Rolls-Royce hits 17-year low as slump deepens for airlines

Bloomberg

Rolls-Royce Holdings Plc fell to its lowest in 17 years after detailing a plan to raise as much as 2.5 billion pounds ($3.2 billion) to brace against a drought in demand for aircraft engines.
Shares of the UK company slid for a fifth straight session on September 21, dropping as much as 12% after saying
two days earlier it’s reviewing options including a rights issue, other forms of equity and new debt.
Rolls-Royce has lost more than three-quarters of its value this year amid a broad industry downturn triggered by the coronavirus pandemic. The company has been particularly hard hit by the drop in long-distance travel, which has sharply curtailed demand for the wide-body planes its engines power. Many aircraft in the existing fleet have been temporarily or permanently grounded, depriving Rolls-Royce of vital maintenance revenue it collects when they fly.
The point was driven home by Deutsche Lufthansa AG. The German carrier said it’s accelerating fleet and staff cuts amid mounting concern about the severity of the downturn.
Europe’s biggest airline will pull 150 jets by mid-decade, 50 more than in its previous plan, leading to more job cuts than the 22,000 already due to go, according to a statement.
The decision will lead to an impairment of as much as 1.1 billion euros in the third quarter. The shares fell as much as 11%, the most in more than three months.
Plane maker Airbus SE, supplier Leonardo SpA and Air France-KLM shares were also hammered, with the head of the Franco-Dutch carrier echoing Lufthansa in warning more cost cuts may be needed after travel demand dropped off at the end of the summer holiday season.
In an interview published in L’Opinion, CEO Ben Smith said the pandemic is forcing the company to accelerate and deepen its revamp. The airline will only operate profitable flights, he was quoted as saying, and reiterated that talks are ongoing with its shareholders for a recapitalisation because a state rescue plan is only enough for less than a year.
A recovery in travel demand within the next five years “will be difficult,” French Transport Minister Jean-Baptiste Djebbari said in an interview on LCI television, citing uncertainty about business travel and the possibility that consumer habits may change in favour of sustainable travel. The crisis will lower the number of operators in the industry and could raise ticket prices, he said.
While a share issue would dilute existing investors at the lowest prices since 2003, Rolls-Royce has also seen its debt downgraded to junk this year, meaning borrowing would come at a higher cost than before the pandemic.
The company is in talks with sovereign wealth funds, including Singapore’s GIC Pte, as it turns to investors for the funds next month, the Financial Times reported, citing three people with direct knowledge of the matter.