By Sarah Young
LONDON - Britain's Rolls-Royce said it would cut 4,600 jobs to save 400 million pounds a year in the latest attempt by CEO Warren East to simplify the business and generate more cash.
East has been overhauling Rolls during his three years in charge of the engine-maker but the job cuts announced on Thursday come at a tricky time for a company which has been hit by problems with some aero-engines that has angered clients.
Parts in some versions of the Trent 1000 engine which powers the Boeing 787 Dreamliner jet are not lasting as long as expected, forcing the company to ground planes to carry out inspections.
East said the job cuts were needed to help the company achieve profitable growth.
They will enable the company to save 400 million pounds ($536 million) a year by the end of 2020, but will cost it 500 million pounds over 2018, 2019 and 2020. It will be reported as separate one-off costs, allowing it to stick to its targets for free cash flow.
"These changes will help us deliver over the mid and longer-term a level of free cash flow well beyond our near-term ambition of around 1 billion pounds by around 2020," East said in a statement on Thursday.
Rolls-Royce has 55,000 employees worldwide of which 26,000 are in Britain. The latest cuts follow a previous removal of around 5,000 roles which followed a series of profit warnings in 2014.
The company said the job cuts would predominantly be in the UK where most of its corporate and support functions are based. It employs 15,700 at its headquarters in Derby, central England.
Jefferies analyst Sandy Morris said while the market would not be surprised by the job cuts as East had hinted there was more restructuring to come, the timing was not ideal.
"Against the backdrop of costly Trent 1000 in-service issues and rising civil engine deliveries, we can see how it might stir a debate about whether the timing of this fundamental restructuring increases near-term risk," he said.
Rolls said that despite the cost of fixing the Trent 1000 issues it was continuing to stick to its forecast for free cash flow for 2018.
($1 = 0.7464 pounds)
(Reporting by Sarah Young; editing by Kate Holton/Guy Faulconbridge)