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Abu Dhabi, UAEThursday 21 June 2018

Jet engine maker Rolls-Royce said to plan 4,000 job losses

The latest retrenchment is the deepest since chief executive Warren East took charge in 2015

A Rolls-Royce Trent XWB engines. The firm is undergoing a restructuring. Reuters
A Rolls-Royce Trent XWB engines. The firm is undergoing a restructuring. Reuters

Rolls-Royce will eliminate about 4,000 jobs, as the UK jet-engine manufacturer seeks to simplify its business and boost profit margins, according to people familiar with the matter.

The cuts will result in annual cost savings of about £300 million (Dh1.48 billion) to £400m, said the sources, who asked not to be named discussing information that isn’t public. The measures will be announced as soon as Thursday, ahead of an investor presentation scheduled the following day, they said.

The cutbacks exceed estimates by analysts, who had expected savings of as much as £250m. The latest retrenchment is the deepest since chief executive Warren East took charge in 2015 and extends the total jobs eliminated under his leadership to close to 10,000. The company had about 50,000 workers last year, according to its latest annual report.

Rolls-Royce American depositary receipts pared their decline after Bloomberg reported on details of the plan. They were down about 1.2 per cent at 3.43pm in New York, after dropping 2.5 per cent earlier on a separate Bloomberg report on replacement-part shortages for faulty engines used in Boeing’s 787 Dreamliner.

A spokesman for Rolls-Royce declined to comment. On Monday, in response to stories in The Sunday Times and other publications, the company said its cost-reduction programme was aimed at “improving performance across the group as a whole” and that it would provide details on June 15.

East has been signalling the moves for months, as Rolls-Royce contends with pressure from activist shareholders, engine-durability issues and a price squeeze from major customers Boeing and Airbus.

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The cost review was announced in March after ValueAct, Rolls’s biggest holder, declined to extend a two-year old agreement that it wouldn’t interfere in management’s plans to turnaround the embattled engineer. East is trying to bring Rolls’s laggard margins closer to that of rivals General Electric and Pratt & Whitney.

Rolls-Royce said last month that its moves would mainly affect middle management and back-office staff in the company’s human resources, finance, IT, legal and marketing departments. The company has also said it will quit its base in one of London’s most upmarket districts for cheaper offices.

The restructuring moves follow the appointment of US consultants Alvarez & Marsal, hired in March to secure a new round of savings as Rolls targets £1bn in free cash flow by 2020. Rolls is also clamping down on discretionary spending to help rein in costs this year as it seeks to deliver on financial targets amid spiralling expenses from durability issues afflicting the Trent 1000 engine that powers the 787 Dreamliner.

Rolls-Royce has already shed layers of management, cut less-successful products and agreed to sell its fuel-injection unit in efforts to trim expenses amid a downturn in demand for marine engines and maintenance revenues from its business-jet turbines. The marine unit remains under review for possible disposal.