Yahoo Finance Why Rolls Royce PLC could disappear forever
The future of Rolls Royce PLC may be in jeopardy after it posted a loss of £5.37 billion ($8.73 billion) in its 2020 half-yearly earnings.
The commercial plane engine manufacturer’s underlying revenue is down 24 per cent to £5.56 billion ($9.05 billion).
The engine maker (which is a separate entity to the iconic British luxury car brand, a BMW subsidiary) indicated that the economic brunt of the coronavirus crisis, and the effective grounding of international travel, crippled demand for its engines.
This significantly hamstrung the company and led to “restructuring” that resulted in the “unfortunate but necessary reduction” of some 4,000 jobs as a result, largely civil aerospace workers.
“The Covid-19 pandemic has significantly affected our 2020 performance, with an unprecedented impact on the civil aviation sector with flights grounded across the world,” said Rolls Royce PLC CEO Warren East in the company’s earnings announcement.
“While our actions have helped to secure the Group's immediate future, we recognise the material uncertainties resulting from Covid-19 and the need to rebuild our balance sheet for the longer term.”
In trying to sketch out a vision of the company’s future, the company has budgeted for a “severe but plausible downside scenario” which assumes a second wave of infections that will result in tighter lockdowns and the reintroduction of travel restrictions.
In this scenario, the company would continue to operate for the next 12 months on a borrowed sum of £1.9 billion ($3.1 billion).
But this amount would run out in 2022, at which they would need to borrow the same amount or more to continue operating, throwing the long-term future of Rolls Royce into the air.
“The inherent uncertainty over the severity, extent and duration of the disruption caused by the Covid-19 pandemic and therefore the timing of recovery of commercial aviation to pre-crisis levels and the availability of sufficient funding, represent material uncertainties that may cast significant doubt on the Group's ability to continue as a going concern and, therefore, to continue realising their assets and discharging their liabilities in the normal course of business.”
Note: A previous version of this article suggested that Rolls Royce PLC and Rolls Royce Motor Cars were the same entity. This has now been amended.
Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, economy, property and work news.
Follow Yahoo Finance Australia on Facebook, Twitter, Instagram and LinkedIn.
