Rolls-Royce Confident Of Rapid Air Travel Recovery After $5.6B Loss
LONDON—Rolls-Royce CEO Warren East said he is confident about a rapid recovery of the air transport sector after the pandemic led the company to a £4 billion ($5.6 billion) loss in 2020.
The loss, which contrast with a £583 million profit in 2019, reflects the dramatic fall in average engine flying hours in 2020 to just 20% of 2019 levels, East told investors as the company detailed its fiscal 2020 results on March 11.
East said there was “cause to be optimistic about a V-shaped recovery,” citing the efficacy of vaccines and associated declines in infections. He noted “significant pent-up demand from consumers for flights just as soon as they’re able to resume.”
East tempered his enthusiasm, however, noting that the pace and timing of a recovery was “uncertain.” The company’s outlook suggests engine flying hours returning to an average of 55% of 2019 levels during 2021, and 80% of 2019 levels in 2022.
And although large engine deliveries are expected to remain at the current lower levels for the next few years, East said: “The worst is behind us as far as COVID is concerned.”
East said the pandemic had had an “immediate and material” impact on the company. In response the engine-maker took steps to restructure, removing 5,500 positions from its civil aero-engines business alone, while restructuring actions saved a further £1 billion.
The company had also gone to the markets to secure £7 billion in loans to see it through the crisis. The restructuring, East said, could give the company “great operational leverage as the recovery happens,” and would “reshape the economics of our business for the longer term.”
In the commercial aircraft business, the company said it has achieved targets set to eliminate aircraft grounded because of Trent 1000 problems. Rolls-Royce also noted that it has enough parts and maintenance, repair and overhaul capacity to avoid further recurrence of issues, even if travel restrictions were lifted now. The company has secured an extension from Airbus to maintain its position as the exclusive engine provider for the A350-900 out to 2030. Aviation Week had previously reported in late 2019 that General Electric had been in talks with Airbus over providing a powerplant for a so-called A350neo.
East says the agreement with Airbus would enable dual sourcing of A350 engines by the end of 2031, but Rolls-Royce hopes that by then may be in a position to offer its new Ultrafan technology, which Rolls-Royce claims will have 25% greater fuel efficiency than the Trent-model engines.
Ultrafan development “has gone well,” East said, with the company planning for a demonstration early next year, but taking the engine forward into a program or pausing development “will depend on the timing of new aircraft programs,” East said.
Meanwhile, the company is also continuing to try and sell Spain’s ITP Aero. As part of the planned disposal, Rolls-Royce is proposing the transfer of its Hucknall and Barnoldswick facilities in England into ITP to boost its attractiveness to potential buyers, Rolls-Royce CFO Stephen Daintith said.
“We are holding talks with a number of interested buyers…no one has been rolled out, and we are working closely with all the key stakeholders to find the right path forward,” Daintith said.
Daintith also suggested that sales of other company assets in both civil aerospace and across other parts of the group were on the cards, but said it was too early to name which ones. Further progress on additional sales will be made by the end of 2021, Daintith said.
In defense, which East said had been resilient during the pandemic, the company was looking ahead to two U.S. Defense Department program decisions: the re-engining of the U.S. Air Force’s Boeing B-52 bombers, and the U.S. Army’s Future Vertical Lift program. Together they could be worth £7 billion through their lifetime, East said.