Fears Rolls-Royce will need billions in taxpayer bailout
As engineer takes £3bn Covid pandemic hit . . .
ROLLS-ROYCE burned through £3bn of cash during the first six months of the year as coronavirus dealt a hammer-blow to its finances.
The engineering group warned it was set to lose another £1bn by the end of 2020 – and that it would take several years to recover from the ‘historic shock’ created by the pandemic.
Three thousand employees have already volunteered to leave the business as part of swingeing job cuts that will help it save £1.3bn a year by 2022.
But Rolls has admitted that despite having around £8bn at its disposal it would need to raise more cash – probably by going cap in hand to investors.
Experts warned that the Government could even have to bail it out if the pressures facing the airlines and aerospace companies got worse.
Describing the update as ‘materially worse’ than expected, analysts at JP Morgan wrote: ‘If there is a second wave of Covid-19 or a slower than hoped for recovery, then it is very possible, in our view, that the Government will need to step in to save Rolls-Royce.’
The redundancies at RollsRoyce came on another bleak day for the jobs market in the UK. Pharmacy chain Boots axed 4,000 staff and John Lewis warned of 1,300 of job losses as the High Street giants closed stores. Burger King also warned it could close a tenth of its outlets – putting 1,600 jobs at risk.
Rolls-Royce has been pummelled as flights worldwide were grounded for months as countries went into lockdown.
The number of hours flown by its engines dived by 75pc between April and June, when Europe and the West were at the height of lockdown.
The hours fell by 50pc across the first six months of the year as a whole. These flying hours and lower demand for its engines knocked £1.1bn off its revenues.
Shares in Rolls plunged by 11pc, or 31.5p, to 256.3p after it released the trading update, meaning it has lost around twothirds of its value, or about £8bn, since the start of the year.
Around half of Rolls’ £15bn annual turnover comes from its civil aerospace arm, which makes and maintains engines for jets such as the Airbus A350 and Boeing 787.
The company makes a loss on each engine it sells – instead earning money from maintaining and servicing them.
This means the recent pause on international travel sent shockwaves through the business. Chief executive Warren East (pictured) said: ‘These are exceptional times.
‘The Covid-19 pandemic has created a historic shock in civil aviation which will take several years to recover.’
Airlines do not think demand for flights will recover until at least 2023, while plane makers such as Airbus and Boeing are expecting to struggle until 2025.
But Rolls is at an even greater disadvantage because it only makes engines for big planes – and it is short-haul routes which use smaller jets that are expected to rebound quickest.
In a bid to save cash, Rolls in May unveiled plans for a mammoth restructuring plan that will see it axe one in six of its global workforce, or 9,000 of around 53,000 employees. Around 8,000 will be in the civil aerospace arm.
The company said 3,000 UK employees have already volunteered to take redundancy – with 2,000 of these expected to leave by the end of August. Around 5,000 UK jobs are expected to go in total.
It was already working through a huge restructuring programme that East introduced in 2018.
Derby-based Rolls said plans to raise more cash are at an early stage, but it is thought likely it will sell more shares, as well as sell it Spanish aerospace subsidiary ITP Aero.