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Rolls-Royce warns of uncertainty around timing of recovery in air traffic

Graeme Evans
·2-min read

Rolls-Royce has admitted it will burn through another £2 billion this year after seeing tighter travel restrictions deepen the crisis facing airline customers.

In another blow to its own recovery hopes, Rolls now expects engine flying hours for 2021 to be about 55% of 2019 levels compared with the 70% forecast in early October.

It warned of significant uncertainty over the “precise shape and timing of the recovery in air traffic” as more contagious variants of Covid-19 lead to tougher curbs on movement.

This is set to include the UK's introduction of hotel quarantine for all travellers alongside separate warnings that it is too soon to be thinking about summer holiday plans. Airlines had started the year in optimistic mood after seeing a surge in 2021 bookings.

Despite today's new guidance, Rolls is hopeful it will generate cash at some point in the second half of 2021 amid an eventual recovery in the flying hours it needs for generating revenues from aftermarket services.

It got through more than £4 billion of cash last year after seeing flying hours in the summer slump to 24% of 2019 levels. The company has subsequently removed around 7,000 roles as it works towards an overall jobs reduction of 9,000 by the end of next year.

This restructuring should enable Rolls to deliver at least £750 million of cash as early as 2022, so long as engine flying hours recover as expected.

It added today: “With liquidity of approximately £9 billion, we are confident that despite the more challenging near-term market conditions we are well-positioned for the future.”

Rolls shored up its balance sheet in November with a £5 billion recapitalisation plan, including a heavily-discounted rights issue worth £2 billion.

Vaccine breakthroughs triggered an initial recovery for the shares, only for the discovery of new variants to send them 27% lower between early December and last night. Shares in British Airways owner IAG and easyJet have also fallen sharply in recent days.

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