By Robert Wall
British aircraft-engine maker Rolls-Royce Holdings PLC, facing investor pressure to boost competitiveness, said it would shed 4,600 jobs even as it grapples with mounting problems with an engine powering Boeing Co. 787 Dreamliners.
The cuts announced Thursday, which represent 8.4% of the company's 55,000 workforce, will be implemented out over the next 24 months, the company said. The job cuts are Rolls-Royce's largest since October 2001 when the company shed 5,000 jobs in response to a downturn in the global economy after the Sept. 11, 2001 terrorist attacks in the U.S.
The move is the latest by Chief Executive Warren East to improve profitability at Rolls-Royce, which lags its U.S. rivals such as General Electric Co. The effort has been beset by setbacks, including faster wear-and-tear on components used on different engine models, including those used on some Dreamliner long-haul jets and others powering Airbus SE A380 superjumbos.
Rolls-Royce said it would incur GBP500 million ($670 million) in costs associated with the staff reductions through 2020. Annual savings by the end of the program should reach GBP400 million, it said.
Rolls-Royce, no longer affiliated with the luxury car maker, has previously announced thousands of job cuts in recent years and also reduced its dividend after profit slumped.
Rolls-Royce is under pressure to improve. U.S. activist investor ValueAct Capital Management became its largest shareholder in 2015 and a representative joined the board in 2016. An agreement with the company to refrain from openly criticizing Rolls-Royce's strategy expired this year. Rolls-Royce has said it is prepared to sell its marine unit, which has been struggling, and earlier this month completed the sale of its fuel injector business to Woodward Inc.
Activist investors have already driven big changes at U.S. industrial giants such as GE, where Trian Fund Management has pushed for cost cuts and a revamp of operations. Last year, Honeywell International Inc. said it would spin off its home and transportation businesses, winning over activist investor Third Point, which had pushed the Morris Plains, N.J.-based company to streamline.
Mr. East stuck to his target of delivering around GBP1 billion in free cash flow in about two years, though the figure strips out the restructuring costs. Free cash flow this year should be between GBP350 million and GBP550 million, the company said, as it reaffirmed previous guidance.
Rolls-Royce also is grappling with customer complaints because of engine problems that have forced some carriers to park planes for repairs and rent alternative jets to continue flying. Some have had to fly longer routes to handle flight restrictions regulators have imposed on some Dreamliners because of engine problems.
Rolls-Royce in March estimated it would face GBP340 million in cash costs from additional inspections and fixes. The company said it would cut some travel, information technology and research-and-development expenses to mitigate the cost impact.
But since it first announced the belt tightening in April new problems have emerged. The company on Monday said the problems with its Boeing 787-powering Trent 1000 engines had widened. An additional subset of engines would need to be checked, forcing airlines to idle planes. The engine maker said it didn't know, yet, the cost impact.
Rolls-Royce has said it could take until 2021 to fix all affected engines.
The company said Thursday about a third of the job cuts would take place before the end of the year and should be completed in mid-2020.
Write to Robert Wall at firstname.lastname@example.org