TWO YEARS OF SEVERE cost-cutting is beginning to pay dividends for UK aerospace companies, with Rolls-Royce and British Aerospace leading a better round of financial results for the industry. Both groups also confirm that their programmes of plant closures and redundancies are now coming to an end.
Rolls-Royce is the latest of the UK majors to reveal an improved performance for 1994, pushing up operating profits in its engine business by 70%.
Although sales continued to fall, the group managed to offset the decline with savings made through early benefits from the sweeping restructuring programme announced two years ago. Rolls-Royce says that it has cut its workforce by around 20% since the programme was launched. Numbers now stand at 41,000 after another 4,800 job losses during 1994.
Chairman Sir Ralph Robins says that the full gains from the restructuring will begin to accumulate over the next two to three years. "We've hardly seen the first effect of the cost-cutting yet," he says, adding that, by mid-year, when the programme is complete, two-thirds of parts will have been moved to new production sites.
Although, another 1,000 redundancies were earmarked by the group earlier this year, Robins says, that the group is not facing any more plant closures or major redundancies.
The R-R profits are also being helped by rapidly decreasing spending on research and development as the Trent programme reaches production. In 1994, the outlay was down by $43 million.
The group's aerospace sales, could also begin to recover this year, on the back of rising UK military-aircraft export deliveries. R-R output of military engines had slumped to a low of 50 units in 1994 but is now on course to climb back to 120 a year by 1996.
Robins believes that civil-engine output is likely to stay at around the 400 mark for the foreseeable future, although the group may have to wait until 1996 and beyond until spares business begins to flow through.
BAe had already revealed its improved profits performance, led by the defence business in which sales and order intake returned to the record levels of the late 1980s. The defence backlog now stands at £9.7 billion.
Chief executive Dick Evans says that £700 million of cost has been taken out of the defence division over the last five years, with similar radical improvements in productivity now being made in the civil-aerospace business. Airbus profits are steadily climbing, while losses from the regional-aircraft operations have also begun to decline.
The BAe workforce now stands at 46,500 after the sale of a string of businesses, including Rover, in 1994 and the shedding of around 6,000 jobs. Evans says that the group is now positioned to increase throughput at its plants, rather than seek further large-scale cuts, however.
Elsewhere within the UK industry, Dowty managed to raise margins to above the 10% mark in 1994, despite flat sales. The landing-gear business, for which the merger was completed within the Messier-Dowty joint venture at the start of 1995, increased sales by 6% in real terms, excluding currency fluctuations and helped by work on the Airbus A330/340 programme.
The Dowty propellers operation saw sales dip slightly, but it is gearing up production to supply units for the new Lockheed C-130J Hercules transport.
Westland also stayed in profit during 1994, despite what appears to be falling sales figures, although meaningful comparisons are virtually impossible because of the helicopter company's acquisition, by the GKN engineering group a year ago. As Westland revealed at the time of the hostile bid, the company's sales are expected to mushroom as deliveries of the new EH101 helicopter begin to build up over the next five years.
Source: Flight International