A press release by British engineering giant Rolls-Royce Holding plc (LON:RR) published on Thursday has outlined the company’s £2 billion loan withdrawal to help see it through the tail-end of the coronavirus crisis. Shares at the company have plummeted by more than 8% on the back of the news.
Covid-19’s long shadow
Rolls-Royce has warned that the impact of the pandemic is set to plague the firm’s performance for years to come.
The company – which famously designs engines for the Boeing 787 and Airbus 350 – found the majority of its fleet grounded after worldwide lockdown measures were implemented back in March. The firm was hit especially hard by the lack of long-haul flights, which make up the bulk of the jets whose engines Rolls-Royce manufactures. Total flying hours reportedly fell by 75% in the second quarter, while a recovery to pre-crisis levels is expected to be relatively slow as cautious holidaymakers put their plans on hold over fears of a second wave.
Following a challenging few months for the aviation industry, Rolls-Royce revealed that it had been forced to seek out a £2 billion loan in order to see it through the pandemic – after it burned through £3 billion in the first half of 2020. Although the company has managed to save £300 million since it launched a cost-cutting drive in April, and is apparently on track to reach £1 billion in savings overall by the end of the year, Rolls-Royce is considering restructuring its business model as it plans to restore free cash flow to “at least” £750 million by 2022.
It has since emerged that more than 3,000 Rolls-Royce employees have expressed interest in voluntary redundancies across its UK sites. Around 1,500 jobs are expected to be axed at the company’s Derby headquarters alone by the end of the year, as well as another 700 at the firm’s Renfrewshire site in Scotland. The company announced plans to cut 9,000 jobs worldwide back in May to offset the collapse in aviation demand. John Payne, who has worked for Rolls-Royce for 40 years, said earlier this year: “Derby will be decimated, there are some good engineers there. It will hit hard this. It is heartbreaking but as the old saying goes, it is what it is”.
A ‘historic shock’ to the industry
CEO Warren East commented on the FTSE 100 company’s announcement:
“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.
“We are taking steps to resize our Civil Aerospace business to adapt to lower medium-term demand from customers and help secure our future. 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.
“It is my first priority to treat everyone – whether they are leaving or staying – with dignity and respect. We will take the lessons of how we have dealt with this unprecedented challenge with us and position ourselves to emerge as an even stronger company in the future”.
The Rolls-Royce share price has tumbled 8.7% to 262.76p at BST 09:52 09/07/20, adding to an overall drop of 58% since the start of the year, but recovered marginally to 6.32% or 269.60p just before Thursday lunchtime.