This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.
Rolls-Royce is considering shedding its ITP Aero unit as that Spanish engine components manufacturer drains cash flow under many of the same Covid-19 related pressures its parent company continues to experience. The UK engine giant on Thursday reported that its net debt at the end of this year’s first half stood at £1.7 billion ($2.24 billion), compared with a net positive cash position at the end of last year of £1.4 billion.
“We have identified various assets for potential disposal, including ITP Aero, and the appropriate preparation work is under way,” said the company in a statement. “We will also explore options to increase the scope of ITP Aero’s supply chain and manufacturing activities. Notwithstanding the outcome, ITP Aero is a key partner and we will retain a long-term relationship with the business across our civil aerospace and defense programs. We will pursue any disposals under a timeline and structure that maximizes value for our shareholders. Any potential disposals are also, of course, dependent on market conditions.”
Rolls-Royce CEO Warren East estimated potential net proceeds from its planned assets disposal at £2 billion, adding that the company has already reaped significant benefits from a restructuring exercise put in place to combat the effects of Covid-19.
Cost mitigation moves yielded some £350 million in savings during the first half, said Rolls, achieved largely through the restructuring of the civil aerospace business. The company projects the planned disposal by the end of this year of some 9,000 jobs—including 8,000 from the civil aerospace division—will result in a £700 million benefit out of a total £1.3 billion savings goal by the end of 2022. So far, 4,000 people have left the company.
Meanwhile, the company reports “significant progress” in the consolidation of its own manufacturing base, including proposals to reduce the number of its widebody engine assembly sites from three to one in Derby, UK; Trent fan blade production from two to one in Singapore; blisk production from three to two in Derby and Oberursel, Germany; and turbine blade machining from two global facilities to one in Derby.
The company also has begun assessing a plan to increase the use of outside contractors to supply key engine parts. “As we reorganize our aerospace activities to reflect the expected market size post-Covid-19, we are also assessing significant changes in our make-versus-buy strategy, focusing on high-value manufacturing, increasing the use of third parties for other components, and reducing overall capital intensity,” it said.