£1bn loss puts Rolls-royce in a tailspin
ROLLS-ROYCE is set to sink deeper into the red on Thursday, when chief executive Warren East reports a first half loss of more than £1billion due to coronavirus.
The expected loss comes as the embattled engineering giant looks at options to strengthen its balance sheet. Although it still has £8.1billion in cash and borrowing facilities available, Rolls-royce has burnt through around £3billion so far due to Covid-19 travel restrictions.
As a result, it is looking at raising fresh capital by selling new shares, parts of its business or a combination of both, so it can reduce its debts. It is understood the engineering group wants to raise £1.5billion. It is thought East may touch on its future capital needs at the results.
Rolls-royce makes the bulk of its money from the aviation market and with international travel severely curtailed, it has been hit hard. Analysts believe its first half revenues will be down more than 23 per cent to £5.6billion. Losses are set to increase, up from £909million last year, but could be even worse than analysts predict as Rolls-royce may be forced to write down the value of its physical and tax assets.
AJ Bell investment director Russ Mould said: “East already had multiple challenges, from sorting out the cost base, its engines, and now a pandemic. Its cash flow targets are under pressure so there is a risk extra funds will be required.”
He added, if East does decide to raise more funds he needs “to go big, go early and copperbottom it”, as it would be disastrous if he had to go back cap in hand later for more funds.
The Covid-19 pandemic has brought airlines and the businesses that depend on them to their knees. However on Tuesday, Virgin Atlantic should take a huge step forward towards guaranteeing its survival.
The airline’s creditors will vote on its restructuring plans and if they approve, it will unlock the £1.2billion rescue package it needs. Virgin is confident the vote will go its way as it has the support of all of its major creditors. The deal will save 7,000-plus jobs.
The airline’s plans are due to be signed off by courts in the UK and US on the 2nd and 3rd of September respectively and Virgin wants to wrap up the financial restructuring within days of getting said approvals.
Virgin was forced to seek a private sector rescue after Chancellor Rishi Sunak denied the airline a bailout on the grounds that it is backed by billionaire founder Sir Richard Branson and Delta Airlines.