Plane engine-maker Rolls-Royce (RR.L) has sounded the alarm over the impact of new COVID-19 variants and tougher global travel restrictions on its aviation customers and cashflow.
The company warned it expected to burn through £2bn ($2.7bn) this year with use of its engines at just 55% of 2019 levels, as its earnings are based on usage and from servicing as well as production.
The level of cash burn is at least £500m more than expected by analysts, as Rolls-Royce had previously anticipated engine usage at 70% of pre-virus levels. The company’s stocks fell 2.5% on the news.
It has already cut around £1bn in its 2020 full-year and slashed around 7,000 roles, with another 2,000 due to be axed by the end of 2022.
“This restructuring will be a key enabler of our target to deliver at least £750m of free cash flow (excluding disposals) as early as 2022,” it said in a trading update.
“More contagious variants of the virus are creating additional uncertainty. Enhanced restrictions are delaying the recovery of long-haul travel over the coming months compared to our prior expectations.”
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But it expects cashflow to turn positive “at some point” in the second half of 2021. It said it had around £9bn liquidity, and remained confident it was “well-positioned” for the future despite the “more challenging near-term market conditions.”
It also said continued vaccine rollouts were “encouraging” for the medium-term recovery of air traffic and economic activity.
The update comes after workers at one of its factories in Barnoldswick, Lancashire, voted to accepted a deal to save the site and hundreds of jobs earlier this month.
Unite union members had begun industrial action last year over the planned closure of the site, which would have seen work on aeroplane blades moved to Singapore.
Labour’s shadow business minister Lucy Powell called on the UK government to provide support for aerospace firms and help Britain “lead the world in a green revolution for aerospace.”
“While France and Germany have taken steps to support and sustain their aerospace industry, the UK government has stood idly by,” she said.
The UK government has been approached for comment.