British aero-engine maker Rolls-Royce (RR.L) said it would sell assets to try to raise at least 2 billion pounds ($2.6 billion) as it battles to shore up a balance sheet ravaged by the COVID-19 pandemic and slump in travel.
Rolls-Royce plunged to a record loss before tax of 5.4 billion pounds ($7.14 billion) in the first half of 2020 and, compounding its woes, finance chief Stephen Daintith resigned, although said he would stay for a transition period.
The company said it would continue to look at options to bolster its finances even after asset sales. But asked about a possible rights issue, Daintith said Rolls-Royce had a good level of liquidity and a plan to cut costs.
“We’re not going to be drawn on any particular option for strengthening the balance sheet. We’re taking our time, considering carefully,” he told reporters on Thursday.
JP Morgan analysts said a rights issue was needed: “In our view only a very major capital raise would put Rolls-Royce on a sound footing.”
Rolls-Royce shares dropped 9% in early trading. The stock is down 66% this year, giving it a market capitalisation of 4.54 billion pounds.
As the company is an important supplier to the UK government on military programmes, there has been media speculation that Britain could be forced to rescue it.
“Probably the most important thing that government can do is help get people flying again,” CEO Warren East said, when asked about potential state help.
Planes stopped flying for months in coronavirus lockdowns earlier this year and travel remains at a much lower level than before the pandemic, hitting Rolls-Royce as airlines pay it based on how many hours engines fly.
Flying hours were down 70-75% in May, June and July, and the company warned of considerable uncertainty over the timing and shape of a recovery.
To boost its coffers, Rolls-Royce said it planned to sell ITP Aero, which is based in Spain and makes turbine blades for jet engines, and other assets to raise at least 2 billion pounds over the next 18 months.
The group will also consolidate its aerospace manufacturing facilities into six locations from 11, and said 4,000 job cuts had already been made at its civil aerospace unit of the 9,000 announced in May – part of this year’s 1 billion pound cost cutting plan.
Daintith is set to move to retail technology firm Ocado (OCDO.L) and Rolls-Royce said the search for a successor was underway.