Giant aero-engine maker, Rolls Royce is making efforts to increase its profits by scrapping its middle-management positions; a move that will bring more than 4,000 job cuts.
The Guardian reports that Rolls Royce CEO, Warren East has decided to take action this week after repeatedly saying that the company is bloated with duplicated roles, unnecessary costs and many layers of management. The job cuts would be announced on Friday when the firm would be updating the City analysts. However, the giant aero-engine maker has refused to confirm or deny the information, according to BBC. And some of the City analysts have proposed a cut down of as much as 10% of the company’s 50,000 employees.
Frontline engineers are unlikely to be affected by this restructuring, however. The company’s deal last year that involved a $200m investment in UK aerospace facilities will protect some 7,000 roles at Derbyshire plant, Annesley in Nottinghamshire and Hucknall. But areas such as human resources, purchasing, and financing are expected to undergo the 4,000 job cuts.
A spokesman for the aero-engine maker has confirmed that the company is considering a staff structure that’s simpler, with few layers and wider control across the group. “We said we had retained restructuring experts … to support us with this program. We added that we expected this program to deliver a significant reduction in costs and assist us in improving performance across the group as a whole,” he added.
East, who has cut 5,500 jobs so far in his reign, was appointed as chief executive three years ago. He has pledged to increase the profitability of Rolls Royce and to generate free cash-flow of about $1.3b by 2020. Meanwhile, the company recently faced allegations of corruption which led to $896m in penalties. It was found that the aero-engine maker paid bribes worth millions of pounds’ to secure orders in 6 countries, including China, Russia, and Indonesia.
The potency to develop new engines in the future depends on if Rolls Royce is able to raise enough free cash-flow: a measure of cash available to do business after expenses on core business infrastructure. Is cutting jobs a viable route?
Early this year, the company reduced its operating businesses from 5 to 3: defense, power systems, and aerospace. And the company has also announced that more drastic measures will be taken, which includes cutting staff.
“In the restructuring which followed from the transformation programme we announced in 2015, then approximately 600 senior managers left the organization and we did, in fact, achieve some simplification,” East said in March.
“The reality is, however, that there is more simplification that we need to do to make ourselves truly competitive and fit for the future. And that’s why we’re embarking on this further restructuring, seeking out duplications that exist. So, we’ll have more to talk about as we get further into it.”
A research released last month says that JP Morgan is expecting a recurring savings of about $267 by 2021 from the company’s job cuts.