Wednesday 29 July 2020 4:49 pm

Rolls-Royce reportedly mulling £1.5bn rights issue to counter aviation slump

Engine maker Rolls-Royce is reportedly considering a share issue to raise up to £1.5bn after the slump in aviation due to the coronavirus pandemic left a large dent in its financial position.

Earlier this month the engineer, which makes engines for the Boeing 787 and Airbus 350 planes, reported cash outflows today of £3bn for the first half of its financial year.

Read more: Rolls-Royce shares fall as it burns through £3bn in first half

As a result, a number of sources told Reuters that the blue chip stock was planning for a rights issue of discounted shares to existing investors.

According to the report, Rolls-Royce has approached Jefferies, BNP Paribas and Morgan Stanley about a potential September sale.

Most of the FTSE 100’s revenue comes from airlines, which pay it for the number of hours they use its engines.

However, due to an unprecedented slump in flights due to the pandemic, the amount of hours for which Rolls’ engines were used in the first half slumped by half.

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The firm said that it expected further outflows of £1bn in the second half of the year, with more flights expected to take place.

Over the last six months, Rolls-Royce’s share price has dropped nearly two-thirds and is now trading at 257.10p.

One of the sources told Reuters that the size of the rights issue would depend on how much the firm could raise from selling assets such as Spanish subsidiary ITP Aero.

A Rolls-Royce spokesperson said: “As per our statement on 3 July,  we are in the early stages of reviewing a range of potential options to strengthen our balance sheet and position ourselves for the recovery following Covid-19.

“However, no decisions have been made. Our current financial position and liquidity remain strong.”

Read more: BA owner IAG mulls €2.75bn raise by ‘end of summer’

Rolls-Royce is currently in the process of a restructuring which will see at least 9,000 jobs cut and produce a free cash inflow of at least £750m in 2022.

A number of aviation firms are looking to share issues to raise funds as the pandemic grinds on, with BA owner IAG last week announcing a rights issue worth up to €2.75bn.

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