Rolls-Royce to Pause Jet-Engine Plants Amid Air-Travel Slump

Rolls-Royce Plans Two-Week Civil Aerospace Shutdown to Cut Costs

08 Feb 2021, 07:29 PM IST

(Bloomberg) --

Rolls-Royce Holdings Plc plans to shutter civil aerospace production for two weeks this summer, cutting pay for 19,000 staff or 40% of the workforce as the coronavirus crisis stunts demand for airliner engines.

The measures will affect sites worldwide, though the main impact will be in the U.K., where Rolls is based and where 12,500 people will be affected, said a spokesman. The salary hit will be spread over the year to ease the burden.

Air travel has tumbled to historically low levels as new forms of Covid-19 trigger fresh lockdowns. Long-distance flights have been hardest hit, crushing demand for the twin-aisle planes the company helps power. Airbus SE, which uses Rolls engines on all of its wide-body jets, has postponed a planned production increase, warning that aviation remains in the “eye of the storm.”

Rolls-Royce is facing “hard times of grim practicality,” Jefferies analyst Sandy Morris said in a note, adding that “the hard work and hard bargaining must inevitably continue.”

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Shares of Rolls-Royce traded 1.1% lower as of 11:50 a.m. in London, where it is based. They’re down 16% this year after losing half their value in 2020.

The company said that “exactly how the shutdown operates needs to be discussed with union and employee representatives,” and that the measures will abide by national laws.

Rolls-Royce is separately seeking a 10% productivity and efficiency boost across its U.K. civil-aerospace operations and said it has begun “complex and constructive discussions with the union on how this can be achieved.”

The engine-maker last month projected free-cash outflows of about 2 billion pounds ($2.7 billion) this year, saying the new virus-related curbs would delay a recovery in long-haul flights, depriving it not just of new orders but the maintenance revenue from which it derives the bulk of earnings.

Airbus last month delivered only two planes with Rolls engines. The British company also supplies turbines for the Boeing Co. 787 Dreamliner, of which the U.S. planemaker has said it has 80 stashed away while it works to address structural imperfections.