Rolls-Royce Holdings PLC (LSE:RR.) said a gradual recovery in international flying, significant defence contract wins and cost savings are driving improvements in its trading performance.
The engine maker said it returned to positive free cash flow in the third quarter and predicted free cash flow for the full year to 31 December 2021 will be better than its previous guidance of £2bn.
In a trading update for the period to 30 November 2021, the company said its restructuring programme is generating cost savings more quickly than expected, which makes it well placed to meet its £1.3bn savings target by the end of 2022. Some 8,500 jobs will have been cut by the end of 2021.
In the Civil Aerospace business, installed engine sales and aftermarket shop visit activity are lower than last year and at the lower end of the guidance given at the half year, Rolls-Royce said.
It said large engine flying hours have continued to recover following the opening of key routes, especially the trans-Atlantic routes, but noted that the pace of travel recovery remains uneven due to the ongoing challenges posed by the Coronavirus (COVID-19) pandemic.
Its large engine flying hours are currently around 50% of 2019 levels and around 46% in the year to date compared with an average of 43% in the first half of the current year. Engine flying hours in business aviation remain above the 2019 level.
The Defence division is seeing steady demand and current trading is in line with expectations, the company said. In September, it won the B-52 replacement engine contract to power the US fleet of 76 eight-engine aircraft for the next 30 years, worth US$2.6bn in total.
In the Power Systems business, order intake has improved on the back of a recovery in customer demand, although the company noted that this division is more exposed to the global supply chain disruption, which it expects to continue for some time.
“Our focused supply chain reporting and procurement practices are helping to mitigate the impact in 2021 and we are closely monitoring the business risk for 2022,” it said.
The company said it generated £2bn from disposals, which will be used to reduce debt.
"We have achieved good results with our fundamental restructuring programme, as we sustainably reduce costs and deliver a leaner and more efficient company and are firmly on course to complete our disposals programme,” said chief executive Warren East.
“While external uncertainties clearly remain, we have seen continued gradual recovery in our Civil Aerospace business, a growing order book in Power Systems and have secured a significant contract win in Defence.”