ALEX BRUMMER :Rolls-Royce desperately needs long-haul travel to return

There is no escaping the immense damage done to Britain’s premier engineering group Rolls-Royce by the pandemic.

The cash outflow of £4.2billion is truly horrendous and Warren East, for all his efforts to sound positive, acknowledges there will be some permanent scaring.

Airline hours flown, a critical metric for Rolls, will be as much as 30 per cent down from where they might have been in 2025.

Grounded: Airline hours flown, a critical metric for Rolls, will be as much as 30 per cent down from where they might have been in 2025

Fears that Covid might prove an existential threat for Rolls-Royce and require a Tory government bail it out for the second time in its history are dismissed. 

Rolls-Royce will ‘thrive’, the chief executive assures us. The aerospace group has managed to juggle several balls at the same time as it has dealt with rolling lockdowns across the globe.

It has burnished its finances and at year end has some £9billion of liquidity. It has also managed to upgrade debt by switching short-term borrowing and bonds into more secure financing with the help of export credit guarantees.

Rolls has also hammered down costs, with 7,000 jobs gone and another 2,000 still to go. It has resolved the labour dispute over the proposed rundown of manufacturing at the Barnoldswick plant in Lancashire.

The best thing which could happen for Rolls-Royce is that the airports do return to service in June allowing it to move towards breaking even in 2021, with a return to profit in 2022 and beyond. 

The group is allowing Covid to slow down R&D. A pointer of things to come is the deal made with Italy’s air frame group Tecnam to supply Swedish regional airline Wideroe with first generation electric aircraft. 

For its more traditional long-haul routes, Rolls is counting on creating synthetic fuels, and combined with its new UltraFan engine should offer carbon neutral flying. 

It is investing, along with government, half-a-billion pounds in its small modular reactor (SMR) nuclear programme which is part of Boris Johnson’s ten-point green deal. What it needs now is the orders to make SMRs a reality.

Shares have taken a terrible battering and in spite of a recent snap back on vaccine hopes are trading at one third of the 2018 price. 

Air travel in Asia, where wide-bodied jets are used to move people around domestically, is already recovering. But it needs long-haul trans-Pacific and trans-Atlantic travel to return for confidence to be restored.

Partners hit

Another beloved institution battered by Covid is John Lewis. Not only has Carrie Symonds dumped its Downing Street flat decorations in favour of Lulu Lytle rococo, but it ran up losses £517million before tax in 2020-21. 

The shortfall is exaggerated by the big one-off costs which come with store closures. But with underlying profit coming in at £131million it is hard to be optimistic about the coming year, with an additional eight stores to be closed, bringing the size of the portfolio down from 42 to 36.

Partners, used to annual bonuses, job security and the camaraderie of working for a mutual, must be wondering where it will all end. In executive chairman Sharon White, the group at least has imaginative leadership. 

Middle Britain could soon see smaller, convenience John Lewis outlets springing up in the suburbs and local high streets. 

The rollout of little John Lewis’s has begun on an experimental basis in the Waitrose store in Crawley and elsewhere.

The fusty departmental store concept is due for a makeover with much more life-experience stuff such as more brands, fitness, coffee and sushi bars. Online and click and collect will be sharpened up.

White must keep an eye on the cash outflow. John Lewis doesn’t have the option of paying for change with new equity. 

There is a cash cushion of £1billion but, with the need for capital spend for the transformation, nothing can be taken for granted.

White is not counting on a ‘coiled spring’ recovery. Longer-term fixes are required.

Mining guru

As one of the world’s ‘most eminent earth scientists’ and champion of ‘the rights of indigenous people’, Andrew Mackenzie may look just the person to take on the role as chairman of Shell.

Yet with big oil is under huge pressure to decarbonise, his commercial background in mining groups BHP and Rio Tinto does not inspire immediate confidence.

Maybe we are missing something.