March 11, 2021, 3:56 p.m. EST

Rolls-Royce hopes $5.6 billion 2020 loss leaves ‘the worst behind’

By Pierre Briançon

Rolls-Royce, the British engine maker and supplier of parts to the airline industry, announced a worse-than-expected £4 billion ($5.6 billion) loss for 2020, but said it is still confident it can turn cash positive in the second half of this year, provided air travel picks up as forecast.

  • Rolls-Royce (LON:UK:RR) has been hit hard by the unprecedented slowdown of air travel due to the COVID-19 pandemic, as a big chunk of its revenue is indexed on the flying time of the planes it equips and services.

  • Aircraft with the group’s engines last year only flew 43% of the time they flew in 2019, and Rolls-Royce expects that proportion to only raise to 55% this year.

  • “We think that the worst is well behind us ,” Chief Executive Warren East said on Thursday in a call with reporters. 

  • He added that if planes with Rolls-Royce engines flew 80% of their 2019 air time next year, the company would turn cash positive in 2022 to the tune of £750 million.

  • Rolls-Royce restructured its balance sheet with more than £7 billion of debt and equity last fall, and East expressed confidence that it would be enough to see the company through the current crisis, even if it takes longer than forecast for the airline and travel industries to recover.

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The outlook: Investors focused on the hopeful tone of East’s presentation and shares rose nearly 2% in early trading in an overall stable London market. But the amount of the loss, way above the £3 billion expected by analysts, shows the extent of the damage that the air travel slump has brought to related industries.

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