Rolls-Royce stock price surges 6% on major job cuts

Rolls-Royce (LON: RR) announced it is forced to cut 9,000 jobs as the COVID-19 outbreak continues to paralyze the airline industry. Shares of the company have surged 6% on the announcement to trade above the multi-year lows. 

Fundamental analysis: Expected cuts in the civil aerospace division

Rolls-Royce, a major producer of airplane engines, said it is cutting 9,000 jobs in response to the COVID-19 outbreak that completely paralyzed the airline industry. The majority of staff cuts will be made in the civil aerospace unit. 

The job cuts and other cut-costing activities in plants and properties will save the company around £1.3 billion.

“This is not a crisis of our making. But it is the crisis that we face and must deal with,” Rolls-Royce’s boss Warren East said.

East said that he is still unsure where the job losses would be, although its main Derby site is likely to be hit the most. Rolls-Royce employs around 52,000 people and this cut accounts for more than 17% of the total workforce.

 “It’s fair to say that of our civil aerospace business approximately two-thirds of the total employees are in the UK at the moment and that’s probably a good first proxy.”

The announced cut is slightly higher than initially anticipated. Invezz reported earlier this month that Rolls-Royce is discussing job cuts with the Union representatives. As a result of the latest decision from the company’s management, the “Unite” union called the job cuts “shameful opportunism”.

“Unite and Britain’s taxpayers deserve a more responsible approach to a national emergency. We call upon Rolls-Royce to step back from the brink and work with us on a better way through this crisis,” it is said in the statement. 

In response, East says that the company must take care of itself.

“No government can extend things like furlough schemes for years into the future. We have to look after ourselves and make sure we meet medium term demand.”

Rolls-Royce is already utilizing the Coronavirus Job Retention Scheme as 3,700 of its staff have been receiving 80% salary up to £2,500 a month.

Technical analysis: Stock turns higher

Shares of Rolls-Royce are trading around 6% higher today in London after the engine-maker announced the decision to cut 9,000 jobs. The decision is expected to save the company £1.3 billion.

Rolls-Royce stock price had been in the continued downturn since mid-2018. The stock had already lost 35% of its value before the COVID-19 outbreak took place. Since then, shares of the engine-maker fell further 60% to trade at the lowest levels since April 2005. 

Today’s turn higher has helped the stock price to reach £2.8 with the buyers now eyeing a move to £3.0.

Summary

Shares of Rolls-Roye have jumped around 6% today after the engine-maker announced it will cut 9,000 jobs as COVID-19 slams the air industry. The planned cuts and other cost-cutting activities are likely to save the company £1.3 billion and help it survive one of the worst economic crises for the airline industry ever.