As the company wins multibillion-dollar contracts from the US air force, shares rise along with ITP Aero sales. The company has a contract to supply F130 engines for the US Air Force’s B-52 Stratofortress for the next 30 years, according to Rolls-Royce.
The sale of its Spanish business for €1.7bn and winning a multibillion-dollar contract from the US Air Force has prompted an FTSE 100 leading share price surge as investors cheered signs of the jet engine maker’s post-pandemic recovery.
On September 27, the firm’s shares soared by over 10% sending its stock to its highest level since the early weeks of the Covid crisis in March 2021. The surge happened after the company announced the sale of its Spanish ITP Aero unit to a consortium led by the US private equity firm Bain Capital.
The sale, which will be completed in the first half of next year, marks a key step in fulfilling its promise to investors to strengthen its finances by making £2 billion of disposals this year, the company said.
A 30-year contract to supply F130 engines for the US Air Force’s B-52 Stratofortress, which could be worth as much as $2.6 billion (£1.9bn), according to the company. The contract will initially result in Rolls-Royce powering the jets for six years worth $500 million.
Rolls-Royce’s finances were hit hard, with air travel severely curtailed during the pandemic, since the company is paid based on the number of hours flown by aircraft that use its engines.
Warren East, the chief executive of Rolls-Royce, said:
“Today’s announcement is a significant milestone for our disposal program as we work to strengthen our balance sheet, in support of our medium-term ambition to return to an investment-grade credit profile. The creation of an independent ITP Aero is a great opportunity for the company, its people, and other stakeholders. It will remain a key strategic supplier and partner for decades to come.”
Rolls-Royce’s share price has risen along with other aviation stocks after the UK government simplified international travel rules and scrapped Covid PCR tests for fully vaccinated travelers with the sale and contract cap showing a strong month for the firm.
“The lift-off of Rolls-Royce shares following the relaxation of transatlantic travel rules was given added thrust today with news of a big contract with the US air force. Rolls-Royce engines will power the USAF B-52s for the next 30 years, and the clinching of this deal, which could be worth up to $2.6bn, is yet another ray of sunlight for the engineering firm, which finally seems to be leaving the pandemic storm clouds behind.”
The turbine blades based in the Basque region of Spain, ITP Aero, reported revenues of €735 million and profits of €40 million in 2021. The business was the biggest asset that Rolls-Royce identified for sale in a recovery plan announced last August. Smaller assets such as a stake in Air Tanker Holdings, its Bergen Engines unit in Norway, and a civil nuclear instrumentation and control business have been offloaded.
“Today’s announcement effectively marks the end of the disposal program. We continually evaluate non-core assets in the portfolio and will always focus on maximizing shareholder value.”
Sapa and JB Capital are among the Bain-led consortium. Carlos Alzola, the chief executive of ITP Aero, said:
“All of us at ITP Aero are eager to start the next chapter of our story as an independent company with a strong strategic plan and financial support behind us.”