US airline crisis casts gloom over Rolls-Royce profit hopes

Rolls-Royce, the aeroplane engine manufacturer, could lose up to £20m in annual profits due to the restructuring announced last week at American Airlines.

The US airline is cutting 7,000 jobs and reducing capacity by 9 per cent. The changes include the retirement of 73 Fokker 100 aeroplanes, which are powered by Rolls-Royce engines. UBS Warburg analyst Colin Crook predicted that in the worst-case scenario, if the aeroplanes are not sold, the cost to Rolls-Royce could be as much as £20m per year in lost repairs and spares sales. This would dent expected profits in 2003 of £297m.

It is not a good time to sell aeroplanes, as airlines around the world are facing financial crises. But some analysts believe the impact may not be so severe. Schroder Salomon Smith Barney predicts a fall in Rolls' annual profits of £15m for 2003 and 2004.

Concerns about the impact of American Airlines were a factor in the 10 per cent fall in Rolls' share price to 128p last week.

However, a spokesperson for Rolls-Royce pointed out that since most of its other engines in service are comparatively young, with an average age of eight years, it did not expect that many more would be retired. Aircraft companies are more likely to retain younger and more efficient aircraft.