Raising of at least 2 billion pounds ($2.6 billion) from the sale of its assets will be made by British aero-engine maker Rolls-Royce in order for it to prop up its balance sheet that has been severely hit by the novel coronavirus pandemic and the related slump in the travel industry, the company said.
In the first half of 2020, Rolls-Royce reported a record loss before tax of 5.4 billion pounds ($7.14 billion). The problems of the company was compounded by the resignation of its finance chief Stephen Daintith even though he said that he would continue in the company during a transition period.
And even after asset sales, the company would continue to other options to prop up its finances, the company said. Rolls-Royce had a good level of liquidity and would be implementing a plan to cut costs, said Daintith when he was asked about a possible rights issue.
“We’re not going to be drawn on any particular option for strengthening the balance sheet. We’re taking our time, considering carefully,” he told reporters on Thursday.
A rights issue was needed, JP Morgan analysts said. “In our view only a very major capital raise would put Rolls-Royce on a sound footing.”
The news saw share price of Rolls-Royce drop by 9 per cent. So far this year, the stock of the company is down by 66 per cent resulting in a market capitalization of 4.54 billion pounds.
There have been speculations in the media about the United Kingdom government could be forced to rescue the company since it is viewed as an important supplier to the military programmes of the UK government.
“Probably the most important thing that government can do is help get people flying again,” CEO Warren East said, when asked about potential state help.
Rolls-Royce has been hit because of a virtual stop in flying because of the pandemic related lockdowns earlier this year and travel remaining at a much lower level than before the pandemic. Rolls-Royce’s revenues are generated from the payment that airlines make on the basis of how many hours the engines made by the company re used in flight.
In May, June and July, the drop in flying hours was in the range of 70 and 75 per cent. The company also warned of considerable uncertainty about the timing and the type of recovery.
ITP Aero, a unit of the company is based in Spain and makes turbine blades for jet engines, is planned to be sold by Rolls-Royce in order to boost its coffers. The company also plans to sell some other assets of the company to raise at least 2 billion pounds over the next 18 months.
The company said that it also plans to reduce the aerospace manufacturing facilities from 11 to 6 and added that 4,000 job cuts had already been made at its civil aerospace unit out of the 9,000 that as announced in May. That is a part of the company’s strategy to cut costs by 1 billion pound for the current year.
(Adapted from Reuters.com)