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Rolls-Royce Downgrades Its Own 2020 Outlook Due To Pandemic

Rolls-Royce Downgrades Its Own 2020 Outlook Due To Pandemic
The continued slump in air travel because of the novel coronavirus pandemic and related travel restrictions has forced the British engineering company Rolls-Royce to downgrade its forecast for cash flow for the current year while also warning of a challenging outlook for the next year.
 However, its previous commitment to turn cash flow positive during the second half of next year was also reiterated by the company as it said that the company would be able to run around its cash burning because of the deep cost cutting plans and measures that it has drawn up.
The air travel slump during the coronavirus pandemic has hit the company which makes engines that power planes such as Boeing 787 and Airbus A350 and was forced to raise 2 billion pounds ($2.7 billion) from shareholders in November in order to survive.
However within just two weeks of that fund raising, the company forecast for cash flow for the current year was downgraded by it as it said that it now expected the cash flow to be 4.2 billion pounds which was worse than its previous forecast of 4 billion pounds that it had made in October,
The second wave of the Covid-19 pandemic in Europe and elsewhere has also slowed down the recovery in engine flying hours which is the most important metric of how much the company gets paid by airlines, the company also warned.
The announcement resulted in the company’s shares dropping by 7 per cent 118.5 pence which was in contrast to the about 80 per cent gain the stocks had made since emergence of positive news on a Covid-19 vaccine in early November.
Rolls-Royce had "ample liquidity to get us through 2021", said the company’s CFO Stephen Daintith while talking to reports, based on the funds that the company had generated from its shareholders as well as taking up a new debt of 3 billion pounds last month.
The cash flow target that the company has set to achieve for 2021 will be met, said a confident chief executive of the company Warren East, but also said that the timing of the achievement will be dependent on the recovery of the flying hours of airlines.
Engine flying hours had been at about 42 per cent of the last year for the first 11 months in the year to November, the company said, which meant that Rolls will most likely miss the base case forecast for 2020 that it had provided in October of engine flying hours to come in at 45 per cent of last year.
Plans of divesting assets worth 2 billion pounds for arranging finances for bringing down debt have been drawn up by the company to ride out the pandemic hit. The company has also planned to cut down on costs by 1.3 billion pounds by cutting about 9.000 jobs and closing down factories. The company said recently that these plans were on track for implementation.

Christopher J. Mitchell

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