Rolls-Royce Plunges to Worse-Than-Expected $5.6B Loss

LONDON (Reuters) -
A Rolls-Royce logo is seen at the company’s aerospace engineering and development site in Bristol, Britain. (Reuters/Toby Melville/File Photo)

British engine-maker Rolls-Royce plunged to a worse-than-expected £4 billion ($5.6 billion) loss in 2020 as the pandemic stopped airlines flying, but stuck to its forecast to burn through less cash this year.

Rolls‘ model of charging airlines for the number of hours its engines fly meant much of its income dried up last year when travel stopped. In 2020, it secured a total of £7.3 billion in debt and equity to help it survive.

Last year’s cash burn of £4.2 billion was in line with analysts’ expectations, and Rolls guided that would reduce this year to £2 billion, turning positive in the second half when travel is expected to pick up. Rolls‘ civil aerospace arm accounts for just over half of group revenue in a normal year.

On an underlying pretax basis, Rolls posted a loss of £4 billion, worse than the £3.1 billion loss forecast by analysts.

Despite that, the company said on Thursday its liquidity position was strong and it could cope even in a severe downside scenario.

Its shares opened up 2.6% at 116 pence.

After taking on £5.3 billion of debt last year, Rolls is planning to repair its balance sheet by selling assets worth £2 billion, the major part of which will be Spain-based ITP, which is currently on the block.

“Our planned sale of ITP Aero is progressing well with ongoing conversations with a number of potential buyers,” Rolls said.

But its asset sale plan ran into problems this week when Norway suspended the 150 million euro sale of Rolls‘ Norwegian unit, Bergen Engines, on security grounds.

Jefferies analyst Sandy Morris said Rolls had “much to do,” but it was feasible. “The possibility of reaching modest net debt by end 2023 is alive,” he said.

Rolls‘ cash flow improvement depends on airlines flying 55% of 2019 levels during 2021. The company said its assumption is for travel to gradually improve this year, accelerating in the second half as vaccine programs progress.

Blaming tightening travel restrictions in the early part of this year, the company warned in January its 2021 cash burn would be worse than previously expected.