The financial picture at Rolls-Royce, as with every other commercial aviation entity, has turned bleak amidst the current global pandemic. The company was estimating a positive cash flow of £1 billion for this year but is now expecting a cash outflow of £4 billion, of which £3 billion will be from the first half of the year.
The company has, like Boeing, been beset with product problems. Those were compounded by the pandemic that reduced new orders for engines and decimated maintenance revenues as aircraft stopped flying. The company has suspended dividends, announced 9.000 job cuts, and accepted a £2 billion government loan, and still may need to raise another £2 billion in equity capital that would dilute its shareholders further.
Rolls-Royce builds engines primarily for wide-body airliners, and powers about 38% of the current wide-body fleet. The razor and razor blade business model for aircraft engines means that Rolls-Royce loses more than £1 million on each engine it sells, making up the revenue shortfall in the sale of spare parts and services. But with aircraft not flying, those service revenues have dried up, exacerbating an already dicey financial position. The company now believes that a full recovery may take up to 7 years to complete.