Aerojet Rocketdyne, Inc., a subsidiary of Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD), has announced plans for the next phase of the firm's Competitive Improvement Program (CIP) that was launched in 2015—the next phase (Phase II) includes additional consolidation and optimization of Aerojet Rocketdyne facilities over the next two years.
Aerojet Rocketdyne CEO and President Eileen Drake noted that the company is two years into the first phase of their CIP affordability drive and the consolidation progress, and overhead cost reductions achieved to date have exceeded expectations. The company intends to build on this success by expanding their CIP-related consolidation efforts in order to deliver the value customers demand and position the company for further growth.
Aerojet Rocketdyne plans to consolidate its Sacramento and Vernon, California and Gainesville, Virginia sites while centralizing and expanding its existing presence in Huntsville, Alabama with a new state-of-the-art manufacturing facility for AR1 engine production, Additive Manufacturing, Composites production and Research & Development, expected to be ready for production in mid-2019.
Drake added that the expanded CIP effort is expected to result in $230 million in annual savings once complete, inclusive of the $145 million from the first phase of CIP. Given the dynamic nature of this industry, strategic business decisions such as these, while difficult, are critical to establishing a solid course for the firm's future.
At the company’s Sacramento site, defense-related program management, engineering and related support positions will be moved to the company’s Huntsville, Alabama facilities, home of Aerojet Rocketdyne’s Defense headquarters and Rocket Shopâ„ Defense Advanced Programs, by the end of 2018. The majority of the remaining programs and support positions will be relocated to the company’s Space headquarters at its Los Angeles, California, site. Between now and the end of 2019, the company will complete its manufacturing commitments in Sacramento, and the site will become the Shared Services Center of Excellence. In total, approximately 1,100 of the existing 1,400 positions in Sacramento are expected to be relocated or eliminated.
The company plans to close its Gainesville, Virginia facility in the third quarter of 2018. Approximately 170 positions there will be relocated or eliminated with relocations planned to Huntsville and the company’s facility in Orange County, Virginia.
To accommodate the company’s consolidations, overall growth plans for Huntsville include the addition of approximately 800 jobs to support America’s space and defense needs for the next quarter century and beyond.
When fully implemented, the company anticipates that the CIP will result in annual cost savings as follows (in millions):
Annual savings upon completion of Phase I (expected 2019 145.0
Annual savings upon completion of Phase II (expected 2021): 85.0
Total annual savings: $230.0
The company expects total costs associated with the CIP, before any anticipated Phase II incentives to be finalized with state and local authorities, and recoveries through the pricing of the company’s US government contracts, as follows (in millions):
Phase I costs through Dec. 31, 2016: $47.3
Remaining anticipated Phase I costs: 65.7
Phase II anticipated costs: 122.1
Total costs: $235.1