UK-based industrial technology group Rolls-Royce has warned that the scale of the disruption to the civil aerospace sector caused by the Covid-19 pandemic (and the measures taken by many countries to counter it) would result in a smaller market in that sector, which would take several years to recover. It issued this warning at its 2020 annual general meeting on May 7. During the first four months of this year, the flying hours for jet engines fitted to wide-body airliners were some 40% less than the group had previously expected. The figure for April was down 90%, as a large proportion of the global airliner fleet was grounded.
“We are working hard to mitigate the near-term disruption caused by Covid-19 and are making stronger-than-expected progress on our mitigating actions, giving us confidence that we can now deliver up to £1-billion of savings this year,” highlighted group CEO Warren East. “However, we must also take the difficult but necessary decisions to ensure the group emerges from this period with the appropriate cost base for what will be a smaller commercial aerospace market which may take several years to recover.”
Because there had been such a huge reduction in flying, the group also expected that its maintenance, repair and overhaul activities would be significantly reduced. And its airliner manufacturing clients had cut their production rates, so Rolls-Royce now expected to deliver only about 250 wide-body engines this year, instead of the previously expected 450. In response, the group had placed more than 4 000 of its employees in the UK on furlough and had been working with its supply chain to reduce direct procurement.
However, these measures were not likely to adversely affect the recovery programme for the Trent 1000 engine. The company remained focused on restoring this fleet of engines to full operational capacity. There were now enough spare and overhauled Trent 1000s to reduce the number of aircraft forced to stay on the ground because of engine problems to only about ten once commercial flying restarted. This number was on track to drop to single digits by the end of June.
The power systems business was still expected to make a “meaningful positive contribution” to the group’s cash flow and profit this year. But this market segment was weaker because of extended shutdowns in various markets and travel bans. Thus, its performance this year was expected to be materially down on last year.
Rolls-Royce’s defence business had remained “robust”. However, activity levels were at risk because of the effects of self-isolation of staff and social (or physical) distancing on the group itself and on its supply chain. Consequently, the company was closely monitoring its supply chain and, where possible, taking action to reduce the impact on its production.
The group had benefited from the diversity of its businesses. “As a group, we are prepared to endure a long period of uncertainty,” stated Rolls-Royce. “Due to the unprecedented reduction in air traffic caused by Covid-19, we are anticipating a significant cash outflow during the second quarter and it remains too early to guide on the likely outcome for the full year. Meanwhile, our financial position remains robust and our strong liquidity position provides support for our operations.”