Lucas ready to swing the axe: Automotive and aerospace giant lines up string of disposals and up to 3,000 lay-offs

Lucas Industries, the automotive and aerospace components group, will tomorrow announce between 2,000 and 3,000 redundancies and plans to sell pounds 80m worth of businesses as part of a pounds 90m restructuring programme.

News of the cuts, far larger than the City had been expecting, will accompany Lucas's results for the year to 31 July. These are likely to show a slump in pre-tax profits from pounds 83.6m to between break-even and pounds 20m after redundancy costs of more than pounds 30m. However, the company will receive a pounds 90m surplus credit from its pension fund.

Lucas is in talks with several potential buyers of businesses, but some will have to be shut.

The move was described by a source as part of a 'wide-ranging plan to restructure and review strategy' at the group. 'It is not an attempt to refocus Lucas in any particular area. The changes are necessary across the company in response to the changing worldwide political and economic scene.'

Despite the sharp deterioration in trading in its main markets and the lack of any signs of a recovery, Lucas intends to hold its final dividend payment at 4.9p for an unchanged total of 7p.

A maintained dividend is seen as crucial to preserving the stock market's confidence in the group, which has been tipped as a likely takeover target. At 90p the shares are yielding 10.4 per cent, reflecting doubts that Lucas can hold its payment in the current financial year.

'We believe that trading conditions will get worse, with aerospace getting weaker and a downturn in Germany's and Italy's automotive markets offsetting modest recoveries in the UK, France and Spain. Spending on new products or dividends - something may have to give,' said Sandy Morris of County NatWest.

Armed with the pounds 90m proceeds of its pension fund surplus and the pounds 80m from disposals, Lucas could meet the pounds 50m cost, before write-offs for advance corporation tax, of holding its dividend without undermining the balance sheet.

But analysts say Lucas will have to convince the City it has belatedly put its costs and finances under tight control, a task that will largely fall to the new finance director, John Grant, formerly of Ford.

The City is also interested in any news Lucas may have on management changes. But previous hopes that Tony Edwards, the group managing director, will be confirmed as chief executive in succession to Sir Anthony Gill will prove misplaced.

The new wave of redundancies will be spread over a period and cover both automotive and aerospace activities. They will come on top of around 3,000 job losses in the year to 31 July, which took total employment in the group down to about 50,000, split equally between UK and overseas companies.

Sir Anthony, chairman and chief executive, will spell out the broad outlines of the pounds 90m restructuring programme, which is intended to pare Lucas down to its core manufacturing activities. Peripheral businesses will be put up for sale.

In aerospace, the core activities are seen as engine control systems together with flight control and actuation. This puts a question mark over the future of Lucas's interests in defence electronics, military communications and power-generation units for small commercial aircraft.

Core automotive interests will probably be defined as foundation disc brakes, where Lucas Girling is a leading European force, and diesel engine management systems.

Last week, Lucas announced it was negotiating to put its petrol engine management systems operations into a joint venture with French company Sagem.

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