Rolls-Royce's 787 Engine Woes Set to Curb Airline Operations

(Bloomberg) -- Rolls-Royce Holdings Plc’s mushrooming problems with engines that power a quarter of the Boeing Co. 787 jet fleet will force some carriers to modify flightpaths or switch to different aircraft as safety regulators limit operations, a person with knowledge of the matter said.

The distance affected 787s can fly from the nearest diversionary airport will be slashed, curbing their ability to make oceanic flights, while engine checks will need to be carried out more frequently, regularly grounding planes, according to the person, who asked not be named as the measures aren’t yet public.

The European Aviation Safety Agency is drawing up the restrictions and is set to announce them in the form of an airworthiness directive later Friday, the person said. The limitations come after Rolls-Royce earlier revealed that additional inspections were required for a batch of 380 turbines in order to address existing durability issues that are more serious than first thought.

The so-called ETOPS range of afflicted planes is expected to be reduced from 330 minutes from the nearest airport to about 140 minutes, according to the person. The restriction is meant to keep twin-engine aircraft within flying distance of a safe landing spot should one turbine fail. The reduced timespan for Trent 1000-powered planes could be an issue on trans-Pacific flights in particular.

The inspection interval for 787s equipped with the engines will be cut to every 80 trips from 200 now, the person said, a factor that could be more disruptive to airlines than the range limitations. The U.S. Federal Aviation Administration will follow with similar curbs once EASA has published its ruling, they said.

Among carriers with Rolls-Royce-equipped 787s that could face disruption are British Airways and Virgin Atlantic Airways Ltd. For Rolls the developments come as a blow after the London-based company indicated barely a month ago that the engine issues seemed to have been resolved. It also faces a further cash drain from the extra work and potential compensation payments to carriers.

Parts Redesign

The company maintained its estimate of 450 million pounds ($641 million) for annual free cash flow, saying it would cut other discretionary costs, and declined to say on a call how big the additional impact on cash will be. Durability problems with the Trent 1000 and an engine used on the Airbus SE A380 led to a 170 million-pound cash cost last year, and that figure was already set to double in 2018.

Even before today’s revelations Rolls-Royce had said a redesign of problem parts for the 787 wouldn’t be fully incorporated in the fleet until 2022. The snag has led to unscheduled shop visits for dozens of 787s at carriers including Virgin and BA, costing Rolls more than 220 million pounds in charges last year.

Some 200 engines are due for maintenance in coming weeks, according to Chief Executive Officer Warren East, who didn’t say whether airline compensation is factored into the new guidance. The CEO added that Rolls had sought to make clear in March that the situation remained “dynamic.”

Targets for the discretionary spending cuts elsewhere will include company travel, IT upgrades and work on Rolls’s UltraFan engine and other next-generation programs, East said, though plans to compete on Boeing’s new middle-of-market aircraft -- or NMA -- won’t be affected. He said there’s been no discussion about pausing deliveries of the 787 engine.

Rolls-Royce shares fell as much as 2.5 percent and were trading 0.7 percent lower at 874.80 pence as of 12:12 p.m. in London. The company’s 750 million euros ($925 million) of bonds maturing in 2021 fell to around 106 euro cents, the lowest since March 2016, data compiled by Bloomberg show.

©2018 Bloomberg L.P.

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