Join our community of smart investors

Rolls-Royce adjusts to new reality

As airlines’ fleet remain grounded and aeroplane manufacturers cut production rates, the group is preparing for a smaller commercial aerospace market
May 7, 2020

Rolls-Royce’s (RR.) widebody engine flying hours were around 40 per cent lower than expected across the first four months of 2020. Flying hours plummeted 90 per cent in April alone as airlines grounded their fleets. Maintenance, repair and overhaul activity for the full year is set to be significantly reduced.

IC TIP: Sell at 282p

As customers cut production rates, Rolls anticipates it will deliver 250 widebody engines this year, down from prior guidance of 450. Chief executive Warren East says the group must have an “appropriate cost base for what will be a smaller commercial aerospace market which may take several years to recover.” It is reducing direct procurement from its supply chain and furloughing over 4,000 workers. Rolls now believes it can implement as much as £1bn in cash savings in 2020, up from the previous £750m target.