Yahoo Finance Rolls-Royce is on the right lines with its rescue plan but it's plagued with risk
We should all want Rolls-Royce to succeed.
Along with fish n chips and Manchester United, it’s one of the emblems of the UK still recognised in every corner of the planet.
But success has been far from its reach for several years.
Major engineering problems with its Trent 1000 engines – bits started cracking far sooner than they should have – have meant the company spent a bomb servicing them for their furious airline clients.
Covid has caused those airlines to cancel orders for new planes and slash the amount of flying hours, hitting Rolls’ servicing revenues.
Oh yes, and another engine, the Trent XWB-84, is now having issues, too.
Teething problems are not uncommon in major, once-in-a-generation new product launches of such scale. Boeing’s 737 Max being a case in point.
But Rolls does seem more plagued than most.
Today’s announcement contains a whole host of new horrors, including losses of 5.4 billion quid.
Little wonder so many investors - even activist ValueAct – have cut and run.
Rolls wants those who’ve stuck around to stump up some £2 billion as an equity raise to keep the business afloat. However, many worry that this could not only be good money after bad, but not enough cash to work.
After all, net debt is currently £1.7 billion, rising perhaps to £5 billion next year.
Around £1 billion of cash is set to flow out of the business in the current half-year alone.
The good news is that Rolls is thinking the unthinkable – plotting the sale of around £2 billion of businesses to add to the money hoped for from the rights issue.
But given the current state of the markets, there can be no guarantees of either plan.
A key disposal is likely to be an aero engines business called ITP Aero, but talks to sell that last year collapsed. In these markets, who’s to say they won’t again?
And, while fund managers have been willing to back many equity raises since April, they’re only prepared to support businesses with a clear and obviously bright future.
One suspects Rolls has some way to go until it persuades them of that.
Read more
The best 20 shares and funds to buy in a recession
Where to get the best dividend yields in uncertain Covid times
FTSE-100 set to drift as traders await key speech from Fed governor
Rolls-Royce reports £5.4 billion loss following Covid-19 disruption
Rolls-Royce shows how generous Rishi Sunak really is
Rolls-Royce to have axed 2,000 staff by August
Rolls-Royce to cut 9,000 jobs in massive overhaul of aerospace giant
