Jet engine cracks put a hole in Rolls-royce balance sheet

ROLLS-ROYCE has slumped into the red after running up further costs as it works to fix problems with its latest jet engine.

The engineering giant swung to a headline pre-tax loss of £1.3bn in the six months to June 30, from a profit of £1.4bn last time.

At an underlying level, the FTSE 100 business made an operating profit of £141m, compared with an £84m loss a year ago. Revenue for the six months to the end of June rose 12pc to £7.5bn.

Sorting out problems with its Trent 1000 engine landed Rolls with an exceptional charge of £554m in the period, a level that Warren East, the chief executive, described as “abnormal”.

Cracks in Trent 1000 engines have forced Rolls into a costly emergency inspection and repair programme, as well as developing replacement parts and compensating airline customers whose aircraft have been grounded because of the troubles. Rolls has previously said it expects costs for dealing with the Trent 1000 problems and issues with its sister Trent 900 engine of about £450m a year in both 2018 and 2019, before dropping by “at least” £100m the following year.

Stephen Daintith, finance chief, said the £554m charge – which covers several years of dealing with Trent 1000 problems – represents about 40pc of total costs, which he put at about £1.3bn when they are finished in 2022.

Mr East added: “We continue to be impacted by the challenge of managing significant Trent 1000 in-service issues and have recognised an exceptional charge of £554m, representing the profit impact of that part of the total current and estimated costs out to 2022 that is considered to be abnormal in nature.”

Rolls reported a positive cash flow of £10m, against a negative £264m at the same point a year ago. Analysts had been expecting a negative cash flow in the hundreds of millions.

Mr East has argued that Rolls’s business model means it is better judged on cash flow rather than profits, as it sells engines at a loss but makes money on long-term servicing contracts.

He is stripping out other costs to improve Rolls’s performance. A restructuring is under way that will see the company axe 4,600 jobs.