What's going on?
Rolls-Royce said on Thursday it reckons it’ll save a lot more cash than expected this year, and the aerospace giant owes it all to this new employee-lite diet it’s on.
What does this mean?
The world’s been hoping to get back to its globetrotting ways this year, but the pandemic’s had other ideas: it’s been keeping long-haul flights grounded, and profit from Rolls’s aerospace division – which earns more the more miles its engines cover – down there with them. That’s been forcing the company to cut costs one way or the other, much to its employees’ dismay: Rolls’s cost-saving strategy includes cutting a fifth of its total workforce.
Still, that belt-tightening has been paying off, with the company expecting to go through less cash than it forecasted earlier in the year. Good thing too: Omicron’s poised to cause even more travel chaos next year, so it’ll need every penny…
Why should I care?
For markets: Rolls needs consistency.
Investors sent Rolls’ stock down 4% after the news. And sure, that’s partly because they’re on edge about where air travel goes from here, but there’s more at play: Rolls’s power systems segment – which makes engines for yachts and trains – was hit hard last quarter by supply chain issues, not least the chip shortage. Put another way, it’s one thing if Rolls’s aerospace division is flailing right now, but quite another if its other businesses can’t pick up the slack.
Zooming out: There is a solution here.
Rolls might want to take a leaf out of BMW’s book: the carmaker signed a deal on Wednesday that guarantees it’ll be supplied millions of chips every year (tweet this). That’s part and parcel of a wider trend, where carmakers are dealing directly with chip manufacturers – rather than traditional parts suppliers – in a bid to avoid a repeat of this year’s production shutdowns.