Rolls-Royce boss Warren East
Rolls-Royce shares fell as lingering concerns about the state of the travel sector weighed on the business – despite a rebound in demand for its aircraft engines.
The FTSE 100 engineer, whose customers include Airbus and Boeing, said flying hours of its large engines – a key metric for measuring the health of the business – were at 65 per cent of pre-pandemic levels in the four months to the end of October, and had risen by 36 per cent so far this year.
The recovery came amid a rebound in air travel across Europe and North America following the relaxation of Covid-19 travel restrictions. But demand continues to be held back by ongoing containment measures in China and the rest of Asia.
Rolls also flagged ‘robust’ demand from the defence industry with contract renewals totalling £1.6bn.
But the group sounded the alarm over pressures on its supply chain and added that it has raised staff pay by 6.5 per cent and given each UK employee £1,500 to offset ‘substantial cost-of-living increases’.
Despite the uncertainty over travel demand and inflation, the company reiterated its guidance for the full year, while outgoing boss Warren East noted the firm has repaid £2bn of debt, thanks mainly to the sale of its Spanish business ITP Aero.
‘This marks a milestone recovery in the strength of our balance sheet,’ East said. Shares, however, dropped 3.5 per cent, or 2.9p, to 80.16p.
Sophie Lund-Yates, analyst at Hargreaves Lansdown, said Rolls was still ‘grappling against a multitude of headwinds from external forces’, and until restrictions were eased in China the use of its engines would ‘never take off completely’.
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