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Next Year's Forecast, Rolls Royce, Embraer,...

Wed Oct 17, 2001 4:40 am

Rolls-Royce, the world's second largest aero-engine maker, is expected to announce plans to shed up to 4,000 jobs, as it cuts production in reaction to the crisis that has engulfed the airline industry.

The measures, which will be presented to the board at its scheduled meeting on Thursday, are the first taken by the company since the September 11 attacks.

The group, which last August announced it would axe 6,000 jobs by 2003 as part of a wider cost reduction programme, is understood to be considering further cuts to its 43,000-strong workforce of between 3,000 and 4,000.

Rolls-Royce is expected to cut 2002 production rates by about 20 per cent from the target of 1,400 units.

The slump in air travel has led airlines to drop routes, ground parts of their fleets and cancel or defer orders for aircraft. Some 200,000 jobs have gone in the global civil aviation industry.

Rolls-Royce has come under pressure in recent weeks to provide investors with an assesment of the impact on its business from the terrorist attacks.

All its peers, including rival engine makers, GE Aircraft Engines and Pratt & Whitney, have warned that the measures taken by airlines to try to offset the slump in air travel will hit profits hard.

Embraer, the second largest maker of regional jets - aircraft with less than 100 seats - is cutting next year's production rates by a third and has laid off 1,800 workers. The Brazilian company is Rolls-Royce's biggest customer by volume.

The scrutiny of Rolls-Royce will intensify this week with analysts expecting Airbus and Boeing, the two largest aircraft manufacturers, to announce further cuts in production for next year.

Paul Ruddle, aerospace analyst at UBS Warburg said: "Boeing, Airbus, GE, and Pratt & Whitney have all issued profit warnings and we expect to move into phase two next week with potential announcements from Boeing and Airbus. And as it is Rolls-Royce still isn't even in phase one."

Mr Ruddle expects Boeing, the world's biggest civil jet maker, to cut production for 2002 by as much as a quarter to between 300 and 350 aircraft, following a 20 per cent cut in September. Airbus, which last month froze production rates at this year's levels, could take its output down from 340 aircraft to between 275 and 300 units.

Analysts expect that further cuts will be needed and are forecasting that the number of aircraft built next year could halve from pre-September 11 levels.

The demand for spares, the most lucrative part of Rolls-Royce's business, could fall by as much as a quarter, as airlines desperate to save costs defer maintenance in an effort to remain solvent.

The extent of Rolls-Royce's problems were underlined by ABN Amro, one of its two brokers, last week, when it halved its 2002 profit forecasts for the company.

Merrill Lynch, Rolls-Royce's other broker, had earlier cut its forecasts for next year by 37 percent.

Source: Financial Times Online at

Not looking good, I must say. It's really amazing: last June at Le Bourget everyone was still talking about increasing production rates and about the many job vacancies they could not get filled in. And just look at what's happening today... Let's just hope that they all recover from this crisis very soon.

Best regards,