Rolls-Royce Holdings Plc said it will incur extra costs and further disrupt services for airline customers as its carries out additional inspections on engines it builds for Boeing Co.’s 787 Dreamliner jet.
The checks will be made on a batch of 380 Trent 1000 turbines after testing indicated that more frequent scrutiny is required to cope with an existing durability issue, Rolls said in a statement Friday, barely a month after the London-based company suggested the problem was under control. The move will affect about a quarter of the 787 fleet, according to Boeing.
“The requirement for more regular inspections will lead to higher than previously guided cash costs being incurred during 2018,” Rolls-Royce Chief Executive Officer Warren East said in the release. “We are reprioritizing various items of discretionary spend to mitigate these incremental cash costs.”
The company maintained its estimate of 450 million pounds (US$641 million) for annual free cash flow, and East declined to say on a call how big the additional impact on cash will be. Durability problems with the Trent 1000 and an engine used on the Airbus SE A380 led to a 170 million-pound cash cost last year, and that figure was already set to double in 2018.
Parts Redesign
The latest problem concerns a wear issue in the Trent 1000’s compressor that’s worse than expected, according to Rolls, which said the inspections will be accompanied by safety guidance to airlines issued by airworthiness authorities.
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Even before today’s revelations Rolls-Royce had said a redesign of problem parts for the 787 wouldn’t be fully incorporated in the fleet until 2022. The snag has led to unscheduled shop visits for dozens of Boeing Co.’s 787s at carriers including Virgin Atlantic Ltd. and British Airways, costing Rolls more than 220 million pounds in charges last year.
Some 200 engines are due for maintenance in coming weeks, according to East, who didn’t say whether airline compensation is factored into the new guidance. The CEO added that Rolls had sought to make clear in March that the situation remained “dynamic.”
Targets for the discretionary spending cuts elsewhere will include company travel, IT upgrades and work on Rolls’s UltraFan engine and other next-generation programs, East said, though plans to compete on Boeing’s new middle-of-market aircraft -- or NMA -- won’t be affected. He said there’s been no discussion about pausing deliveries of the 787 engine.
Rolls-Royce shares fell as much as 2.5% and were trading 1.8% lower at 865.20 pence as of 10:24 a.m. in London. The company’s 750 million euros ($925 million) of bonds maturing in 2021 fell to around 106 euro cents, the lowest since March 2016, data compiled by Bloomberg show.
{ A IndustryWeek release } | april 14, 2018 |||
