Ben Richardson, CEO at SulNOx, confident they can cost-effectively decarbonise commercial shipping. Watch the video here.
Potentially good news for RR
https://www.dailymail.co.uk/sciencetech/article-8651689/Covid-19-lead-surge-ultra-long-haul-flights-14-hours-more.html
That is the risk you are weighing up, especially the threat of a second wave leading to mass airline shutdowns again.
However, they are not burning $1b a month, they're forecasting burning another $1b for the entire second half of the year. The Q2 $3b burn was impacted by several factors, including some exceptional items so that won't be their ongoing burn.
I thought it was a relatively positive report. There is certainly enough liquidity there that they can ride out the storm over the next year or so and they are taking steps to right the ship. The hedge unwind outflow is an extra kick in the balls I wasn't expecting. Good to see them projecting positive cash flow even if it is 2022. The balance sheet will also be in very rough shape so an equity raise in future or sale of some part of the business may make sense. But at least they won't be forced to do either imminently and at rock bottom prices.
I do think almost all if not all of the bad news is now out there so some stability may come to the share price after the initial sell off. I'm still bullish long term.
https://www.cirium.com/thoughtcloud/coronavirus-monitoring-passenger-jet-activity-through-the-hibernation-phase/
Good to see a chunk of the widebodies are still getting some hours even with international long haul passenger flights almost all on the shelf for the moment.
This is big news. I don't expect Rolls to need a loan in the near future but the backstop being there should be big for investor confidence. The fact that their customers and suppliers will be supported as well is a huge shot in the arm for the whole industry. We should see a good pop tomorrow.
I agree Deelaar, that scenario is quite possible.
The only reason RR isn't double or almost close to double the current SP is fear of bankruptcy/government intervention leading to shareholder wipeout. If things even improve a little bit on that front the price will jump quickly. Of course if Covid sticks around for the long haul we could be screwed but I'm optimistic that won't be the case.
Loss making for the last few years but really because of Trent 1000 issues and RR making a huge effort to increase their installed engine base. With Trent 1000 issues looking to be getting cleaned up and the big years of engine deliveries done, the next few years were setup to be very profitable, until Covid.
The one thing I'd still really love to know is projections of the RR cash burn. I read one analyst suggest they'd lose $1.6b this year but not sure what the underlying assumptions were for that. If that were the case, RR could last several years even in worst case scenario.
Trent 900. Yes, the A380 will not be a long lived aircraft, it wasn't popular before Covid and it's decline will be much quicker now. However, it won't disappear for a good few years. It composes over 40% of Emirates' aircraft (which is half of the 380 fleet) so even if some of them are grounded permanently, a decent amount of them will keep flying for years to come. They also only represent 10% of the RR install base.
Trent 1000. Well documented issues that Rolls are making good progress at getting on top off (finally). I trust that they are using this down time in the MRO space to expedite fixing up the remaining issues. I think all bad Trent 1000 news is well baked into the price at this point.
Boeing 737 MAX. Rolls do not make engines for this.
I agree, the aviation industry will not be stable for years to come. That does not mean that Rolls is not a good buy today at the current price. They are cutting 15% of headcount, almost all of which will be in civil aviation, which pretty much lines up with a 30% smaller industry that I've seen suggested a few times. They'll right size to make it through Covid and the next couple of years. Longer term, air travel will increase well past the 2019 levels.
Cirium reporting Rolls flying hours were down 83% on Wednesday May 13th compared to same day last year. Not great and only one day sample size, but better than the 90% they reported as the April decline. Things have definitely ticked back up a little.
Hey thelonebroker, great comments, very interesting.
What assumptions did you use for the op profit of -5 billion on the expense side?
There's a few other factors that I've been considering:
I expect material purchases and costs associated with after market shop visits to drop somewhat in line with the reduced production/shop visits. When they announced the £750m cost savings (later expanded to £1b) it wasn't 100% clear but none of the items they mentioned seemed to cover the above.
Rolls have revenue sharing agreements with a lot of suppliers on the back side for the services revenue. So if Rolls aren't getting paid, they aren't getting paid.
I read somewhere as part of my research (though can't find it now and have been unable to verify so far) that the business jet services revenue are not subject to flying hours, so maybe revenue coming in from them is not as affected. I do not believe there are minimum services revenues for the commercial aircraft though I could be wrong, the financials are not the easiest to navigate.
Been looking at RR a lot recently and have a few musings.
Flying hours down 90% in April. Ouch. Compared to around 70% for commercial flights in general, that really does illustrate that wide body will be hit the hardest and be the slowest to recover.
I think they could have done more in the trading update and AGM to point out the liquidity position. Knowing that they had £5.2b of cash at the start of April plus £1.9 billion in the new revolver is useful, but it would have been helpful to get some idea of their anticipated cash burn under a few different scenarios, flight hours down 50%, 70%, 90% etc. That info may have helped put a firmer floor under the price imo.
My wild guess is that they'll burn between £2 and £3 billion this year in the event of a prolonged bad outcome (flights remain down up to 80% for the rest of the year). Anyone else have any thoughts on their likely cash burn? I believe they can last a couple of years before a rights issue or government assistance is required but would like to get other opinions.
On valuation, this thing is dirt cheap. At £2.79, it's trading at 13 times last year's Defence earnings which are likely unaffected. Power Systems is still anticipated to make some kind of profit contribution this year and will get back to solid profitability with the general economic recovery. Yes, Civil Aviation is a basket case at the moment but that won't always be the case. In a nuclear scenario, even if RR decided to stop manufacturing new engines, they have billions of dollars worth of high margin after market service revenues coming in for the next 20 years on their 5k engine install base. Even if 30% of them never fly again, that's still billions in value. Any estimates on how many of these 5k engines are permanently taken out of service?
Overall, RR is really cheap and I fully expect it to rally strongly once the Covid picture clears up a little. In the short-term there's no good news coming out so the share price could go absolutely anywhere but longer term and in the absence of some form of share dilution, can only go up.