Rolls-Royce scraps targets, dividend on pandemic hit

Rolls-Royce also said on Monday it had secured an additional £1.5bn ($1.8bn) revolving credit facility. (Reuters)
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Updated 06 April 2020

Rolls-Royce scraps targets, dividend on pandemic hit

  • Chief: The company’s focus was on strengthening its financial resilience
  • Rolls-Royce relies on aerospace for just over half of its annual revenues

LONDON: Rolls-Royce is scrapping its targets and final dividend to shore up its finances as the British aero-engine maker’s customers around the world ground planes due to the coronavirus pandemic.
Rolls, one of Britain’s most historic industrial names, which before the coronavirus crisis struck was trying to emerge from a multi-year turnaround plan, has suspended its dividend for the first time since 1987.
The company’s engines power Airbus and Boeing’s widebody jets but more than 60% of that fleet is now grounded, according to aviation data provider Cirium.
Rolls-Royce is paid by airlines based on how many hours they fly. Over the last six weeks, the headwind from coronavirus was about £300m, Rolls-Royce said, on flying hours which were 50% lower in March and expected to deteriorate further in April.
Chief executive Warren East said the company’s focus was on strengthening its financial resilience, and as such it would be looking at cutting its cash expenditure, including reducing salary costs across its global workforce by at least 10% this year.
Rolls-Royce also said on Monday it had secured an additional £1.5bn ($1.8bn) revolving credit facility, bringing its overall liquidity to £6.7bn, to give it headroom during a potential prolonged downturn.
Withdrawing its previously announced guidance for 2020, and noting the ongoing uncertain outlook, Rolls-Royce said its board was no longer recommending its final dividend in respect of 2019, saving £137m.
The company said actions to reduce costs, including on non-critical capital expenditure projects and salary cuts and deferrals for senior managers, would have a cash flow benefit of at least £750m this year.
Rolls-Royce also warned it was anticipating a reduction in engine delivery and maintenance and overhaul volumes, affecting its revenues in the longer term. The group’s power systems business, which supplies industrial customers, is expected to weaken this year, the company said.
Jefferies analyst Sandy Morris said that Rolls’s update should give investors confidence in the company’s ability to cope with the downturn.
“There is plenty of liquidity. There are no worrying developments,” he said.
Shares in Rolls were up 13% at 284 pence in early trading. The stock has lost 55% over the last month.
Rolls-Royce relies on aerospace for just over half of its annual revenues, which were around £15bn  in 2019, deriving the rest from its defense and power systems businesses.


EasyJet to cut 4,500 jobs to stay competitive after crisis

Updated 25 sec ago

EasyJet to cut 4,500 jobs to stay competitive after crisis

  • UK budget airline expects a smaller market in future after easing of lockdown travel measures

LONDON: The UK’s easyJet plans to cut up to 4,500 jobs and shrink its fleet to adjust to the smaller travel market which is forecast to emerge from the coronavirus crisis.

EasyJet, which employs more than 15,000 people in eight countries across Europe, is moving later than others in announcing job cuts as a result of the coronavirus pandemic, which has brought airlines across the world to their knees.

Most have been forced to cut jobs, including more than 15,000 in Britain, as they prepare for a market which is not forecast to return to 2019 levels until 2023.

EasyJet, which said on Thursday it would launch a consultation process with staff, also plans to shrink its fleet by 15 percent to 302 planes by the end of 2021 and to cut costs through deals with airports, suppliers and in marketing.

Shares in easyJet rose 6 percent to 751 pence, their highest level since mid-March, before coronavirus grounded its fleet.

“Exactly the kind of overhaul the cost base needs,” Bernstein analyst Daniel Roeska said of easyJet’s cuts, which go deeper than those of Ryanair and Wizz Air, who have said they will lay off 15 percent and 19 percent of staff respectively.

EasyJet said it expects to be flying around 30 percent of its capacity by the fourth quarter, which leaves it trailing Ryanair which is planning to fly 40 percent in July.

“The leverage to growing market share over the next two years seems to rest with Ryanair and Wizz, who see their cost bases as allowing them to exploit this crisis,” Goodbody analyst Mark Simpson said.

EasyJet Chief Executive Johan Lundgren said that job cuts would ensure easyJet emerges as “a more competitive business.” Around 8,000 of its staff are based in Britain.

Lundgren told reporters that easyJet was talking to the British government about a 14-day quarantine rule which airlines say will further stifle any travel recovery.

Over the last six weeks easyJet has also been grappling with an attempt by its biggest shareholder to oust its senior bosses, and the fallout from a cyberattack.

It said that talks with lessors interested in acquiring aircraft on a sale and leaseback basis were ongoing, and that proceeds would now be £500 million to £650 million ($798 million), around 25 percent higher than previously expected in April.