Rolls-Royce makes £2.9bn loss as engine fault costs £790m

Earnings of £616m wiped out by exceptional costs, including faults with Trent 1000 engine

Rolls-Royce slumped to a £2.9bn loss as the cost of fixing faults with its troubled Trent 1000 aircraft engine ballooned to £790m and it was forced to book a series of one-off charges, including costs related to Airbus’s decision to stop making the A380 superjumbo.

It has also pulled out of the running to make engines for Boeing’s planned new mid-market aircraft.

The engine-maker reported underlying operating profit of £616m for 2018 – approximately double last year’s figure – but its earnings were wiped out by a phalanx of exceptional costs.

They included a £317m charge associated with a restructuring plan intended to make the business leaner and simpler, which is expected to cost 4,600 jobs.

It also booked a £186m charge on its Trent 900 engine, which powers the giant A380 aircraft, which Airbus has said will cease production in 2021. The superjumbo pulled in far fewer orders from global airlines than expected and its cancellation means Rolls-Royce can expect to sell fewer engines.

The Trent 1000, which is used on Boeing’s far more successful 787 Dreamliner plane, has meanwhile been beset with problems that caused several aircraft to be grounded last year.

Rolls-Royce has said the engines are wearing out faster than it expected. The company now says it has found a solution to the problem, but the cost of the setbacks increased from £554m in the first six months of last year to £790m by the end of the year – and could reach £1.5bn over five years.

Factoring in these one-off costs, Rolls-Royce lost £803m, sending its shares down nearly 3%. It was dragged to an overall pre-tax loss of £2.9bn as a result of a £2.1bn loss on its currency hedging activities, as sterling weakened against the dollar.

The £2.9bn deficit compares with a £3.9bn profit in 2017, a year in which it paid £671m to settle a bribery prosecution by the Serious Fraud Office. The SFO dropped its investigation into the role of executives in the affair earlier this month.

To add to its woes, Rolls-Royce said it had also been forced to pull out of the race to make the engines that will power the next generation of mid-market jetliner planned by Boeing, warning it could not guarantee it would be able to deliver.

In a statement to the stock market, the company said: “We are unable to commit to the proposed timetable to ensure we have a sufficiently mature product which supports Boeing’s ambition for the aircraft and satisfies our own internal requirements for technical maturity at entry into service.”

Chris Cholerton, president of the engineer’s civil aerospace division, said: “This is the right decision for Rolls-Royce and the best approach for Boeing.

“Delivering on our promises to customers is vital to us and we do not want to promise to support Boeing’s new platform if we do not have every confidence that we can deliver to their schedule.”

Contributor

Rob Davies

The GuardianTramp

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