Rolls-Royce upbeat about international travel despite 60% drop in engine flying hours

British engineers’ cargo flights helped bolster demand during first four months of 2021

Technical staff members prepare one of the Rolls-Royce Holdings Plc engines of a Boeing Co. 787 Dreamliner aircraft operated by All Nippon Airways Co. (ANA) under maintenance in ANA's hanger at Haneda Airport in Tokyo, Japan, on Tuesday, April 27, 2021. ANA is scheduled to release earnings results on April 30. Photographer: Toru Hanai/Bloomberg
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Rolls-Royce said its plane engines spent 60 per cent less time in the air in the first four months of this year than pre-pandemic levels seen in 2019, but the company remains cautiously optimistic about the recovery of international travel.

Cargo flights and the maintenance of key routes helped to bolster the British engineering company’s engine flying hours between January and April, with its financial and operational performance in line with expectations.

However, the company was more upbeat about the outlook for international travel as vaccination programmes accelerate around the world.

“While the timing of the recovery remains uncertain, the progress of Covid-19 vaccination programmes in a significant number of countries, particularly the US and UK, is encouraging,” the company said in its latest trading update on Thursday.

“Combined with increased testing, vaccination programmes are key enablers of further recovery in international air travel.”

Roll-Royce charges airlines for the number of hours its engines fly, which means much of its income dried up during the pandemic when travel ground to a halt.

The jet maker plunged into the red last year with an underlying pre-tax loss of £4 billion ($5.62bn), compared with a profit of £583 million in 2019, driven by the company's "power by the hour" business model.

The company reduced costs, took on debt and raised equity to survive, and said on Thursday it had "made good progress on the targeted £1.3bn of annualised cost savings".

During restructuring, 7,000 permanent and contractor roles were cut by the end of last year and at least 2,000 more are set to go by the end of 2022.

Senior managers and executives were hit with a 10 per cent pay cut, with the company warning in January that its 2021 cash outflow would be worse than expected.

The company stuck to its guidance to turn free cash flow positive at some point during the second half of 2021 as vaccinations increase across the globe and travellers return to the skies.

“The cautiously optimistic message from Rolls-Royce this morning was clear – a return to normalcy is the key to a second-half recovery," said Laura Hoy, equity analyst at Hargreaves Lansdown.

"Management confirmed that from their side, everything is ticking over as expected. Now the group just needs global vaccine rollouts to hold up their end of the deal."

Rolls-Royce also plans to sell £2bn worth of assets to help repair its finances, and said on Thursday that there was an "encouraging range" of parties interested in buying its Spanish unit ITP Aero.

“We faced unprecedented challenges in 2020 with events that were beyond our control. We acted quickly and decisively by putting in place the measures necessary to protect our people and our business,” chief executive Warren East said.

“Looking ahead, we are confident that the significant restructuring action we have taken in 2020 will deliver permanent cost reductions, positioning us well for the rebound in international air travel.”

Mr East said the company was committed to its net zero targets and "supporting the transition in our end markets to low carbon and net zero carbon solutions".

The company, which successfully completed taxi-ing trials of the company's all-electric plane in March, said the jet would take to the skies "within weeks".

The plane is powered by a 400-kilowatt electric engine and latest battery technology,

“In the last few months, we have taken significant steps, including successfully testing 100 per cent sustainable aviation fuels in current-generation aircraft engines in Derby, while our Spirit of Innovation all-electric aircraft will take to the air within weeks,” Mr East said.

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