Rolls-Royce shares plunge as firm cuts flying hours forecast
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Rolls-Royce shares nose-dived this morning as the blue-chip stock lowered its forecasts for the number of hours it expects aircraft powered by its engines to fly this year.
Shares fell 6.0 per cent in the morning’s trading as the coronavirus showed no signs of abating.
The FTSE 100 firm said that it now expected flying hours to drop to 55 per cent of 2019’s levels, down from prior estimates of 70 per cent.
As the blue-chip is paid according to how many hours planes fly using its engines, the fall means that it will lose more cash this year.
Although Rolls-Royce is currently estimating free cash outflow of £2bn, it said that it still expected to turn cash positive by the end of the year.
The firm said that it had liquidity of £9bn and was “well-positioned” for the future despite the short term environment.
Russ Mould, investment director at AJ Bell, said that Rolls-Royce would be confident it could “weather the storm” at the moment.
“However, the market will be keeping a close eye on the state of the aviation industry and whether the second half of 2021 is realistic for a notable increase in the number of planes flying.
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“That matters for Rolls-Royce as its real money is made from repair and maintenance work rather than the sale of engines, and that requires planes to be in the sky.”
In the UK, airlines have grounded the majority of their planes due to the current national lockdown, which includes severe restrictions on international travel.
Ministers are expected to approve harsher border controls today in a bid to further limit the importing of new cases of the disease.
Rolls-Royce said that its restructuring efforts were continuing apace, with 7,000 roles removed last year.
It is targeting getting rid of 9,000 jobs in total by the end of 2022.
“This restructuring will be a key enabler of our target to deliver at least £750m of free cash flow as early as 2022, contingent on the expected recovery in engine flying hours”, it said.