High and dry

Be­lea­guered Rolls-Royce urges Govern­ment to ‘get peo­ple fly­ing again’

The Daily Telegraph - Business - - Front Page - Ben Mar­low; report

THE best way of sup­port­ing Bri­tain’s em­bat­tled aerospace sec­tor is for the “Govern­ment to get peo­ple fly­ing again”, ac­cord­ing to the boss of strug­gling en­gine-maker Rolls-Royce.

War­ren East, chief ex­ec­u­tive of the en­gi­neer, made the plea as he de­tailed the cri­sis Rolls faces be­cause of a coro­n­avirus-in­duced “his­toric shock to civil avi­a­tion”.

Mr East stopped short of ask­ing for di­rect fund­ing for Bri­tain’s avi­a­tion sec­tor, de­spite the US, France and Ger­many un­veil­ing multi-bil­lion res­cue pack­ages for their in­dus­tries.

“The num­ber one thing gov­ern­ments around the world can do is get peo­ple fly­ing again and I take ev­ery op­por­tu­nity to re­mind them of that,” he said. “Our govern­ment is well aware of the im­por­tance of the sec­tor to the UK, but no govern­ment can wave a magic wand and re­place de­mand that is sim­ply not there.”

Rolls burned through £3bn of cash in the first half of the fi­nan­cial year, and ex­pects this to in­crease by an­other £1bn in the full year, caus­ing shares to fall 11pc yes­ter­day.

Fly­ing hours on wide-body air­craft, for which Rolls sup­plies en­gines, fell by 50pc in the first half of the year and were down 75pc in the sec­ond quar­ter when the pan­demic was at its most in­tense. The com­pany ex­pects a 55pc drop over the full year be­cause of the col­lapse in pas­sen­ger flights.

Fly­ing hours are a key mea­sure for Rolls, which has deals where it charges cus­tomers by the hour for its en­gines, pro­vid­ing ser­vice and main­te­nance.

Rolls went into the cri­sis with £4.4bn of cash, but the scale of the hit it has taken has forced it to bol­ster its bal­ance sheet. The com­pany has agreed a new £2bn credit fa­cil­ity from a syn­di­cate of banks un­der­writ­ten by UK Ex­port Fi­nance, upon which it is yet to draw.

Since the pan­demic struck, the com­pany has raised £3.9bn in new credit and £300m from the Covid Cor­po­rate Fi­nance Fa­cil­ity.

In to­tal, the com­pany has £8.1bn of liq­uid­ity, but Mr East con­firmed Rolls was “re­view­ing a range of po­ten­tial op­tions” to fur­ther strengthen its fi­nan­cial po­si­tion.

These in­clude dis­pos­als and equity rais­ings. JP Mor­gan says the com­pany needs to raise at least £6bn to en­dure Covid. The bro­ker has also sug­gested the UK Govern­ment, which holds a “golden share” thanks to Rolls’s pe­riod of na­tion­al­i­sa­tion, could be forced to step in as the com­pany is key to the UK’s de­fence and in­dus­trial base.

Dur­ing the half-year, Rolls’s rev­enues were down by £1.1bn be­cause of lower de­mand for its en­gines.

De­liv­er­ies of new wide-body en­gines were just 130 in the first six months, in line with the 250 the com­pany ex­pects for the full year, which is half the amount Rolls was pre­dict­ing be­fore Covid-19.

Mr East has launched a huge re­struc­tur­ing of the busi­ness to re­flect the lower de­mand, in­clud­ing shed­ding 9,000 of 52,000 global staff. The pro­gramme is ex­pected to de­liver sav­ings of £1.3bn a year by 2022.

Look­ing ahead, Mr East said Rolls ex­pects de­mand for wide body en­gines to re­cover to about 70pc of pre-Covid lev­els in 2021, though de­mand for new en­gines will re­main “sub­dued”.

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