Rolls-Royce has burned through £3bn in cash in six months because of the coronavirus pandemic, and warned it could take “several years” to recover from the crisis.
The Derby-based jet engine manufacturer said 3,000 UK workers had applied for voluntary redundancy, about 2,000 of whom are due to leave by the end of August. The redundancies are part of wider plans to cut 9,000 jobs globally owing to the pandemic, with UK staff making up two-thirds of the total. Before the job cuts were announced, Rolls-Royce employed 52,000 staff worldwide.
Warren East, its chief executive, said: “These are exceptional times. The Covid-19 pandemic has created a historic shock in civil aviation which will take several years to recover. We started this year with positive momentum and strong liquidity and acted swiftly to conserve cash and cut costs to protect Rolls-Royce during the pandemic.
“This means we have had to take the very difficult decision to lose people who have helped us become the company we are and who have been proud to work for Rolls-Royce.”
Rolls-Royce shares ended the day down 11% at 256p.
The company said its cashflow had been significantly affected by Covid-19 in the first half of the year. The company, which charges some companies based on the amount of time its engines are in the air, was badly affected by coronavirus travel restrictions that grounded planes across the globe.
Rolls-Royce said engine flying hours fell by 75% in the second quarter, compared with the same period last year, and was down 50% over the first six months of 2020. First-half revenues fell £1.1bn because of the decline and fewer engine deliveries.
The company took a further £1.1bn hit after ending a practice known as invoice factoring, which involves a short-term bank loan to bolster cashflow until customers pay for their goods.
In total, Rolls-Royce said it expected to burn through £4bn worth of cash by the end of 2020.
The company expects to see a “gradual improvement” in engine flying hours, with more long-haul flights expected to restart in the fourth quarter, and a rise in cash savings in the second half of the year. However, it said its income from its US civil aviation business would take a significant hit over the next seven years.
Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said: “Rolls-Royce is at the sharp end of current disruption. A business model that relies heavily on the number of hours its engines spend in the air is a tough deal in the face of international travel disruption. Engine flying hours are expected to be down 55% for the full year, and aren’t expected to normalise for a while after that. By 2021 engine flying hours are only expected to be at 70% of pre-pandemic levels.”
