Rolls-Royce warn of increased losses with new Covid strains

Rolls-Royce has warned of cash outflow and losses being higher than previously forecast owing to the new strains of the coronavirus prolong the crisis facing the aviation sector.

Company analysts hinted flying hours for this year will only be around 55% of pre-Covid levels, down from original expectations of around 70%.

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In total, the aerospace company predicts a cash outflow of around £2 billion (€2.47 billion), following on from its initial forecast, which was published in October.

The new Covid strains discovered in South Africa have prompted governments to implement further restrictions on travel, which is set to continue a string of reduced business in play since the initial lockdown wave in March 2020.

Analysts previously predicted an outflow of around £1-1.5 billion.

Rolls-Royce's income is generated primarily through long-term contracts under which it is paid for the number of hours the engine is in flight.

In a statement to the London Stock Exchange, Rolls-Royce said: “Continued progress on vaccination programmes is encouraging for the medium-term recovery of air traffic and economic activity.

“In the near term, however, more contagious variants of the virus are creating additional uncertainty.

“Enhanced restrictions are delaying the recovery of long-haul travel over the coming months compared to our prior expectations, placing further financial pressure on our customers and the wider aviation industry, all of which are impacting our own cash flows in 2021.”

The aerospace company managed to raise £5 billion (€5.6 billion) in funds late last year through a rights issue and more credit lines. Officials also announced liquidity of £9 billion (€10.1 billion), enough to see them through even a prolonged pandemic.

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The news seems to have had an effect on the company's shareholders, as following the news, the price of Rolls-Royce stocks began to drop.

The company has also planned for 9,000 job losses by the end of 2022 - plans which were revealed at the start of the pandemic as part of a $1.3 billion (€1.07 billion) cost-cutting measure.

The aviation sector has made calls for private companies to put measures in place to prevent further lockdowns and therefore further losses, such as mandatory Covid testing.

Vaccine hope did not dissuade aviation companies from pursuing these goals, although it proved fruitless owing to the number of further lockdowns imposed towards the end of 2020.

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