The jet engine maker Rolls-Royce has confirmed it is considering a £2.5bn cash call after months of speculation about its financial position, pushing shares in the company to a 16-year low.
The Derby-based engineering company said it was reviewing all funding options to shore up its balance sheet, including a rights issue, or issuing new debt.
Rolls-Royce said it had not taken a final decision on whether or when to proceed with an equity raise, nor the exact amount.
The impact of Covid-19 on its civil aviation business has been brutal, leading the company to report a record £5.4bn loss for the first half of the year in August. It announced at the time that it expected to have burned through £4bn of cash by the end of 2020, and said it might not be able to find enough funding to cover its needs.
To cope with the slump in demand for its engines, Rolls-Royce is undertaking the largest restructuring in its history, cutting 9,000 jobs globally and closing several production sites. The group has forecast that the restructuring will give it pre-tax savings of £1.3bn a year by 2022.
The company said “rapid management actions” had allowed it to reduce its costs and secure additional liquidity, including a £2bn loan, partly backed by the government credit agency UK Export Finance (UKEF), which it finalised in August. It is also looking to shore up its finances for the longer term by selling assets that are likely to raise at least £2bn, including the Spanish engine maker ITP Aero.
Rolls-Royce has predicted it will take until 2025 for aircraft engine orders to return to pre-Covid levels, as the pandemic led to a slump in demand due to the slashing of flight schedules by airlines and a slowdown in production by aircraft manufacturers. It originally expected to produce 450 aircraft engines during 2020, but was forced to reduce its target to 250 deliveries.
Rolls-Royce shares closed down 11% on Monday after the company confirmed it was considering an equity raise, making it one of the biggest fallers on the FTSE 100 on a day when the index fell 3.4%.
“Tougher widespread restrictions on movement are likely to push any recovery for the airline industry even further into the future,” said Susannah Streeter, a markets analyst at the stockbroker Hargreaves Lansdown. “That concern has had a domino effect on aircraft engine manufacturer Rolls Royce, as investors see no end in sight for the falling demand for new planes,” she said.
