Following the release of an upfront statement by Rolls-Royce’s Chief Executive Warren East to shareholders about the company’s struggles in the midst of COVID-19;

Nicolas Jouan, Aerospace and Defense Analyst at GlobalData, a leading data and analytics company, offers his view on the situation;

“East decided to be upfront with shareholders about Rolls-Royce’s struggles in the midst of the COVID-19, a month after announcing a suspension of dividends. The company has had to make some difficult decisions, especially after the civil aerospace engines and the maintenance, repair and overhaul (MRO) businesses suffered from the collapse of air travel. The company is working on a restructuring plan that would cut up to 15% of its workforce, most of it likely in its civil engine segment.

“Rolls-Royce is a pure-player of the engine and power system industry – a sector that has been badly touched by the COVID-19 pandemic. The share of Rolls-Royce in the wide-body engine market was growing above 50% of the global backlog before the crisis, but air travel restrictions are leaving the industry in the doldrums with few chances of recovery for at least a year.

“Boeing and Airbus have announced deep production cuts for the B787 and the A350, respectively, which both fly with Rolls-Royce’s Trent engine. Now fewer planes are flying, MRO activities, which represented 6% of revenues in 2019, are also set to contract, leaving few short-term options to the company except cutting costs.”

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