Rolls-Royce plummets as new CEO warns of ‘last chance’ for change

LONDON, Jan 27 (Reuters) – Shares of Rolls-Royce (RR.L) fell 4% on Friday after its new CEO warned staff that the aerospace company, Britain’s premier blue-chip engineering group, was a “burning platform”.

According to the Financial Times, Tufan Erginbilgic told staff at Rolls-Royce’s main UK site in Derby, central England, that the company’s performance was “unsustainable” and that they had a “last chance ” to change.

Rolls-Royce, whose engines and systems are used on the Airbus A350 and Boeing 787 as well as ships, submarines and power generation, said the CEO spoke to staff about “the need for ‘significantly improve the performance of Rolls-Royce’.

“He has been honest about our financial underperformance compared to our peers,” a Rolls-Royce spokesperson said in an emailed statement Friday.

Shares of Rolls-Royce, which before the Financial Times report were at their highest in about a year, fell 4% in morning trading. Their current level of 109 pence compares to a 2014 high of 398 pence.

Rolls-Royce was plunged into crisis when most air travel halted for months during the pandemic and then only slowly recovered. It earns income on an hourly basis when planes fly with its engines.

Analysts also say its biggest competitor in the widebody business, US-based GE (GE.N), has historically been more profitable in aircraft engines.

Comments from former BP executive Erginbilgic, who took the reins on Jan. 1 after Warren East retired, conveyed a sense of urgency and suggested there would be more restructuring, said Bernstein analyst George Zhao.

“The challenge is that there may not be easy solutions. Many rounds of restructuring and asset sales have already been undertaken under former CEO Warren East, which calls into question everything that can be implemented,” Zhao said.

East, who spent seven years as CEO and was brought in to turn the company around himself, carried out two major overhauls, one in 2018 and another in 2020, the second prompted by the pandemic.

In 2020, East announced plans to cut 9,000 jobs, or one-sixth of the workforce, and also launched an asset sale program which, by September 2021, had raised £2bn (2 .5 billion dollars).

Over the past three months, shares of Rolls have jumped 43%, buoyed by strong travel demand and the reopening of China.

Erginbilgic’s comments sent the stock lower.

“People might start thinking about what you saw that we don’t know,” said an analyst, who was not authorized to speak to the media.

Britain has a preferred share of Rolls-Royce, which means the government can block a takeover. The arrangement reflects the company’s importance to the UK’s military capability.

($1 = 0.8087 pounds)

Reporting by Sarah Young Editing by Mark Potter

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