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Rolls-Royce says 2018 to be impacted by engine repair costs

[LONDON] British engine-maker Rolls-Royce guided that 2018 results would be impacted by costs related to carrying out repairs on some aero-engines, but it remained on track to meet its financial goals for 2020.

After reporting a forecast-beating profit for 2017, Rolls said that for the current year, group operating profit could, at the lower end of expectations, decline.

But the company said it remained on track to meet its goal of generating free cash flow of £1 billion (S$1.82 billion) by around 2020.

Rolls-Royce said that it would take a hit of about £340 million to account for the cost of carrying out repairs on existing engines, primarily the Trent 1000 engine which is installed on the Boeing 787 aircraft.

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The company has said that 400 to 500 Trent 1000 engines were affected by problems with components wearing out earlier than expected, needing extra inspection and maintenance. Air New Zealand, British Airways, Virgin Atlantic and Japan's ANA Holdings are amongst those affected.

For 2018, Rolls forecast group underlying operating profit of about £400 million, give or take £100 million. At the lower end of expectations that would represent a decline from its level of £321 million.

That guidance was issued under a new accounting standard, which changes how the company books earnings on long-term contracts.

Under the previous accounting standard, Rolls-Royce reported underlying pretax profit of £1.07 billion for 2017, beating a consensus forecast of £878 million, boosted by the delivery of more aero-engines and from its power systems unit which makes large diesel engines.