Rolls-Royce ups outlook despite engine repairs

Rolls-Royce Holdings PLC (RR.LN) on Thursday boosted its outlook for the year even as it said costs to fix some engines powering Boeing Co. BA, -0.99% 787 Dreamliners and Airbus SE (AIR.FR) A380 superjumbos rose and could top $1.6 billion as repair bills mount.

The British aircraft engine maker said cash costs from in-service issues, with components wearing out more quickly than expected, would reach 450 million pounds ($589 million) this year and again in 2019. They could reach close to GBP350 million in 2020 before falling sharply.

The company took a GBP554 million charge against first-half results to help cover about 40% of the Dreamliner engine costs.

The engine problems have disrupted airline customers. They have been forced to park planes to repair engines, scrap flights and rent other airliners to complete their schedules. "We deeply regret that," Rolls-Royce Chief Executive Warren East told reporters, but added the company was making "solid progress" in repairing engines.

Mr. East said most of the engines should be fixed through 2021, though a few repairs may still be required after.

Despite the higher engine-repair costs, Rolls-Royce, no longer affiliated with the luxury car maker, was able to boost underlying profit and cash-flow guidance because of strong demand across its programs. Airlines are flying more, boosting demand for engine parts to keep the jetliners in the air. Business such as power systems, where engines are used for energy production, also are seeing strong demand.

Rolls-Royce expects underlying pretax profit and cash flow for the full year to be in the upper half of its guided range.

Chief Financial Officer Stephen Daintith said that would put profit at between GBP400 million to GBP500 million and cash flow at GBP450 million to GBP500 million. Cash would rise again next year, with Rolls-Royce sticking to a target of around GBP1 billion in underlying free cash flow around 2020.

Rolls-Royce rose 6.2% in early trading in London.

The company on Thursday reported a pretax loss for the first six months of the year of GBP1.26 billion pounds compared with a profit of GBP1.44 billion in the year-earlier period. It also slipped to a net loss of GBP962 million from a net profit of GBP1.17 billion a year earlier, reflecting accounting adjustments on currency hedges.

First-half revenue rose 12.5% at GBP7.49 billion from GBP6.66 billion a year earlier, the company said.

Rolls-Royce also booked a GBP179 million restructuring charge linked to a previously announced plan to shed about 4,600 jobs to boost long-term profitability.

Adria Calatayud contributed to this article

Write to Robert Wall at [email protected]

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