Rolls threat to move work to US

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THE CHAIRMAN of Rolls-Royce warned yesterday that the aero-engine manufacturer could move production to America if Britain introduces costly European labour laws.

Sir Ralph Robins said he was confident Tony Blair's government would not go down that route but if it did then Rolls-Royce had an "out" - its ability to shift work overseas.

Any such move would be huge blow to the UK economy. Rolls-Royce employs 32,000 people at 19 sites in the UK. Most of its workforce is employed at two huge civil and military engine plants in Derby and Bristol. Last year, aerospace sales topped pounds 3bn and exports from the UK were pounds 2.3bn, while Rolls' order book stands at pounds 8bn.

Speaking at a business lunch in Sydney, Australia, Sir Ralph said that social costs made it 30 per cent more expensive to manufacture in Europe. "The last thing we want is the on-costs associated with the social costs of Europe, but I don't see any signs of it happening and the current government is not going down that path. But we will progressively move work to the United States if we find ourselves disadvantaged by those sort of social costs."

A Rolls-Royce spokesman later stressed that there was no intention of the company moving its entire operations to the United States. He also pointed out that Sir Ralph has stressed in his speech that Britain along with the US was one of the two best places in the world to manufacture high-technology equipment.

Sir Ralph said it was the extra social costs of operating in Europe that had persuaded a joint venture company between Rolls and BMW to manufacture most of its engines in Britain even though the company was owned 50:50.

Rolls could shift a certain amount of production to the US quite easily. It bought the US engine manufacturer, Allison, in 1995 and has four facilities in America. Rolls employs 7,200 in North America.

Switching production to the US would also enable Rolls to manufacture civil aircraft engines in dollars - the same currency in which they are sold - thus cutting out exchange rate risks.