This is another blow for investors in the UK company, which provides the engines on more than one in two commercial planes globally.
Rolls-Royce’s share price dipped 3.5% to 781.6p in Friday trading, slamming the brakes on the stock’s recovery from early August lows of 730p.
TROUBLE AT HANGAR
Rolls-Royce had already warned in August that the rate of recovery in Trent 1000 ‘aircraft on ground’ had remained pressured, due to an additional repair load resulting from the faster deterioration of a turbine blade. That added an extra £100,000 to the estimated bill of fixing the problems, now pitched at £1.6bn over the next few years.
‘Since then, we have also taken a proactive decision to accelerate intermediate pressure turbine blade replacement for the limited number of Package B and C engines yet to be fitted with the final standard of IPT blade,’ the company said.
This has led to additional engine removals, grounding even more planes.
This is a big deal for Rolls-Royce. While this is a highly technical and cutting edge science-based business, the business model is easy to understand. It builds engines, often selling them at cost, and then enjoys substantial profit over the typical 25-year engine lifecycle from servicing.
Get more engines on more planes that fly more air miles and you’ve got a virtuous cycle of bumper cash flow long into the future. That cash should then underpin a growing stream of dividends.
Grounding planes throws a spanner in those works.
CASH IMPACT CAPPED
‘As a result, though we continue to work on further increasing our maintenance, repairs and overhaul capacity, these challenges mean that we now expect the return to single-digit level of aircraft on grounds on the Trent 1000 to be delayed until the second quarter of 2020.’
Rolls-Royce is, of course, sorry to cause such disruption to airlines, passengers and its own shareholders. ‘We deeply regret the additional disruption that this will cause our customers and we continue to work closely with them to minimise the impact on their operations.’
At least cash cost projections for the Trent 1000 Package B and C in-service issues in 2019 and 2020 will not escalate, the company leaving its guidance unchanged.
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