Rolls-Royce to incur extra costs for testing its engines for Boeing’s Dreamliner jet
London — Rolls-Royce Holdings said it will incur extra costs and further disrupt services for airline customers as it carries out additional inspections on engines it builds for Boeing’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-Royce 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 CEO Warren East said in the release. "We are reprioritising various items of discretionary spend to mitigate these incremental cash costs."
The company maintained its estimate of £450m for annual free cash flow, but 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 £170m cash cost last year, and that figure was already set to double in 2018.
The latest problem concerns a wear issue in the Trent 1000’s compressor that’s worse than expected, according to Rolls-Royce, which said the inspections will be accompanied by safety guidance to airlines issued by airworthiness authorities.
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’s 787s at carriers including Virgin Atlantic and British Airways, costing Rolls-Royce more than £220m in charges last year.
About 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-Royce 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-Royce’s UltraFan engine and other next-generation programmes, 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 865.20p as of 10.24am in London. The company’s €750m of bonds maturing in 2021 fell to around €1.06, the lowest since March 2016, according to data compiled by Bloomberg.