Moving parts: Jumbo jet engine charges hurt Rolls-Royce as manufacturer pulls out of Boeing bid
Rolls-Royce’s share price moved down a gear this morning as it announced it had dropped out of bidding to supply engines for Boeing’s new midsize plane model because it could not meet the timetable.
The company reported an operating loss of £1.2bn in its full year results, after being hit by one-off charges relating to the engines for Boeing's 787 Dreamliner and Airbus’ superjumbo A380 model, which it announced it was discontinuing earlier in February.
Read more: Airbus stops making A380 after demand nosedive
Shares fell 2.1 per cent in Thursday morning trading on the announcement.
The figures
The FTSE 100 firm said despite the losses, underlying profits were £616m in its overall business, rising £253m on the previous year. Meanwhile, in its core division, which is the part of the business Rolls-Royce takes into the future after last year’s sale of its L’Orange division and the upcoming offload of its commercial marine business, profits were £633m.
Reported revenue was up seven per cent year-on-year to £15.7bn, while cash flow was £568m, more than doubling on last year’s £259m.
The company also turned around 2017 net debt of £305m to £611m cash in 2018.
One-off charges came from problems which needed fixing on its Trent 1000 engine model which powers Boeing’s 787 Dreamliner, which cost £790m last year. It also faced a smaller £186m charge on its Trent 900 model, after Airbus announced it was closing its A380 production line which the engine powers.
Why it’s interesting
In a rare move for the engineering giant, Rolls-Royce was forced to withdraw from competing to build engines for Boeing’s approaching mid-market aeroplane model because it is “unable to commit to the proposed timetable”.
President of the company’s civil aerospace division Chris Cholerton said it was “vital” that Rolls-Royce delivered on promises to customers, and it was not confident it could meet Boeing’s timetable.
On top of this, a number of aircrafts which run on the Trent 1000 engine model remain grounded, with little indication in Thursday’s results when they will be back in the air.
But despite the bad news, the firm stressed underlying operating profits were up 71 per cent in the wake of a restructuring last year.
George Salmon, Equity Analyst at Hargreaves Lansdown, said although parts of the business had become more efficient, “Warren East [CEO] hasn’t quite got Rolls-Royce firing on all cylinders”.
“While these results look strong, the multitude of adjustments and mitigating factors mean we think the champagne will have to stay on ice for now.”
Read more: Boeing and Airbus to deliver $4.3bn worth of jets to Japan
What Rolls-Royce said
East said: “Despite the challenges we faced on Trent 1000 in-service issues, solid progress has been made realising our ambition to make 2018 a breakthrough year.”
“Following the restructuring we announced in June last year we are starting to see the crucial behavioural changes needed to sustain our momentum.”