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Coronavirus: Rolls-Royce demands supplier price cuts up to 15%

08 April 2020, Bavaria, Nuremberg: A Rolls Royce aircraft engine can be seen on a plane at Albrecht Dürer Airport Nuremberg. Photo: Daniel Karmann/dpa (Photo by Daniel Karmann/picture alliance via Getty Images)
A Rolls Royce aircraft engine can be seen on a plane at Albrecht Dürer Airport Nuremberg. Photo: Daniel Karmann/dpa via Getty Images

Rolls-Royce has written to suppliers threatening to withdraw “support” if they do not agree to price cuts of up to 15%, according to a report in the Financial Times.

The move has angered many of its 700 global aerospace suppliers who say they are already struggling amid a drop in demand caused by the coronavirus pandemic.

The company, which spends £7bn ($8.54bn) a year with suppliers, has been cutting orders to adjust to reduced demand but is also expecting price cuts between five and 15%.

The letter was sent just days before Rolls-Royce announced 9,000 job cuts, which will shrink its workforce by 17% and its civil aerospace business by a third.

A cut in pricing could push many companies into bankruptcy, according to Andrew Mair, head of the Midlands Aerospace Alliance.

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“It seems illogical and damaging to push for reduced prices right now, on top of rapid rate reductions. It will simply aggravate disruption in their supply chains if companies go out of business," he told the Financial Times.

But Rolls-Royce said the letters had not been sent to their biggest suppliers or those deemed to be most at risk.

“Now more than ever we need a competitive supply chain. We will reward those who will work with us to help us take cost down with more business,” said Warrick Matthews, Rolls-Royce’s chief procurement officer for the civil aerospace division.

The aerospace manufacturer is not the only company turning to the supply chain for savings as the industry staves off collapse. Many others have stopped taking deliveries even if goods are in the process of being manufactured or are delaying payments and pushing orders into next year.

Frustrated suppliers have now presented the government with a list of restrictive actions being taken by big companies which contradict claims that aircraft and equipment makers are supporting the supply chain, says the Financial Times.