Threat to 2,500 jobs as Parsons goes on sale


Business Correspondent

Doubt was cast yesterday on the chances of saving 2,500 engineering jobs on Tyneside and in Derby, as Rolls-Royce put a for-sale sign over Parsons Power Generation. The decision, which came as a surprise to workers and union officials, will cost the company pounds 248m - significantly more than the pounds 175m taxable profit the whole of the Rolls-Royce group made last year.

Rolls-Royce's recently appointed chief executive, John Rose, blamed the move on intense international competition. "Parsons is a very small player in steam-power generation with less than 1 per cent of the market ... we didn't see a way of it making a material contribution."

Mr Rose gave Rolls-Royce until Christmas to find a buyer for the two factories. But one City analyst, who didn't want to be named, said: "It's going to be very tricky to sell. To be honest, I just don't think it will find a buyer."

Parsons Power Generation Systems, which makes steam turbines for larger power stations, employs 1,600 people at the site it has occupied in Newcastle- Upon-Tyne for more than a century. The workforce has steadily declined since the 1960s when the company had more than 12,000 staff. In 1985 Parsons employed 5,300 people. Some 900 of the 2,500 jobs that are now under threat are at Rolls-Royce International Combustion in Derby.

Unions condemned the sell-off. According to Barney McGill from the AEEU, Parsons had until recently been taking on temporary staff to finish contracts. He said: "The news was heard quietly by the workforce. Everyone is shocked and devastated."

The two companies lost pounds 30m last year on a combined turnover of pounds 280m. This represents 23 per cent of the sales of Rolls-Royce Industrial Power, the half of the company which has increasingly been overshadowed in recent years by the higher profile aerospace division.

It is the biggest strategic decision so far taken by Mr Rose since he became chief executive in May. His predecessor, Sir Terrence Harrison, who spent much of his working life in the power generation industry with Northern Engineering Industries (NEI), which Rolls-Royce acquired in 1989, was last night unavailable for comment.

Analysts expressed surprise at the scale of the pounds 248m write-offs which will hit the results for the half-year to the end of June. Some pounds 78m of this relates to goodwill from the pounds 304m takeover of NEI in 1989. In addition, pounds 70m will pay for the possible closure of the two factories, of which pounds 35m represents redundancy costs, should they arise. A further pounds 100m covers the costs of finishing existing contracts.

"That's a huge number," said Chris Avery from Paribas Capital Markets. "Inevitably, productivity will suffer as staff try to make the work last longer, but it also suggest several contacts have gone sour."

Next year Parsons will complete a pounds 450m order for a gas-fired power station in Andhrapradesh, India. But two larger Indian coal-fired contracts have not materialised.

The power generation business has become increasingly global as guaranteed large-scale supply contracts with the UK electricity industry dried up after privatisation. In the switch to gas-fired generation, contracts have tended to go to bigger players, including Siemens, ABB of Sweden, General Electric of the US and Mitsubishi.

Babcock led the way last autumn by selling its 100-year-old boiler-making factory in Glasgow to Mitsui of Japan for pounds 56m.

Rolls-Royce,was keen to stress the chances of selling the two plants. This could take the form of joint venture where it would retain a minority stake, or a deal to continue supplying research and development know-how to the purchaser.

In its statement the company pledged to concentrate on smaller power generation equipment of up to 150 megawatts based on gas turbines. These use aerospace technology such as the Trent engine, which is being used to heat and power other Rolls-Royce sites in Derby in a joint venture with National Power.

Asked about two business put up for sale, Mr Rose explained: "International Combustion has over time been quite profitable and it's very saleable." But he admitted the chances of selling Parsons were less good.

The decision casts doubt on Rolls-Royce's 15-year alliance to share expertise in power generation with Westinghouse, which began with high hopes in 1992. Westinghouse has long-standing partnerships with Mitsubishi and Fiat.

The announcement appeared to have caught Westinghouse by suprise. Reg McIntyre, a director involved with the relationship, first knew of it by reading a faxed press release. He said: "We weren't aware of this ... it is a surprise." Rolls-Royce shares ended the day up 2.5p, to 227p.

Comment, page 19

Rise and fall of a world power

1889: The company is begun by Sir Charles Parsons, the inventor of the first practical steam turbine.

1890: The Newcastle and District Electricity Supply Company lights the streets of the City using Parsons equipment. The first such use of steam turbines.

1897: The Turbinia, the world's first steam turbine powered ship, is demonstrated at the Diamond Jubilee Naval Review at Spithead.

1912: The world marvels at the Titanic, powered by a huge Parsons turbine.

1937: HMS Anson launched, a battleship fitted with Parsons machinery.

1960s: Parsons employs 12,000 people at the factory in Heaton, Newcastle- Upon-Tyne.

1968: Merger with Reyrolle, maker of electrical switchgear.

1977: Parsons merges with Northern Engineering Industries (NEI), another Newcastle-based manufacturer of power generation equipment.

1989: Rolls Royce PLC (no longer connected with the car company) takes over NEI. It pays pounds 304 million.

1996: the last part of the Parsons empire faces possible closure.

ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Britons buy more than 30 million handsets each year, keeping them for an average of 18 months
Arts and Entertainment
Alloysious Massaquoi, 'G' Hastings and Kayus Bankole of Young Fathers are the surprise winners of this year's Mercury Music Prize
musicThe surprise winners of the Mercury Prize – and a very brief acceptance speech
Arts and Entertainment
TV Presenters Ant McPartlin and Dec Donnelly. Winners of the 'Entertainment Programme' award for 'Ant and Dec's Saturday Night Takeaway'
musicAnt and Dec confirmed as hosts of next year's Brit Awards
Arts and Entertainment
Orson Welles made Citizen Kane at 25, and battled with Hollywood film studios thereafter
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes
Independent writers remember their Saturday jobs:

Independent writers remember their Saturday jobs

"I have never regarded anything I have done in "the media" as a proper job"
Lyricist Richard Thomas shares his 11-step recipe for creating a hit West End musical

11-step recipe for creating a West End hit

Richard Thomas, the lyricist behind the Jerry Springer and Anna Nicole Smith operas, explains how Bob Dylan, 'Breaking Bad' and even Noam Chomsky inspired his songbook for the new musical 'Made in Dagenham'
Tonke Dragt's The Letter for the King has finally been translated into English ... 50 years on

Buried treasure: The Letter for the King

The coming-of-age tale about a boy and his mission to save a mythical kingdom has sold a million copies since it was written by an eccentric Dutchwoman in 1962. Yet until last year, no one had read it in English
Can instilling a sense of entrepreneurship in pupils have a positive effect on their learning?

The school that means business

Richard Garner heads to Lancashire, where developing the 'dragons' of the future is also helping one community academy to achieve its educational goals
10 best tablets

The world in your pocket: 10 best tablets

They’re thin, they’re light, you can use them for work on the move or keeping entertained
Lutz Pfannenstiel: The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents

Lutz Pfannenstiel interview

The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents
Pete Jenson: Popular Jürgen Klopp can reignite Borussia Dortmund’s season with visit to Bayern Munich

Pete Jenson's a Different League

Popular Klopp can reignite Dortmund’s season with visit to Bayern
John Cantlie video proves that Isis expects victory in Kobani

Cantlie video proves that Isis expects victory in Kobani

The use of the British hostage demonstrates once again the militants' skill and originality in conducting a propaganda war, says Patrick Cockburn
The killer instinct: The man who helps students spot potential murderers

The killer instinct

Phil Chalmers travels the US warning students how to spot possible future murderers, but can his contentious methods really stop the bloodshed?
Clothing the gap: A new exhibition celebrates women who stood apart from the fashion herd

Clothing the gap

A new exhibition celebrates women who stood apart from the fashion herd
Fall of the Berlin Wall: Goodbye to all that - the lost world beyond the Iron Curtain

The Fall of the Berlin Wall

Goodbye to all that - the lost world beyond the Iron Curtain