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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  Rolls-Royce Holdings plc    RR.   GB00B63H8491

ROLLS-ROYCE HOLDINGS PLC

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Covid-19 Crisis Puts Further Pressure on Big Jets

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07/09/2020 | 10:38am EDT

By Benjamin Katz

LONDON -- The aviation-industry crisis triggered by the coronavirus pandemic is exacerbating a yearslong move by airlines away from big jets.

Rolls-Royce Holdings PLC, a bellwether for the market for so-called wide-body aircraft, said it raised a further GBP2 billion pounds ($2.53 billion) to help shore up its liquidity as demand for its engines wanes among airline customers. The U.K. supplier specializes in making and servicing engines for the industry's biggest aircraft.

It said Thursday that its revenue will be lower than forecast until at least 2027 as it cuts back production and has fewer engines flying as a result, cutting back revenue related to engine servicing and maintenance. Shares fell as much as 9.5% in London.

Airbus SE, meanwhile, the world's biggest jet maker by deliveries, said late Wednesday it had booked 21 orders for wide-bodies, but received cancellations for 22 in the first six months of the year.

As demand for flying has cratered amid the pandemic, carriers have laid out plans to lay off or furlough tens of thousands of workers. They have sought investor and government rescue cash and have dramatically reduced routes. They have also scaled back sharply plans to purchase new planes.

Now that many economies are starting to open up again, airlines have more recently started to add back some capacity. But the type of demand that is returning -- typically for shorter intracontinental or domestic routes -- threatens to exacerbate a yearslong shift by airlines into smaller, nimbler jets.

Airbus said that it received 344 new orders for narrowbodies, or single-aisle jets, with 45 cancellations in the first six months of the year.

Airbus and rival Boeing Co. have been pivoting in recent years to adjust to airline customers' new reluctance to buy their biggest jets. Instead, carriers have flocked to smaller, single-aisle planes that are more fuel efficient, more flexible on range and can be filled up with passengers more easily.

Unlike its main rival, General Electric Co., Rolls-Royce bowed out of the market for the more popular and better selling narrow-body market in 2012. Rolls-Royce has already outlined plans to cut some 9,000 jobs from its 52,000 global workforce. Chief Executive Officer Warren East has indicated that the company could close or consolidate some of its manufacturing sites.

Rolls-Royce said its engines flew 50% fewer hours in the first half of this year compared with 2019, with the trough in April when usage was down 80%. The company has previously said it would manufacture 250 engines this year, compared with previous guidance for 450 deliveries.

"We play in wide-body, we do not play in single-aisle," Mr. East said. "As much as it might be nice to be in a larger scale market, it's a slightly academic question."

Analysts and industry officials believe business travel, which is critical to making long-haul flying financially feasible, could be the last travel segments to recover. Companies have been reluctant to send employees traveling during the pandemic and wary of the expense during an economic crisis. Many have also gotten used to going without travel.

"We've seen this in China, that domestic recovers much faster and to a much greater degree than international does," said Nick Cunningham, a London-based analyst at Agency Partners. "If your exposure is wide-bodies, then yes, you have a problem."

Airlines across the globe have been downsizing their fleets amid the crisis. They have typically started with their bigger, less fuel-efficient, older jets. Deutsche Lufthansa AG, for example, has said it would retire four-engined Airbus A380s, A340s and Boeing 747s.

Qantas Airways Ltd. is permanently parking its 747 jumbo jets and hibernating its own A380s for the next three years. Air France and Emirates are also cutting back their operation of the double-decker.

Boeing had twice cut its production rates for its 787 Dreamliner before the pandemic, while development delays have hampered its newest and bigger 777X, which has struggled to drum up a significant order backlog. The company has also indicated that it plans to cease production of the 747.

Airbus had taken the move to shutter the production program for its A380 superjumbo program, the world's biggest airliner. It has also cut production rates for its smaller wide-body, the A330.

Write to Benjamin Katz at ben.katz@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
AIR FRANCE-KLM -0.30% 4.05 Real-time Quote.-59.19%
AIRBUS SE -2.16% 73.3 Real-time Quote.-43.82%
BOEING COMPANY (THE) -0.40% 174.73 Delayed Quote.-46.36%
DEUTSCHE LUFTHANSA AG -1.21% 8.782 Delayed Quote.-46.48%
GENERAL ELECTRIC COMPANY -1.79% 6.6 Delayed Quote.-40.86%
QANTAS AIRWAYS LIMITED 0.00% 3.6 End-of-day quote.-49.37%
ROLLS-ROYCE HOLDINGS PLC -1.83% 267.7 Delayed Quote.-60.82%
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Financials
Sales 2020 11 822 M 15 491 M 15 491 M
Net income 2020 11,0 M 14,4 M 14,4 M
Net Debt 2020 4 214 M 5 521 M 5 521 M
P/E ratio 2020 -60,6x
Yield 2020 1,06%
Capitalization 5 207 M 6 793 M 6 823 M
EV / Sales 2020 0,80x
EV / Sales 2021 0,82x
Nbr of Employees 51 700
Free-Float 99,4%
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Technical analysis trends ROLLS-ROYCE HOLDINGS PLC
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TrendsNeutralBearishBearish
Income Statement Evolution
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Mean consensus HOLD
Number of Analysts 20
Average target price 353,38 GBX
Last Close Price 271,40 GBX
Spread / Highest target 228%
Spread / Average Target 30,2%
Spread / Lowest Target -66,8%
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Managers
NameTitle
David Warren Arthur East Chief Executive Officer & Director
Ian Edward Lamert Davis Chairman
Stephen Wayne Daintith Chief Financial Officer & Director
Paul Stein Chief Technology Officer
Lewis William Killcross Booth Independent Non-Executive Director
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