Via Yahoo Finance

British engineering giant Rolls-Royce had its credit rating slashed to junk on Thursday night in the latest sign of the pressures facing the aerospace sector. 

Standard and Poor’s Global Ratings said it had cut Rolls’ long and short term ratings to BB and B respectively with a negative outlook, as the pandemic continues to disrupt global air travel. The company had held its investment-grade rating for the past 20 years.

“We expect the company to materially underperform against our previous base case,” S&P said.

S&P added that it thinks global air passenger traffic could drop by 50pc in 2020, in line with forecasts by the International Air Transport Association (IATA).

Rating agency Fitch currently has Rolls-Royce on BBB+, two notches above junk, while Moody’s is at Baa3, one notch above non-investment grade.

A spokesperson for the blue-chip company said: “While it is disappointing to lose our investment grade rating with S&P, none of our borrowing facilities contain covenants or credit rating triggers that demand early repayment nor do any of our contracts with airlines.”

Last week the company announced proposals to reduce its cost base in order to adapt to lower medium-term demand from customers.

It said it would axe at least 9,000 jobs, largely from its civil aerospace division, which represents almost a fifth of its workforce. It is feared that thousands more roles will disappear in Rolls’ supply chain as firms which rely on its custom cut back too.

Chief executive Warren East warned the company’s axe will fall hardest in the UK as it embarks on a major reorganisation to survive.

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Just over half of Rolls’ staff are employed in civil aerospace business, 15,650 of them in Britain and mainly around the company’s Derby heartland.

The restructuring drive is expected to save Rolls about £1.3bn a year, with job losses accounting for £700m of the total. The rest will come from reduced spending on the likes of equipment and property.