THE economic slowdown and a weakening demand for aircraft engines has hit profits at Rolls-Royce.

But it has stuck by its forecasts for a return to growth in the current financial year, as benefits from its restructuring in the wake of the terrorist attacks of September 11 take effect.

Last year, Rolls-Royce recorded bottom line pre-tax profits of £105m compared with £192m a year earlier.

The group has also pledged to tackle a £1.1bn shortfall in its UK pension fund, hit by the weak stock market, and has started talks with its workforce.

It pumps up to £70m a year into its pension fund but expects the figure to increase following a review to be completed by the end of this year.

Rolls-Royce employs about 750 staff in the North-East, the majority at its aircraft engine components business in Sunderland, where 400 work.

It employs about 180 staff at its marine bearings business, Michell Bearings, and a further 120 at Vickers Pressings, both based in Scotswood Road, Newcastle.

It also has a 50 per cent share in an information technology business joint venture with US firm SAIC, on the Team Valley in Gateshead, employing 40 staff.

But the 750 jobs in the region today are a far cry from the group's North-East heyday, when about 10,000 people worked for Rolls-Royce subsidiaries.

Despite the weakening demand for aircraft engines, the jobs of the 400 staff at the Sunderland plant, appear to be safe. A spokesman for Rolls-Royce said: "The Sunderland plant provides components that are assembled at our plant in Derby.

"It's very much business as usual at Sunderland, with no plans for any redundancies."

The group said it remained in a sound financial position despite the pressures on its civil aerospace operations.

Sales in the division fell to £2.74bn from £3.44bn a year earlier as the company delivered 37 per cent fewer engines to civil aerospace customers.

The group said defence-based sales held firm at £1.38bn as it maintained strong positions on many of the world's new programmes, including the Joint Strike Fighter and the Eurofighter.

The group said its restrucuturing in the wake of September 11 had been successful, saving the group £250m a year.

Nearly 5,000 jobs were lost last year and a further 900 employees are due to leave in the first few months of this year as part of that programme.

Rolls-Royce announced last week it planned to remove a further 1,100 jobs as part of modernisation at plants in Derby, Bristol and Nottingham.

Rolls-Royce chief executive Sir John Rose said the group remained in a sound financial position and had a record year-end order book of £16.2bn.

He said: "Subject to the continuing uncertainty caused by the situation over Iraq, we are reiterating our guidance for profit growth in 2003.