Rolls-Royce projects slow recovery into 2021; Reports $5.6bn loss

By Rahul Vaimal, Associate Editor
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British engine manufacturer Rolls-Royce has reported a worse-than-expected $5.6 billion loss in 2020 as the pandemic stopped airlines flying while holding on to its prediction of burning through less cash this year.

When travel stopped last year, Rolls-Royce’s business model of charging airlines for the number of hours its engines operate dried up. To help it succeed in 2020, it secured a total of $10.2 billion in debt and equity.

The $5.9 billion cash burn last year was in line with analysts’ estimates, and Rolls forecasted that it will decrease to $2.8 billion this year, turning optimistic in the second half when travel is expected to pick up. In a typical year, the civil aerospace division of Rolls-Royce produces just over half of the company’s sales.

Rolls posted a pretax loss of $5.6 billion, which was higher than the analysts’ estimate of $4.3 billion.

Despite this, the company updated recently that its liquidity position was better and that it could withstand even a severe downside scenario.

Rolls-Royce plans to rebuild its balance sheet after taking on $7.4 billion of debt last year by selling properties worth $2.8 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 several potential buyers,” Rolls pointed out.

However, the company’s asset sale strategy has hit a roadblock when Norway halted the sale of Rolls’ Norwegian subsidiary, Bergen Engines, for $179 million due to security concerns.

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

The increase in Rolls’ cash flow is dependent on airlines flying 55 percent of 2019 levels in 2021. The company expects travel to increase steadily this year, then grow in the second half as vaccine programs progress.

The company cautioned in January that its cash burn in 2021 would be worse than expected, blaming tighter travel restrictions in the early part of the year.

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