Thursday 11 March 2021 7:41 am

Rolls-Royce plunges to huge loss as Covid turbulence sets in

Rolls-Royce swung to a £4bn loss in 2020, as the cost of Covid turbulence became clear.

The aerospace giant plunged to a loss of £4bn compared to a £306m profit in 2019 as the pandemic stopped airlines flying.

The firm’s underlying revenue also sunk to £11.7bn from £15.5bn the previous year.

Rolls-Royce’s model of charging airlines for the number of hours its engines fly meant its income dried up last year when travel stopped.

It was forced to raise £5bn from shareholders and in loans to buffer against the uncertainty.

Warren East, CEO of Rolls-Royce, believes the engine-maker did all they could the weather the Covid storm.

“The impact of the Covid-19 pandemic on the Group was felt most acutely by our Civil Aerospace business,” he said.

“In response, we took immediate actions to address our cost base, launching the largest restructuring in our recent history, consolidating our global manufacturing footprint and delivering significant cost reduction measures.”

Despite a challenging year, Rolls-Royce said it was “confident” it will be well-positioned for the future, with the company expected to turn cash flow positive later in the year.

Any improvement depends on airlines flying 55 per cent of 2019 levels during 2021. 

Rolls-Royce said its assumption is for travel to gradually improve this year, accelerating in the second-half as vaccine programmes progress.

Jack Winchester, Analyst at Third Bridge, said: “What we’ve seen over the past year is the inherent fragility of Rolls Royce’s business model – when you sell engines to customers at a loss, you are very dependent on your aftermarket ‘power by the hour’ business.”