What’s Going On Here?Looks like Rolls-Royce is going to give you up and let you down: the jet engine-maker revealed a $7 billion loss for the first half of the year on Thursday. What Does This Mean?Rolls-Royce’s massive loss was mostly down to two things: pandemic-induced “restructuring” (read: firing people) and a halt in global travel, which saw demand for planes – and for Rolls’ new jet engines and the upkeep of existing ones – demolished. But there were other responsible parties too, like unfavorable currency fluctuations and “write-downs”. In other words, the company reviewed the value of the various parts of its business, and acknowledged they’re now worth less than it thought.
Things didn’t get much better when Rolls looked forward either: the company reckons it’ll have more cash going out than coming in next year. So it’s planning to sell off chunks of its business in hopes of raising at least $2.6 billion, just in case a second coronavirus wave arrives and knocks aircraft demand again. Why Should I Care?For markets: Tick tock.
Rolls-Royce’s stock initially dropped 10% on Thursday. Investors might’ve been turned off by the challenge of finding a willing buyer of its assets, not to mention agreeing a price before time and money runs out – especially since it just lowered the value of parts of its business. Still, investors might now think the only way is up: the company’s shares quickly recovered their losses...
The bigger picture: Cheap and cheerful.
Maybe Rolls should look at wooing low-cost airlines like Ryanair and Wizz Air: they’re looking to add more planes to their fleets, even as the bigger, more established airlines are struggling. They’ve got more cash on hand than their rivals, and demand for their predominantly short-haul routes is expected to recover much sooner than for long-haul. | 