Rolls-Royce has issued a profit warning investors it expects £2 billion of cash to leave the business in 2021.
The amount is more than double the amount forecast by the aerospace giant last year. The warning comes as aircraft flying its engines are grounded due to COVID-19 border closures and restrictions.
Rolls-Royce was already undertaking a cost cutting exercise before the outbreak of the pandemic, expects. The manufacturer, which has engines that power Boeing and Airbus aircraft, is paid by the number of hours its engines are in use causing a drop in revenues. Rolls-Royce has forecast widebody engine flying hours for this year to be 55 per cent of those seen in 2019.
Company has shed 9,000 jobs
The new forecast for 2021 is a reduction to the previous estimate which would see flying hours for 2021 at 70 per cent of 2019. The company has already announced plans to sell assets worth billions of pounds and has cut more than £1 billion in costs by axing 9,000 jobs and closing factories.
A statement issued on behalf of Rolls-Royce said financial forecasts remained “highly sensitive to changes in external conditions”: “Continued progress on vaccination programmes is encouraging for the medium-term recovery of air traffic and economic activity. In the near term, however, more contagious variants of the virus are creating additional uncertainty.”
“Enhanced restrictions are delaying the recovery of long-haul travel over the coming months compared to our prior expectations, placing further financial pressure on our customers and the wider aviation industry, all of which are impacting our own cash flows in 2021.”
However, Rolls-Royce did forecast an improved second-half to the year. The statement continued: “Though significant uncertainty remains over the precise shape and timing of the recovery in air traffic and the phasing of engine (OE) concession payments, free cash outflow this year is forecast to be heavily weighted towards the first six months. We continue to expect to turn cash flow positive at some point during the second half, reflecting our forecasted profile of flying hours as they recover from today’s low base.
The company added that with liquidity at approximately £9 billion, it was confident that it was well-positioned for the future, despite more challenging near-term market conditions.
Rolls-Royce’s 2020 Full Year results will be published on 11 March 2021.
