In light of the sharp decline in global air traffic in 2020 because of coronavirus and a slow recovery for long-haul travel, Rolls-Royce Holding PLC (LON:RR.) has been downgraded by UBS, with forecasts for other aerospace component suppliers cut too.
Analysts at the Swiss bank forecast a 35% decline in air traffic for 2020, slightly below the 38% predicted by the airline industry body, and believe the civil aftermarket “will be one of the most impacted end-markets” in the short term.
What’s more, engine maker Rolls-Royce gets around 54% of its sales from long-haul travel aftermarket, which the UBS analysts said they envisage a slower recovery ahead.
Underlying profit (EBITA) forecasts for Rolls-Royce were cut 44% for 2020 and 28% for 2021, the recommendation downgraded to ‘neutral’ from ‘buy’ and the price target slashed to 328p from 664p.
Rolls-Royce shares fell 4% to 288p on Thursday morning, down 57% this year.
Forecasts for component makers were also cut.
Melrose shares were up 5% to 78.66p, still down 67% in the year to date, while Meggit was down 3.5% to 237p, down 64% in 2020.
Airbus can weather coronavirus
Looking at the aeroplane makers, UBS reckons Airbus “could weather the storm relatively better than the peer group” and was kept as a ‘buy’ with a lower price target of €100 as delivery forecasts are slashed 21% over the coming four years.
Analysts think demand “will remain driven by airlines' willingness to reduce fuel costs and carbon emissions mid-term, but a lower oil price short term reduces the appetite”.
“Airbus is better positioned with the A321neo and A220. It can weather a €10bn FCF outflow in 2020 as long as government bailouts, equity raising & government agencies' financing enable the airlines to cope with short-term impact, and look beyond COVID.”
Overall the analysts think that total aircraft demand will be reduced by continued focus on carbon emissions and coronavirus.
Airbus shares were up 4% in France, down 57% in the year to date.