Rolls-Royce plunges in to the red with £4 billion loss for 2020
British engine-maker Rolls-Royce plunged in to the red this past year with a lack of £4 billion ($5.57bn) as the business suffered a “severe” blow from the Covid-19 pandemic when airlines stopped flying.
The underlying pre-tax loss, which compares with a profit of £583 million in 2019, was driven by the company’s “power per hour” model of charging some airlines for how much time its engines fly.
It meant Rolls-Royce’s income was immediately affected when airlines around the world grounded their planes in the beginning of the pandemic, with flying hours on wide-body airliners - such as the A380 - at only 43 % of the most common time last year.
Warren East, leader at Rolls-Royce, called 2020 “an unprecedented year” and said the consequences of the pandemic were felt “most acutely” by its civil aerospace business.
“In response, we took immediate actions to handle our cost base, launching the greatest restructuring in our recent history, consolidating our global manufacturing footprint and delivering significant cost reduction measures,” he said.
“We've taken decisive actions to enhance our financial resilience and permanently improve our operational efficiency, resulting in a regrettable, but unfortunately very necessary, decrease in how big is our workforce.”
Britain's best-known engineering company, which also makes engines for ships and powers the UK's nuclear submarines, successfully completed taxiing trials of the company’s all-electric plane earlier this month ahead of its first test flight in spring.
Powered along the runway by a 400-kilowatt electric engine and the most recent battery technology, the tests form “part of an exciting new chapter in aviation”, in line with the UK’s Minister for Business Paul Scully.
However, the company was particularly hard hit by the downturn in travel since it focuses on making engines for the largest long-haul planes, including the A380, a sector of travel likely to take longer to recover.
The company was forced to cut 7,000 everlasting and contractor roles by the finish of last year, with at least 2,000 more to put into practice the finish of 2022.
Senior managers and executives were also hit with a 10 per cent pay cut, with the business warning in January that its 2021 cash outflow would be worse than expected.
After dealing with about £5bn of debt this past year - through a £2bn rights issues and £3bn in bonds and loans - Rolls-Royce is planning to repair its balance sheet by selling assets worth £2bn, the major part that will be Spain-based ITP Aero.
"Our planned sale of ITP Aero is progressing well with ongoing conversations with several audience," Rolls-Royce said.
Adam Vettese, analyst at multi-asset investment platform eToro, said the pandemic continues to be "excruciatingly painful for Rolls-Royce, despite efforts to overhaul its finances".
“During the past year, the engine-maker has seen its revenue slump, pre-tax losses treble and it has piled on your debt. There are hopes that short-term flights increase in number in the coming months, which would provide relief for Rolls-Royce, but long-haul flight demand will need considerably longer to recuperate - as will its recovery," Mr Vettese said.
Mr East said the business had “made an excellent start on our programme of disposals and can continue with this in 2021”.
In a separate interview with the BBC, Mr East said 2020 “was a year like none other, but we think the worst is behind us”.
He said the global vaccination drive should bring about a pick-up in flights in the next half of the entire year, although much will depend on an international agreement how passenger health is checked.
The company’s loss was higher than the £3.1bn expected by analysts, while revenue tumbled by 30 per cent to £11.8bn.
Its cash outflow of £4.2bn was consistent with consensus, and the business said it could improve this season to an outflow of £2bn, with the figure turning positive during the second half.
That improvement would depend on flying hours of its wide-body engines reaching 55 % of 2019 levels this season, a downgrade from its October forecast of 70 %.
Looking forward to 2022, Rolls-Royce expects flying hours to be at 80 % of normal levels, down from a youthful forecast of 90 %.
"The near-term outlook remains uncertain and highly sensitive to the developments of the Covid-19 virus and the related measures taken by governments all over the world," Rolls-Royce said.
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