Rolls-Royce Sees Gradual Recovery but More Covid Uncertainty

 - July 9, 2020, 9:44 AM

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

Rolls-Royce on Thursday said it expects a gradual recovery of its end markets as travel restrictions ease in the coming months, but it acknowledged an “elevated” level of uncertainty in the industry outlook. In a trading update issued the same day, it now forecasts widebody engine flying hours to decline by about 55 percent this year, as more long-haul routes open up in the fourth quarter. The company continues to plan for about 250 widebody engine deliveries in 2020, based on announced build rates from its airframer customers.

The company also reported anticipating a reduction in cash burn resulting from “cash mitigation actions” including supply chain management and a one-third cut in its civil aerospace workforce. Last month Rolls opened voluntary severance in the UK, including an “enhanced” early retirement scheme. The company said it has received more than 3,000 expressions of interest for voluntary severance in the UK and that it expected about two-thirds of those employees to leave by the end of August.

Meanwhile, an anticipated full-year free cash outflow of some £4 billion reflects an “unwind” of inventory in the second half, a gradual improvement in engine flying hours, and an acceleration of cash savings.

During the first half, the business saw a severe decline in demand due to a drop in widebody engine flying hours by some 50 percent, including a 75 percent decline in the second quarter, resulting from Covid-19 effects. Since the low point in April, when flying hours had fallen 80 percent compared with April 2019, the company has seen a marginal improvement in May and June led by an increase in flights in China, Asia-Pacific, and the Middle East. Business jet and regional flight activity has begun to recover more quickly due to lower exposure to cross-border routes, said the company.

MRO activity in the first half remained broadly stable compared with the same period in 2019 but lower than the pre-Covid-19 first-half schedule. The company said it has completed the backlog of overhauls related to the Trent 1000 durability problems and has achieved its target to reduce the number of related AOGs to single digits. It also reported good progress with the type test of the replacement high-pressure turbine blade for the Trent 1000 TEN, which remains on track for incorporation into the fleet by the end of the first half of 2021.

In terms of production, output of new widebody engines proved consistent with the company’s revised guidance of 250 engines for the full year, as it shipped 130 engines in the first half.