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THE BOEING COMPANY

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Rolls-Royce hit by further setback to fixing Boeing 787 engines

09/20/2019 | 05:00am EST
FILE PHOTO: View of one of two Rolls Royce Trent 1000 engines of Boeing 787 Dreamliner during media tour of the aircraft ahead of the Singapore Airshow in Singapore

(Reuters) - Rolls-Royce will take longer than expected to fix problems with its Trent 1000 engine, frustrating efforts to get Boeing 787s grounded by the glitch flying again and knocking the British company's shares.

Rolls-Royce, whose engines power large civil and military planes, said on Friday it had sped up turbine blade replacement for some models, leading to additional removals and delaying a reduction in the number of grounded aircraft to single figures until the second quarter of 2020.

The company faces 1.6 billion pounds in extra costs and disruption as a result of the engine problem, which is due to the poor durability of components, and the latest delay spells further frustration for its customers and investors.

Its shares were down 3.5% at 780.8 pence at 0851 GMT, the largest percentage losers on London's blue-chip index <.FTSE>.

Rolls-Royce, whose customers include more than 400 airlines, 160 armed forces and 70 navies, said in August that it would spend another 100 million pounds to fix the issue.

"We perceived a risk that further action would be required, potentially leading to higher costs being incurred ... today's announcement that guidance for the Trent 1000 cash costs in 2019 and 2020 remains unchanged comes as a relief," Jefferies analysts, who rate the stock as "buy", said.

Rolls-Royce CEO Warren East said in August that a target of fewer than 10 aircraft on the ground at the end of the year might take a bit longer to achieve as a result of an additional repair load resulting from faster deterioration of a blade on the Trent 1000 TEN.

DEEP REGRET

The Trent 1000 TEN is the latest version of an engine that has had a problematic entry into service. As of late February, Rolls said 35 787s were grounded globally due to engine blades corroding or cracking prematurely.

"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," Rolls-Royce said.

Airlines have faced disruptions because of the groundings, with Norwegian Air's strategy switch to prioritise profits over growth hampered by the global grounding of Boeing's 737 MAX aircraft and long-running problems with Rolls-Royce's engines on Boeing Dreamliners.

Singapore Airlines has also grounded two 787-10 jets fitted with the Trent 1000 TEN engines.

Rolls-Royce is keen to avoid further problems with the engine and in March dropped out of the race to power Boeing's planned mid-market aircraft.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Saumyadeb Chakrabarty, Jacqueline Wong and Alexander Smith)

By Noor Zainab Hussain 

Stocks treated in this article : Norwegian Air Shuttle ASA, Rolls-Royce, Singapore Airlines Ltd.


© Reuters 2019
Stocks mentioned in the article
ChangeLast1st jan.
BYD COMPANY LIMITED 0.81% 199.8 End-of-day quote.414.29%
MAX CO., LTD. 1.95% 1467 End-of-day quote.-33.14%
NORWEGIAN AIR SHUTTLE ASA -20.13% 0.4268 Delayed Quote.-98.60%
ROLLS-ROYCE HOLDINGS PLC -4.04% 111.6 Delayed Quote.-50.63%
SHUTTLE INC. -0.63% 9.44 End-of-day quote.-22.62%
SINGAPORE AIRLINES LIMITED 8.35% 4.41 End-of-day quote.-51.22%
SWITCH, INC. -0.71% 15.35 Delayed Quote.3.58%
THE BOEING COMPANY 3.29% 218.49 Delayed Quote.-35.07%
THE GLOBAL LTD. 8.48% 243 End-of-day quote.-48.41%
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Financials (USD)
Sales 2020 59 100 M - -
Net income 2020 -4 085 M - -
Net Debt 2020 39 375 M - -
P/E ratio 2020 -30,6x
Yield 2020 0,46%
Capitalization 123 B 123 B -
EV / Sales 2020 2,75x
EV / Sales 2021 2,09x
Nbr of Employees 161 100
Free-Float 55,7%
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Number of Analysts 25
Average target price 212,05 $
Last Close Price 218,49 $
Spread / Highest target 40,1%
Spread / Average Target -2,95%
Spread / Lowest Target -42,8%
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David L. Calhoun President, Chief Executive Officer & Director
Lawrence W. Kellner Non-Executive Chairman
Jenette E. Ramos Senior Vice President-Supply Chain & Operations
Gregory D. Smith CFO & Executive VP-Enterprise Operations
Theodore Colbert Executive Vice President
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