Rolls-Royce is a separate entity from Rolls-Royce Motor Cars, which is a wholly owned subsidiary of BMW. The two companies with the Rolls-Royce name were previously part of the same organization until the 1970s.)
"Our aim is to create a future-ready Rolls-Royce by implementing a more efficient and streamlined organization, ultimately benefiting our customers, partners, and shareholders," stated CEO Tufan Erginbilgic.
A jet engine at the assembly line of the Rolls-Royce plant in Dahlewitz near Berlin, Germany
The company, in its ongoing efforts to improve, has recently undergone a revamp. This comes after their initial response to the Covid-19 pandemic, where they aimed to reduce their workforce by a minimum of 9,000 employees due to the sharp decline in air travel demand. Additionally, in 2018, the company had already made plans to eliminate 4,600 positions as a cost-saving measure.
Erginbilgic, who took over as CEO in January following a long tenure at oil giant BP, has been frank in his evaluation of the performance of the aerospace and defense companies. Speaking to Rolls-Royce employees soon after assuming the role, he characterized the business as a "burning platform" that was lagging behind its main competitors and eroding shareholder value.
"At the annual shareholder meeting in May," he pointed out, "it was evident that Rolls-Royce has been underperforming for a significant period of time."
The cash generation has not met expectations, and our debt remains excessively high. A significant portion of our gross profit is solely being allocated towards our overheads and interest expenses. Erginbilgic, in his statement, unveiled a "transformation program" aimed at establishing a streamlined and cost-effective business model, without providing specific information regarding the potential effects on employees.
The plan announced on Tuesday involves merging the staff working on product safety and engineering standards into one team. Additionally, back-office functions, including finance, legal, and human resources, will be consolidated. As a result of this overhaul, Grazia Vittadini, the current chief technology officer, will depart from the company in April 2024. Erginbilgic expressed that this represents another milestone in their ongoing journey to transform Rolls-Royce into a high-performing, competitive, resilient, and expanding enterprise.
Investors enthusiastically responded to the changes, causing the stock to rise by over 2% during morning trading. However, these gains were partially reduced later on. Over the past year, the stock has experienced a significant increase of over 200%, positioning it as the top performer in Londons FTSE 100. Victoria Scholar, the head of investment at online investment platform Interactive Investor, has confirmed this. As stated in her note on Tuesday, Scholar expressed utmost optimism for Erginbilgic and acknowledged the "sharp jump" in profit during the first half. She also highlighted the success of the transformation plan, which is supported by improved operations, the post-pandemic resurgence in international travel, and increased defense spending.
