Rolls-Royce has warned of a bigger than expected hit to its finances as the cost of fixing problems with the company’s latest jet engines grow.
In its annual results last month Rolls-Royce flagged up an expected £300m-plus price-tag over the next two years for repairing cracking and corrosion in the compressor and turbine blades of the Trent 1000 jet, an issue first identified in 2016.
However, the FTSE 100 business said on Friday morning that it will now have to carry out more inspections of engines than previously thought, pushing up costs.
Rolls-Royce said despite the additional expense of the inspections, it still expects to hit its annual free cashflow target of around £450m this year and £1bn by 2020 by “reprioritising various items of discretionary spend” to account for extra costs from the Trent 1000.
Warren East, chief executive, declined to put an exact cost on the latest problem as the situation is "dynamic" but said the company would do “all we can to to minimise any impact on customers’ operations".
Chief executive Warren East apologised for this disruption the repairs will causeCredit: Reuters
He added: “We sincerely regret the disruption this will cause to our customers and our team of technical experts and service engineers is working around the clock to ensure we return them to full service as soon as possible.”
The issue affects Boeing’s 787 Dreamliner jets which are powered by Trent 1000 engines, which cost about $10m each. Rolls-Royce has about 500 Trent 1000 engines in service, which have been hit by four similar problems.
The company is already in the process of replacing blades in the turbines which are not lasting as long as expected. The other two issues relate to compressor, and the latest announcement specifically covers 380 "Pack C" versions of the engine which will now be inspected earlier.
Mr East said Rolls-Royce had staffed up to deal with the problem to get the checks done as fast as possible and install replacements where required. He expects to have to staff inspecting 200 engines within the next fortnight.
"This is a precautionary measure because clearly safety is our first priority," Mr East said. "The reason we are talking about it is we want to reassure people and explain the scale of the problem.
"Airlines are clearly going to suffer some disruption over the coming weeks and we are working to minimise that," he added, though said the possibility of compensation for airlines from cancelled flights had yet to be discussed.
The company is working on a replacement part which should overcome the latest problems, and Mr East said he expects to have the compressor component certified and in service by early next year.
The bulk of Trent 1000 engines have been sold under Rolls-Royce's "Total Care" plans, which act like an insurance policy with the company covering extra maintenance costs, and compensating airlines if their aircraft are grounded because of engine issues.
Problems with the Trent 1000 were first discovered two years ago. Japanese airline ANA, the launch customer for the jet, had to ground aircraft as it replaced engines which were found to have corroded turbine blades. At the time ANA said it could take three years to completely replace engines on affected aircraft.
Since then the troubles have been discovered to be more widespread. Last year, Air New Zealand had to ground some of its flights because of issues with their 787s powered by Trent 1000 engines.
Air New Zealand's 787's were one of the airlines whose jets were affected
The airline flagged up two “events”, and the country’s aviation safety board began investigating what it called “engine abnormalities” on Air New Zealand jets in a single week.
In one a 787 was taking off from Auckland when the pilots noticed problems and shut down an engine and returned to the airport. Another flight bound for Buenos Aires experienced similar issues.
Aviation regulators are due to issue a statement detailing the impact the latest development with the engine will have on airlines flying Dreamliners. It is thought that some could have their ability to fly long distances over water or remote areas curtailed from the current maximum of 330 minutes' flying time to the nearest airport to as 140 minutes', putting restrictions on some airlines' abilities to operate some routes.
Rolls-Royce speaking so openly about the problems it faces is a relatively new strategy by the company, which has in the past been accused of failing to communicate with the market the problems it faces and their likely financial impact.
Mr East added: "We have a problem that is going to increase costs: money that was going to be spent elsewhere is now going on more frequent inspections, but it is our problem and we are going to solve it."
The chief executive said the money was likely to come from what he described as "traditional" means of making savings, such as not purchasing new IT systems or reducing travel, and delaying new programmes.
However, he played down the chances of Rolls-Royce's hopes of working with Boeing to develop engines for its mooted new mid-range airliner being affected by rising costs related to the Trent 1000 issues.
