Rolls-Royce chalks up $1bn loss as Europe markets tank

Aerospace engineer Rolls-Royce reported a 2019 operating loss of 852 million pounds ($1.11bn) after the cost of tackling durability problems with its Trent 1000 engine eclipsed record engine deliveries and a good after-market performance.

Underlying core operating profit rose 25 percent to 810 million pounds ($1bn), while core free cash flow came in at 911 million pounds ($1.2bn), led by higher profit and reflecting 173 million pounds ($222.7m)worth of Trent 1000 insurance receipts, the British company said.

Rolls-Royce said the coronavirus outbreak was likely to hit air traffic growth in the near term, but long-term growth trends remained intact.

It said it expected core operating profit to grow by about 15 percent this year, with at least one billion pounds ($1.3bn) of free cash flow, in guidance which excludes any material impact from the outbreak.

The company has been working to resolve durability issues with its Trent 1000 engine, which powers Boeing’s 787 Dreamliner, with the blades in the TEN variant proving particularly problematic.

Airline customers have had to ground the aircraft for Rolls-Royce to carry out repairs.

It said in November it would take a 1.4 billion-pound ($1.8bn) exceptional charge connected with the issue.

Chief Executive Warren East said the company had made further progress on Trent 1000, with cash costs in line with guidance.

He said the company remained on target to reduce the number of aircraft on the ground to single digits by the end of the second quarter. 

IAG

Ahead of British Airways-parent company IAG releasing its annual results on Friday afternoon, Chief Executive Willie Walsh said the company was focused on completing its buyout of Air Europa and was not planning any further deals at the current time.

“We’re focused on the acquisition of Air Europa so beyond that we’re not looking to do anything,” he told reporters on a call on Friday.

Asked if the coronavirus outbreak – which has hammered travel demand – could spark further consolidation in the airline sector, Walsh said “without question”, but added that he expected weaker airlines to fail, rather than be acquired.

“I can’t see there being much interest in acquiring those failing airlines,” Walsh said.

IAG would look to fill the gap left by any airlines that do fail, he added.

“We’re clearly in a position to adjust our capacity if we see capacity being taken out of the market by airlines failing,” he said

Bad week

Shares in IAG tumbled 6.9 percent on Friday to their lowest level in more than four months after British Airways said it would cancel some flights to and from Italy, Singapore and South Korea.

The airline owner was not alone, with many other UK shares tanking on Friday, with both benchmark indexes firmly entering correction territory as fears mounted that the coronavirus outbreak could turn into a pandemic and spark a global recession.

The blue-chip FTSE 100 fell 3.2 percent and was on track for its worst week since the 2008 financial crisis. The index has now lost about 13 percent since a recent peak on February 12.

The mid-cap FTSE 250 tumbled 2.5 percent, also eyeing its biggest weekly decline since 2008, as the spread of the virus deepened in countries outside China and crippled supply chains.

Trade-reliant miners and oil majors shed 4 percent and 3.3 percent, respectively. The travel and leisure sector fell 4.1 percent to its lowest level since 2016, as drastic containment measures cut demand for air travel and hotels.

As markets opened, the story was the same across the continent, as European shares dropped 3 percent on Friday, sliding deeper into correction territory, as investors feared a global recession is on the horizon with the coronavirus spreading across the world.

The pan-regional STOXX 600 was on track to record its biggest weekly decline since the nadir of 2008, having entered correction levels on Thursday, with a 10 percent decline from its recent peak, along with markets in the United States and Asia.