LONDON (UK) – British firm Rolls-Royce lowered predictions regarding how much its engines will fly this year as tighter travel curbs will inflict fresh wounds on airlines. This would mean a cash outflow of 2 billion pounds ($2.7 billion).
Stoked by fears that the new variant of the mutant coronavirus is more transmissible and the vaccine might be ineffective against the one detected in South Africa, countries around the world have tightened travel restrictions.
That has triggered a dip in air traffic as airlines and aviation engine manufacturers were hoping for a recovery. This has forced Rolls-Royce to come out with a trading update just six weeks after its last warning.
The company prediction of a cash outflow of 2 billion pounds is higher than what analysts estimate – Morgan Stanley’s 900 million pounds and Jefferies’ 1.55 billion pounds.
The firm’s main revenue source from airlines is flying hours as they make payments depending on how much they use its engines. Flying hours are slated to be about 55% of 2019 levels compared with base a prediction of 70% it gave in October.
“Enhanced restrictions are delaying the recovery of long-haul travel over the coming months compared to our prior expectations,” said Rolls in a statement. Its engines power aircraft such as Boeing 787s and Airbus A350s.
Rolls-Royce said in December that 2020’s cash outflow would be worse than expected at 4.2 billion pounds and its shares fell 5% to 93 pence at 1125 GMT.
“Challenging conditions in the broader industry mean there may be incremental disappointments in a number of other areas,” Morgan Stanley analysts said in a note.