Rolls-Royce shares tumble despite upbeat guidance with growing fears over air travel demand
Rolls-Royce’s share price slipped 3.37 per cent by close of play on Thursday amid gloomy expectations of reduced air travel, with the UK government the latest to impose new restrictions to tackle the Omicron variant.
Concerns over Covid-19 have put the brakes on the company’s broadly encouraging guidance, ahead of its full-results in February 2022.
It is looking to cut costs as part of a restructuring programme, while also boosting trade and improve performance beyond its core civil aerospace business.
Rolls-Royce will remove 8,500 jobs from its business by 2021, and is set to reach its £1.3bn savings target by the end of 2022.
The aviation giant has also boosted its balance sheet with £2bn of agreed disposals – including ITP Aero for about £1.4bn and Air Tanker Holdings for £186m.
Meanwhile, market recoveries in key company sectors such as power systems and defence have boosted its trading performance.
It has reported a positive free cash flow in the third quarter and reduced the outflow expected in the second half.
Nevertheless, the company acknowledges the pace of travel recovery remains uneven as countries around the world look to manage the ongoing challenges of the COVID-19 pandemic.
Its large engine flying hours are currently around 50 per cent of 2019 levels and approximately 46 per cent year to date as compared to the 43 per cent average for the first half of the year.
Michael Hewson, chief market analyst, CMC Markets said: “This isn’t altogether too surprising given what’s been happening with the Delta variant across Europe and latterly Omicron, as restrictions get tightened heading towards Christmas. International travel is likely to remain a headwind particularly as we head into next year, with all the various restrictions imposed by governments unlikely to be materially eased much before early 2022.”
Rolls-Royce has also pushed ahead with its small, modular nuclear reactor programme.
It has now moved into the second phase of approval with new investors raising funds totalling £145m in exchange for approximately 20 per cent of the equity, in addition to a £50m commitment from Rolls-Royce.
The funding will be matched by the UK Government up to £210m.