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Rolls-Royce share price struggles as air travel collapses

Rolls-Royce share price struggles as air travel collapses

The British manufacturer has had a torrid time in recent months, with the Rolls-Royce share price only just above the 10-year low of May. What will this week’s Q2 results mean for this marquee brand?

Rising costs, job cuts deepen Rolls-Royce share price woes

It’s a tough time for Rolls-Royce. On the eve of the manufacturer’s Q2 results announcement this week, the Rolls-Royce share price slid a further 10% back towards the lows that the company saw in May. It’s been a sharp decline. Shares that as recently as January were sitting at 680p are now just above 280p, as coronavirus wreaks havoc on the aviation sector.

While Covid-19 has had a huge impact, the Rolls-Royce share price had been in decline even before the coronavirus pandemic decimated the aviation sector.

Numerous issues have led to increased spending, including problems with the turbine blades of the Trent 1000 engine which powered the 787 Dreamliner. This has seen costs rise to a potential £2.4bn by 2023.

The company plans to cut costs to the tune of £1.3bn, starting with a cull of 9,000 jobs from its 52,000-strong workforce. These will mainly fall in its civil aerospace division, with 3,000 UK-based jobs being cut, as the business struggles to adapt to a new trading environment.

Coronavirus takes its toll

Covid-19 has had a huge impact on the aviation sector, with passenger traffic down 98% year-on-year. With the wholesale grounding of aircraft across the world, and customers taking steps to delay or cancel future aircraft orders, the Rolls-Royce share price and order book have been hit hard.

Civil aviation accounts for almost $9bn of its annual turnover, and the collapse in air travel has seen nearly half of the company’s projected revenue disappear. March saw a 50% drop in hours flown by Rolls-Royce engines, as airlines grounded their fleets and various travel bans bit.

Possible further measures?

Neither the third-largest job cut in the UK during the pandemic, or a new £115m deal with the US Navy have staved off the impact that Covid-19 has had on the Rolls-Royce share price. The collapse in revenues has meant that the company has had to defer bonuses for its CFO and CEO, and secure an additional $1.5bn revolving credit line in April in addition to the $2.5bn it secured in March. Given the ongoing uncertainty, Rolls-Royce also scrapped its guidance for the quarter.

While the dip towards a 10-year low has seen a small recovery, there’s no disguising the trouble that Rolls-Royce finds itself in. There’s no sign of an imminent boost to passenger numbers, particularly for long-haul flights, and the sector has advised that it may be years before these reach pre-Coronavirus levels.

This week’s announcement may well contain further information on Rolls-Royce’s attempts to raise extra cash, as well as looking at various other options for the company to bolster its balance sheet, including a possible disposal of ITP Aero, its Spanish operation.
Rolls-Royce will announce its Q2 results at 7am on Thursday 9 July. Will the results help or hurt the Rolls-Royce share price?


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