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The Guardian - UK
The Guardian - UK
Business
Mark Sweney

Rolls-Royce is a ‘burning platform’ that must transform, says new CEO

Rolls-Royce engine of the first Fiji Airways A350 XWB airliner is seen at the aircraft builder's headquarters of Airbus near Toulouse, France, in 2019
An aircraft engine manufactured by Rolls-Royce. The company relies on its civil aerospace business for 40% of revenues. Photograph: Régis Duvignau/Reuters

The new chief executive of Rolls-Royce has told staff that the engineering company is a “burning platform” that must transform to survive.

Tufan Erginbilgic, the former BP executive who replaced Warren East as chief executive at the start of January, said the coronavirus pandemic could not be blamed for what in reality was a perennial underperformance of the business compared with rivals.

“We underperform every key competitor out there,” Erginbilgic said in an address at Rolls-Royce’s UK manufacturing site at Derby, which was broadcast to staff globally. “Every investment we make, we destroy value.”

He is expected to announce a sweeping and painful restructuring plan for the FTSE 100 company. Its market value has slumped by two-thirds over the last five years.

“We do have a burning platform,” he said, evoking the analogy the former Nokia chief executive Stephen Elop made in 2011 when he told his staff they faced the same stark choice as a worker on an oil platform in the North Sea whose rig was aflame and who had to jump into freezing water to survive.

A few years later, fierce global competition forced the Finnish firm, once the world’s biggest mobile phone company, to sell to Microsoft.

“[It isn’t] sustainable,” Erginbilgic said, in excerpts of a speech shared with the Financial Times. “Rolls-Royce has not been performing for a long, long time; it has nothing to do with Covid, let’s be very clear. Covid created a crisis but the issue in hand has nothing to do with it. Given everything I know talking to investors, this is our last chance.”

The aircraft engine maker has a current market value of £9.2bn, having hit highs of £35.6bn a decade ago.

Erginbilgic said there would be a “transformation programme” focusing on “efficiency and optimisation”.

In 2020, Rolls-Royce, which relies on its civil aerospace business for 40% of revenues, cut 9,000 jobs, almost a fifth of staff, in a £1.3bn cost-cutting drive as Covid grounded the aviation industry.

The company generates cash from the hours that its engines are in the air. As Covid restrictions have relaxed and travel has picked up, Rolls-Royce shares have risen 12% this year.

A spokesperson for the company said of the speech: “He was honest about our financial underperformance compared with our peers, laid out his priorities for all of us and stressed the need for everyone within the business to work together in order for Rolls-Royce to succeed.”

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