The firm said it is already slashing billions of pounds in costs, expects £2bn of cash to leave the business in 2021, a figure that is more than double forecasts.
Rolls-Royce, whose engines power many Boeing and Airbus aircraft, said it expected flying hours for this year to be 55% of those seen in 2019, which was down from its previous estimate of 70%.
The company said full-year 2020 group free cash outflow was in line with previous guidance, and in-year cash cost savings of more than £1bn were achieved from mitigating actions. Year-end liquidity was approximately £9bn, at the upper end of the previously guided range.
Rolls-Royce said: “Continued progress on vaccination programmes is encouraging for the medium-term recovery of air traffic and economic activity. In the near-term, however, more contagious variants of the virus are creating additional uncertainty.
"Enhanced restrictions are delaying the recovery of long-haul travel over the coming months compared to our prior expectations, placing further financial pressure on our customers and the wider aviation industry, all of which are impacting our own cash flows in 2021.
“In this environment, financial forecasts remain highly sensitive to changes in external conditions and, while we are continuing to drive cost reduction, our current forecasts indicate a free cash outflow in the region of £2 billion in 2021.
“This is based on 2021 widebody engine flying hours at around 55% of 2019 levels (compared to the base case of 70% presented on 01 October 2020).
“Though significant uncertainty remains over the precise shape and timing of the recovery in air traffic and the phasing of engine (OE) concession payments, free cash outflow this year is forecast to be heavily weighted towards the first six months.
“We continue to expect to turn cash flow positive at some point during the second half, reflecting our forecasted profile of flying hours as they recover from today’s low base.”
With liquidity of approximately £9bn, Rolls-Royce said it was confident that despite the more challenging near-term market conditions it is well-positioned for the future.
The company added: “We remain focused on completing our restructuring programme and footprint consolidation as well as maintaining cost control and capital discipline.
“During 2020 we removed around 7,000 roles, making good progress towards our target to remove at least 9,000 roles by the end of 2022. This restructuring will be a key enabler of our target to deliver at least £750 million of free cash flow (excluding disposals) as early as 2022, contingent on the expected recovery in engine flying hours.”
Rolls-Royce will release its full-year 2020 results on 11 March 2021.
