20 May 2020 22:34
Few companies are more critical to Britain's manufacturing future than aero-engine giant Rolls-Royce. That's why, along with BAE Systems, it is protected from overseas takeovers by a golden share. Understandably, there is huge anxiety as to why Rolls-Royce chief executive Warren East has decided that a quick bounce back from a Covid-19 induced slump is not going to happen. The group's decision to axe 9,000 jobs (1,000 of which relate to previous cost-cutting) is a response to the reality that new aircraft orders have been slashed by one-third and demand for its engines for long-haul jets will fall by a similar amount. Cuts: Rolls-Royce's decision to axe 9,000 jobs is a response to the reality that new aircraft orders have been slashed by one-third and demand for its engines for long-haul jets will fall too Whereas the immediate impact of the pandemic may be over in months, plane maker Airbus has signalled it will be three to five years for order books to recover.
Boeing, still suffering from the 737 Max fiasco, is plotting a three-year horizon before a return to normality. The critical thing for UK plc is that Rolls' high-tech, precision engineering skills and research and development (R&D) are not affected. It is seeking to protect those talents for the longer-term and many of the culled jobs will be on production lines, with whole factories likely to be wiped out. Investors and executives are taking pain with an already announced dividend suspension and 20 per cent wage cuts for senior managers. So what should the Government do to help? It must revisit the two-week quarantine at the nation's airports and put in its place some kind of electronic health monitoring, using airline booking and visa apps. As critically, Cabinet co-ordination for enterprise is all over the place, with different messages from Treasury, Transport and Business departments. If the Government really wanted to get behind Rolls it could, for instance, authorise stepped-up development of the Tempest fighter project in Bristol. It should also be directly investing in the aerospace supply chain and get more fully behind the firm's gas turbines and R&D for Small Modular Reactors. With the same willpower put behind the Nightingale hospitals these nuclear reactors could be generating greener power for the UK in two years. Axing jobs into a contracting economy is a bitter blow. But longer-term damage could be mitigated by intelligent decisions in Whitehall. Simply digital Marks and Spencer already had enormous challenges before Covid-19 turned into a retail nightmare. Same-store sales have struggled for some time but, paradoxically, in the first quarter they were up for core womenswear before disease struck. Arguably, if M&S can steer through a grisly period for UK retail, the crisis could hurry the pace of change. The shrinkage of the clothing and home footprint in unfashionable stores can be hurried along. What the coronavirus has demonstrated is that M&S can operate more flexibly with a smaller HQ, shorter lines of control and faster decision-making, and is capable of ramping up digital sales through its Castle Donington warehouse. Amid the rubble of £200million of fashion stock put into cold storage big decisions are being taken. Men's suiting, formal shirts and ties are being cut dramatically as hot weather and home working come into play. Old strengths in babywear, lingerie and leisure wear are outperforming the market. The ace in the hole ought to be Ocado. When signed, the deal at £700million looked an extravagance – better for Ocado boss Tim Steiner than M&S chairman Archie Norman. That view has altered dramatically. Ocado sales are up 40 per cent ahead of M&S going online in September with 6,000 items. There will be a bigger range than Waitrose offered, and the promise is of margin-enhancing shopping baskets of £100 plus. That should be enough to revive spirits when they have been at a low ebb. Lost cause Audit and governance reform is among the issues put on hold, first by Brexit and now by coronavirus. As the Financial Reporting Council prepares for a more powerful future with statutory powers, it is the worst of times to lose a chairman. When he arrived, Simon Dingemans, formerly of Glaxo and Goldman Sachs, sounded determined to lead the change in the wake of audit foul-ups at outsourcer Carillion and cafe chain Patisserie Valerie. He departs after just eight months. Public service, even in the age of corona, plainly has limits.