Rolls-Royce to cut 3,500 jobs as aviation slump hits profits

Rolls-Royce, the aerospace contractor, is to axe 3,500 jobs as a result of the slump in the aviation industry which has followed the terrorist attacks on the United States.

Hundreds of jobs are at risk at the company's Derby plant, where it employs 14,000 people making engines for civil aircraft. Redundancies are also expected in Germany and the US.

Rolls-Royce is expected to announce the cuts after a board meeting on Thursday, when it will also finalise a detailed trading statement. Analysts believe the statement will amount to a profit warning, after airlines around the world grounded planes and cancelled new aircraft orders in the wake of the disruption to air travel.

Rolls-Royce refused to confirm the contents of the statement yesterday. A spokesman said: "We are still working closely with our customers, trying to assess the impact on our business of the events of 11 September and working out our response in a measured way. Until that work is furthered, it would be inappropriate to speculate, and it is right that the workforce hear the details first."

Observers believe the group is waiting for another trading update from the plane maker Boeing, one of Rolls-Royce's most significant customers, which has already announced it is dramatically scaling back production and will cut up to 30,000 jobs worldwide. Boeing is this week expected to outline the extent to which commercial airlines have cancelled options on new aircraft since 11 September. Boeing is cutting capacity by 20 per cent. It is holding another briefing on Thursday.

Rolls-Royce has already announced a £150m restructuring program that will cut 2,000 jobs this year and the same number next year. The second tranche of redundancies will now be accelerated, with an estimated 1,500 new job losses on top. The company employs 43,000 worldwide.

Analysts were expecting the company to post about £400m of profit for the year to December, but earlier this month, the company's house broker, Merrill Lynch, slashed its financial forecasts for the next two years by around a third.

United Technologies, owner of Rolls-Royce's rival Pratt & Whitney, has already issued a profit warning in the wake of the terrorist atrocities, and GE Aircraft Engines is cutting 4,000 jobs.

Rolls-Royce is likely to say that trading in other divisions continues to be in line with forecasts, but its marine, energy and military aerospace divisions accounted for less than 45 per cent of profits last year.

The company will argue that even its civil aerospace division is relatively insulated from the downturn in the industry, which was well underway before 11 September. Two-thirds of its engines are less than six years old, while it is aircraft with much older engines that are most likely to be grounded by airlines cutting capacity. Rolls-Royce makes the cost of the engine over again in maintenance fees.

The fall-out from last month's terrorist attacks have prompted a wave of job cuts across airlines, aircraft manufacturers, and suppliers. British Airways has axed 7,000 staff, more than 10 per cent of its workforce, while Virgin has reduced its headcount by approximately 1,200 and British Midland by 600. Air travel between the UK and US is down 25 per cent on a year ago, according to the airports operator BAA.