Specialist
Former SVP, Rolls-Royce plc
Agenda
- Wide-body deliveries and outlook for Rolls-Royce (LON: RR)
- Outlook for engine flying hours across large engine fleet
- Cash flow dynamics for Rolls-Royce in connection to shop visits and overhauls
- MRO (maintenance, repair and overhaul) services – Rolls-Royce vs peers
Questions
1.
How do you think 2020 went for Rolls-Royce? What key points should we bear in mind about the company?
2.
Do you think Rolls-Royce neglected to make profitability improvements on its original equipment fast enough and was left with a problem when the aftermarket cratered in 2020?
3.
Rolls-Royce expects wide-body engine flying hours to be at about 55% of 2019 levels in 2021. How would you assess that number? How do you think the company got to that number? Do you think it is reasonable?
4.
Global passenger demand across long and short haul was down by about 70% in 2020, compared with 2019. When do you think engines flying out on wide bodies could get back to 2019 levels? The IATA [International Air Transport Association] says it expects this by 2024, but you mentioned some wide bodies could become like narrow bodies.
5.
There is a median expectation that wide-body traffic will reduce massively, then grow at a relatively normal pace, starting at a reduced market share compared with narrow body. Do you think that is likely?
6.
Do you think there could be a situation where minimum flying hours are entirely scrapped in favour of zero minimum flying hours, but a GBP 350-400 cost per flying hour, an increase in the variable cost?
7.
Pre-coronavirus, Rolls-Royce’s CEO Warren East said he wanted to reach breakeven on original equipment by 2023. Do you think that would have changed any dynamics with airlines? You can’t any more say, “I’ve made a GBP 2m loss putting a couple of engines on one of your planes, so I need you to make these minimum payments,” can you?
8.
Do you think it would have been possible to ever get another GBP 1.2m per engine cost savings? If you can’t change much on the revenue-per-engine side, you still need to get GBP 1.2m out on the cost side from the 2019 original equipment losses. Do you think that would have been possible?
9.
What do you think original equipment deliveries could be like in the next couple of years?
10.
You can put a pretty bullish case together on Rolls-Royce, which is that the aftermarket will recover in late 2021 or 2022. Original equipment deliveries won’t pick up until a few years later, and so, ignoring the IFRS [International Financial Reporting Standard] 15 revenue side of things, on a cash basis there is room for recovery. Would you agree with that?
11.
What do you make of the cost reductions at Rolls-Royce? In 2020 7,000 people were made redundant and by the end of 2022 it will be 9,000. I think 8,000 of those cuts are planned to be in civil aerospace, which will be about one-third of the total staff. Is that too much or not enough?
12.
What are your thoughts on Rolls-Royce’s new CFO Panos Kakoullis? Do you think there is a danger that cost cutting could come from some tranches which you think are more necessary than others?
13.
What significant cost changes do you expect on the aftermarket side during the recovery? Do you think Rolls-Royce will have to commit to a lot of refurbs or overhauls to get engines back in running order?
14.
It seems Rolls-Royce spends about GBP 1.7m on an overhaul and about GBP 550,000-560,000 on a check- and-repair job. Is that right?
15.
There are RRSP [risk and revenue sharing partnership] participations in the newer programmes, such as the Trent 1000 or the XWB at 20-30%, according to Rolls-Royce, 15-20% on the 500 and 900 and then less than 10% on the 700 and 800. Why is the participation of risk-sharing partners changing across the fleet and specifically so much higher on the Trent 1000?
