Rolls-Royce Cash Burn Increasing as Most Jets Remain Idled

Rolls-Royce Holdings Plc expects to burn through more cash this year than it previously forecast, after a surge in coronavirus cases slowed a recovery in long-distance travel.

The shares fell as much as 8.5% after the U.K. engine maker said cash flow would be negative 4.2 billion pounds ($5.6 billion) this year, as the wide-body planes powered by its jet engines remained mostly dormant. The company earns revenue for maintenance when planes are flying.

The outflow is 5% higher than predicted in August, though the company said Friday it still aims to return to positive cash generation sometime in the second half of next year. Flying hours for the company’s turbines were just 33% of year-ago levels in October and November and look set to miss expectations for the full year.

“Our civil aerospace business was set up for a level of demand that’s simply no longer there and is not going to return for a number of years,” Chief Executive Officer Warren East said on a call with reporters.

While Rolls-Royce has raised 5 billion pounds just to survive as the Covid-19 pandemic hammers air travel, demand for long-haul flights isn’t expected to fully recover until mid-decade, meaning its cash position is likely to remain a concern for years to come. The company said it’s on track to cut 5,500 jobs through the end of the year.

The shares were trading down 6.4% at 118.90 pence as of 9:39 a.m. in London, and have almost halved for 2020 as a whole.

Slow Recovery

The CEO sees commercial air travel recovering slowly in the first half of next year, with more improvement expected toward the end of 2021. Engine flying hours are unlikely to get a significant boost from efforts to transport the coronavirus vaccine, he said.

Cost cutting should now deliver more than the 1 billion-pound savings targeted for this year, East said. The bulk of the remaining job cuts will be made in 2021, with roughly two-thirds of the losses set to come in the U.K.

With the risk of a no-deal Brexit increasing, Rolls-Royce said it is well-prepared for any scenario and has maintained buffer inventories and logistics arrangements at ports.

On divestments, Rolls-Royce last week announced that it’s moving some activities to its ITP Aero arm, while seeking a buyer. The company will engage with potential acquirers in the first of the year, the CEO said.

©2020 Bloomberg L.P.

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