Rolls-Royce reports $1.1 bn operating loss, hit by Trent 1000 problems
28 February 2020
Aerospace and engineering major Rolls-Royce has reported an operating loss of 852 million pounds ($1.11 billion) for 2019, pulled down by problems associated with is Trent 1000 engine.
Rolls-Royce said cost overruns associated with tackling durability problems with the Trent 1000 engine was a big drag on record engine deliveries and after-market performance.
Underlying core operating profit rose 25 per cent to 810 million pounds, while core free cash flow came in at 911 million pounds, led by higher profit and reflecting 173 million pounds worth of Trent 1000 insurance receipts, the British company said.
The company expects core operating profit to grow by about 15 per cent this year, with at least 1 billion pounds of free cash flow.
While the spread of coronavirus was likely to hit air traffic growth in the near term, Rolls-Royce said, that would not impact long-term growth trends and would not have material impact on the company’s performance.
The company has been working to resolve durability issues with its Trent 1000 engine, which powers Boeing’s 787 Dreamliner, with the blades in the TEN variant proving particularly problematic.
Airline customers have had to ground the aircraft for Rolls-Royce to carry out repairs.
“There is, however, no denying the fact that the durability issues with the Trent 1000 weighed heavily on 2019, in terms of the financial cost of returning the fleet to the levels of service our customers expect and dealing with the unacceptable disruption we have caused them. As a result of the Trent 1000 and as announced in November, we are recognising a net exceptional charge of £1,361m within our financials, contributing to a reported loss of £(852)m,” chief executive Warren East said.
Rolls-Royce, however, said it has arrived at a fix for all but one of the issues identified and is well advanced on certification and rolling them out into the fleet. The company said it has carried out a detailed technical reevaluation of the progress on the final fix - a new high pressure turbine blade for the Trent 1000 TEN.
Rolls-Royce said it has made good progress on the design of this blade, and continue to expect certification of this component in the first half of 2021.
Based upon that work and test activity, Rolls-Royce plans to reset its financial and operational expectations for the engine in November, based on a revised estimate of final blade durability. This, it said, would provide certainty for customers and greater clarity for investors.
It said in November it would take a 1.4 billion-pound exceptional charge connected with the issue.
Chief executive Warren East said Rolls-Royce had made further progress on Trent 1000, with cash costs in line with guidance.
He said the company remained on target to reduce the number of aircraft on the ground to single digits by the end of the second quarter.