In Civil Aerospace, Rolls Royce said large Engine Flying Hours (EFH) are around 65% of pre-pandemic levels in the four months to the end of October. There has been a stronger recovery in the US and Europe, partially offset by reduced travel in China because of restrictions. Within the division, Original Equipment deliveries are at the lower end of the expected range.
There has been “robust” demand in Defence, and Power Systems saw a record order in-take in the year to date. Investment is continuing in New Markets.
Rolls Royce completed its £2bn disposal programme in September, which was used to pay down nearer-term debt obligations. The group has £4bn of drawn credit, which needs repaying between 2024 and 2028. All drawn debt is on fixed-interest rate terms. Many of Rolls’ long-term contracts contain inflation-linked pricing clauses based on standard indices for energy, materials and wages – which helps to offset the effects of rising costs.
More detailed full year results are expected on 23 February.
Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:
“Rolls Royce is doing all it can within its control. Costs are being managed by inflation-linked clauses in its customer contracts, debt’s being repaid, and crucial Engine Flying Hours are edging upwards. The trouble is, and which has been the case since the pandemic struck, the group’s grappling against a multitude of headwinds from external forces.
Engine Flying Hours, which are used to calculate how often Rolls Royce’s engines are serviced, will never take off completely while restrictions remain in China. At the same time, while the debt pile is coming down, and is on a fixed interest rate, it is still suffocatingly large. The group’s carrying £4bn of drawn credit around, and that will limit growth for a while yet because lightening that load takes priority over anything more exciting. The news that full year guidance is unchanged with a sigh of relief, but it’s a sorry state of affairs when being on-track is a cause for genuine celebration.”
