By Greg Wright

Published 23rd Feb 2023, 08:58 BST

The engineering giant – known for its plane engines – said the airline industry had continued to recover from Covid, but it does not expect it to return to pre-pandemic levels even this year.

This is significant for Rolls because it is paid to service the engines after they have been fitted. The longer they spend in the air, the more service they need.

Last year, large engine flying hours rose by 35 per cent, but the engines still spent only two-thirds of the time in the air that they did in 2019.

The chief executive of Rolls-Royce said it is “capable of much more” as he launched a strategic review into the company and reported a jump in profit.

This year Rolls expects engine flying hours to reach 80 per cent to 90 per cent of 2019 levels.

The business said it was going to set new financial targets in the second half of this year as it kicks off a strategic review of the business. It did not reveal much detail about the review.

“Our transformation programme is already under way and is moving at pace. It will include a strategic review so that we can prioritise our investment towards the most profitable opportunities,” said chief executive Tufan Erginbilgic.

He added: “While our performance improved in 2022, we are capable of much more. Our transformation programme will improve our efficiency and commercial outcomes, and deliver a sustainable reduction in working capital.”

Rolls said the company’s operating profit reached £837m last year, up from £513m the year before.

The pre-tax loss hit £1.5bn, up from a loss of £294m the year before. On an underlying basis the business made a pre-tax profit of £206m, up from £36m a year earlier.

Charlie Huggins, Head of Equities at Wealth Club, commented: “A business like Rolls must spend large amounts upfront to secure long-term maintenance contracts. This means it has to wait many years for the cash to roll in. And if anything disrupts those cash flows – like a global pandemic– you can easily spend more than you get back, especially if you invest unwisely in the first place.

“Rolls Royce has burned through cash at a rate of knots over the last decade. That clearly isn’t sustainable. Significantly improving Rolls Royce’s cash generation has to be the number one priority for the new CEO. Transforming Rolls Royce will be far from easy. The capital intensity of the business won’t go away. And while tackling the extreme complexity and inefficiency is a start, it probably won’t be enough. A cultural transformation is also required, and that always takes time. The good news for the new CEO is that no one is really expecting miracles. Investors have endured years of severe turbulence – and many have already headed for the emergency exits. If the new pilot can at least avoid a crash landing, it would be a good start.”

Rolls-Royce promises more after profits rise as airlines recover