COVID-19: Rolls Royce – pandemic casualty?

We hear a lot about how the pandemic is affecting Airlines. We often hear about how it is affecting plane manufacturers. We sometimes hear about how it is affecting Airports. But we almost never hear about its effect on jet engine manufacturers.

Rolls Royce

Although the name is associated in the public mind with luxury bespoke cars, it actually spends most of its resources on producing specialist engines for wide-bodied, long-haul aircraft, like the Airbus A350.

The Financial Times is running an opinion piece (reprinted in the Australian Financial Review) reporting that:

‘It expects to burn through £4 billion (AU$7.2 billion) this year, returning to a (sic) positive free cash flow of just £750 million or more in 2022.’

Not a good place for a company to be in. The article goes on to talk about short-sellers, currency hedging and equity financing – all financial talk well above my comms degree pay grade. However, I think you can see from the below chart, which shows that the price of RR shares has dropped over 68% since March 2020, that it is potentially a company in trouble.

2PAXfly Takeout

This is another timely reminder to wear your seatbelt when seated. Holding you close to your seat will protect you from the sort of injuries sustained on this flight, when unsecured passengers flew to the ceiling of the aircraft, and then came crashing down once the ‘drop’ ceased.

The hope will be that this is an anomaly – a ‘freak accident’ in casual parlance. If it is a systemic error either mechanical or electronic, then this is a larger concern for the airlines that fly Boeing Dreamliner 787 aircraft. Let’s hope it isn’t. If it is, it will pile on the woes to Boeing’s existing stack.

We tend to focus on the consumer travel experience crystallised by Airports and Airlines, but the effects of the pandemic are hammering the whole travel and associated industries.

Rolls Royce, fortunately, has access to a fair bit of its own liquidity, not to mention a partially guaranteed £2 billion loan from the UK government. As a treasured icon in the UK engineering landscape, I doubt Boris will let it fail. Or as the opinion piece concludes:

‘The outlook for a vaccine and post-coronavirus travel will become clearer in the next few months. The company should keep calm and carry on cutting costs.’

Financial Times