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Rolls-Royce surges on hopes of solution to Boeing 787 engine glitches

Rolls rises the most in 18 months and is biggest mover on Europe’s top 600 stocks

Rolls Royce’s Trent engine displayed at the Singapore Airshow earlier this month. Photograph: Edgar Su/Reuters

Fri Feb 28 2020 - 17:51

Rolls-Royce Holdings surged as chief executive Warren East said he is getting a grip on Boeing 787 engine glitches that have blighted earnings and cash flow.

Rolls rose the most in 18 months and was the biggest mover among Europe’s top 600 stocks after it reported good progress in resolving the last outstanding issue with the 787’s Trent 1000 turbine and said one-time charges won’t exceed the £2.4 billion (€2.8 billion) estimated through 2023.

Mr East is seeking to draw a line under faults that have burdened Rolls-Royce through much of his tenure, triggering a succession of profit warnings, and souring relations with customers such as British Airways as they've had to ground planes, and pushing orders in the direction of rivals.

The CEO said the company is also delivering cost improvements needed for the step-change in performance he’s been seeking since taking over in 2015.

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"Rolls-Royce sounds rather confident," Jefferies International analyst Sandy Morris said in a note. "The key long-term drivers were powerfully positive." Both earnings and cash flow exceeded estimates in 2019, while flying hours for Rolls engines, a predictor for maintenance revenue, rose 7 per cent, Mr Morris said.

Standout performer

Rolls-Royce rose as much as 6.6 per cent, the biggest intraday gain since August 2018, and ended the session 3.23 per cent in London. That made it a standout performer on a Stoxx 600 index that was 4.5 per cent lower as companies warned that the coronavirus outbreak would disrupt business.

Rolls's chief financial officer Stephen Daintith said the company is currently testing a design to fix the Trent 1000's final issue with a high-pressure turbine blade, and will provide an update mid-year. All glitches should be resolved by 2021, Rolls predicted.

The number of 787s idled for engine repairs should also drop to fewer than 10 by the end of the second quarter, in line with previous projections, the company said. That should help bolster confidence in the Trent 1000 after 787 customers began to turn away from the engine in favour of a rival powerplant from General Electric. – Bloomberg

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