Rolls-Royce has taken a £554 million ($725 million) exceptional charge in its first half, to account for the costs incurred to address blade problems with its Trent 1000 engines for the Boeing 787.
The company has disclosed the charge as it clarified expected cash costs next year relating to issues affecting both the Trent 1000 and the Airbus A380’s Trent 900 powerplants.
Rolls-Royce states that the £554 million charge amounts to some 40% of the total cash cost it expects to shoulder in the period to 2022 as it resolves the Trent 1000 situation.
It says the charge reflects the “impact of the abnormal costs” it is incurring, which fall outside of normal costs for its TotalCare maintenance and support scheme.
The charge will cover costs such as responding to customer claims relating to operational disruption, as well as wastage costs linked to shop visits.
Rolls-Royce adds that the remainder of the costs will be recognised “over time” through its regular contract-accounting margins.
The manufacturer estimates that the combined cash cost of dealing with in-service issues on the Trent 1000 as well as the Trent 900 will reach a “similar level” in 2019 to the £450 million it has previously forecast for 2018.
These cash costs will then decline, it says, by “at least” £100 million in 2020, after which they will “step down materially” as the technical changes to the engines are fully introduced by 2022.
“We still expect to deliver an improvement in 2019 underlying core free cash flow compared to our guidance for 2018, marking a further step towards our 2020 free cash flow ambition,” says the company.
Rolls-Royce reiterates its acknowledgement that the problems with the Trent 1000 have caused “significant” disruption for several customers.
It has commenced certification testing of a redesigned intermediate compressor rotor blade for the Package C version of the engine, and a redesign for Package B engines will follow. It is also testing a revised blade for the Trent 1000 TEN and Trent 7000 engines – for the 787 and Airbus A330neo respectively – as a precaution.
Source: Cirium Dashboard