Moody’s Investors Service on Monday affirmed the Ba3 corporate family rating of Rolls-Royce PLC, as well as the jet engine maker’s Ba3 long-term backed senior unsecured rating.

The ratings chancy changed its outlook on Rolls-Royce to stable from negative.

Earlier this month, Rolls-Royce backed its annual guidance as it saw a £1.1 billion free cash flow improvement with growth in its order intake, despite swinging to a dramatic interim loss as net financing costs mounted.

For the six months that ended on June 30, the engineering group said revenue rose 8.5% to £5.60 billion from £5.15 billion a year earlier. Despite the growth in revenue, it swung to a hefty pretax loss of £1.75 billion from a profit of £114 million a year before.

Rolls-Royce said net cash inflow amounted to £597 million, compared to outflow of £659 million a year earlier, led mostly by ‘increased flying hour receipts in Civil Aerospace,’ it noted.

Looking ahead, Rolls-Royce said guidance for 2022 remains unchanged. It expects low-to-mid-single digit underlying revenue growth, and to be ‘modestly’ free cash flow positive in 2022.

Moody’s said Rolls-Royce’s Ba3 CFR reflects high barriers to entry given the critical technological content of the company’s engines and expected growth as the commercial aerospace market continues to recover from the pandemic, alongside solid prospects across Defence and Power Systems divisions.

In addition, Moody’s was positive on the strong performance of the company’s Trent XWB and Trent 7000 engine programmes which represent the majority of future orders and installed engine base. Further, the strategic importance of the company to UK defence capabilities and to the aerospace supply chain and its commitment to a conservative financial profile bode well for the company, Moody’s noted.

Moody’s said the stable outlook reflects expectations that the company will grow its revenue over the next 12 to 18 months as engine flying hours and maintenance shop visits increase within the Civil Aerospace division.

‘The outlook assumes that the company will repay £2 billion of its term debt in the coming weeks from disposal proceeds, and will generate at least break even free cash flows. The outlook also assumes that the company will maintain a conservative financial policy targeting further reductions in leverage and will maintain substantial cash balances of at least £2.0 to 2.5 billion, alongside substantial liquidity,’ Moody’s added.

Shares in Rolls-Royce closed 0.3% higher at 85.28 pence on Monday in London.

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