Rolls-Royce battles for its survival: Engineer to sell £2bn of assets after posting record £5.4bn loss
Rolls-Royce is aiming to raise £2billion by selling parts of its business as it struggles to survive the coronavirus crisis.
The engineer has been hammered by the pandemic, which has triggered a collapse in global air travel and starved it of income it usually makes from servicing plane engines.
Reporting a record first-half loss of £5.4billion, the jet engine maker said it will take until 2025 for demand to recover to 2019 levels.
Drastic action: Rolls-Royce confirmed it will ditch ITP Aero, a Spanish unit which makes parts for the Eurofighter Typhoon
And it has warned it may not be able to survive the crisis if there is a longer or deeper than expected downturn in the travel industry.
Rolls said it would aim to sell £2billion of assets to shore up its finances. It confirmed that this will include ditching ITP Aero, a Spanish unit which makes parts for the Eurofighter Typhoon.
Boss Warren East said the remainder of the cash would probably be made from selling technologies or parts of businesses, rather than hiving off entire divisions.
And Rolls is expected to tap investors for more cash at a later date by selling new shares.
The company has been scrambling to cut costs and has already announced plans to axe 9,000 jobs and shut factories in Nottinghamshire and Lancashire.
But it said there was a ‘severe but plausible’ worst-case scenario that ‘may cast significant doubt’ on its ability to continue trading.
The announcement is the latest in a series of blows to the company – and its reputation – over the last few years.
It will fuel worries the state could be forced to step in to save the 114-year-old firm from collapse if it runs into more problems.
East said the other measures it is taking should prevent it from needing a state bailout – but added the company is ‘not ruling anything out’.
He said the best way the Government could help was by encouraging more people to fly again, for example through striking so-called ‘air bridge’ agreements with countries outside of Europe.
The grave warning about its future came as Rolls reported it racked up a £5.4billion loss in the first half and revealed that finance boss Stephen Daintith will leave for grocery group Ocado.
East said he acknowledged that this looked ‘clumsy’, as Daintith has only been in the job for three years, and that he was ‘disappointed’ by the move.
Shares dropped by as much as 7 per cent yesterday – though it pared back some losses and closed down 1.2 per cent, or 3p, to 250p by the market close. More than £8billion has been wiped off the company’s value this year.
The number of flying hours notched up by its planes – which is where it makes a large proportion of its cash – dropped by around 50 per cent between January and June as flights were grounded worldwide.
JPMorgan analysts said Rolls needs to raise much more money than it is targeting and said the warning about the company’s future should be taken seriously.
Russ Mould, investment director at AJ Bell, said: ‘The smoke signals from Rolls-Royce have been fairly clear – it needs to do something to prop up its balance sheet and market speculation has long pointed towards a very large equity raise.
‘It’s an odd game to play. The company would be better off making some hard decisions now with regards to issuing new shares, particularly while investors still seem happy to back companies needing more cash during the pandemic.’
Rolls said it was reviewing all its options.