Rolls-Royce will have to rely on defense

Following the recent news of Rolls-Royce’s Chief Executive Warren East opting for recovery through the defense side of the business;

Nicolas Jouan, Aerospace and Defense Analyst at GlobalData, a leading data and analytics company, offers his view:

“Rolls-Royce has been one of the worst affected aerospace companies by the outbreak of COVID-19. As the pandemic was wiping out air travel earlier this year, Rolls-Royce announced 9,000 job cuts, 3,000 of which were in the United Kingdom. These redundancies were mainly focused within the civil engine segment of the company, after previously announcing a suspension of dividend. 

“The perspective of a long-term depression has become more acute for the commercial aerospace industry. Airbus’ A350 and Boeing’s B787 both fly with Rolls-Royce’s Trent engine, whose market share in the wide-body segment climbed above 50% before the crisis, but wide-body are expensive to fly and are set to suffer particularly from lower demand from the passenger market. The A350 and B787 production rates have been cut respectively to six and ten per month after a fall in demand from airlines and leasing companies. Rolls-Royce announced during its latest trading update earlier this month that wide-body engine flying hours, the lifeline of the company’s commercial business, fell by 75% in Q2.

“The British engine-maker is still in dire need of fresh sources of income, and the solution could be found on the defense side of its business. Defense represented only 20% of Rolls-Royce revenues in 2019, but is likely to increase from this year. Rolls-Royce provides the propulsion of Bell’s V-280 Valor currently competing for the US Army Future Long-Range Assault Aircraft (FLRAA), and submitted the F130 design to re-engine the US Air Force’s fleet of B-52. The company is also a partner in Team Tempest, the sixth generation fighter developed by Britain with Italy and Sweden, which will ensure a secure stream of income in the next decade. The share of defense revenue could therefore rebalance against civil aerospace in the very near term.”

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