High and dry
Beleaguered Rolls-Royce urges Government to ‘get people flying again’
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”.