RYCEY Rolls Royce Holdings PLC (PK)

By Robert Wall 

Rolls-Royce Holdings PLC on Friday warned its aircraft-engine production would fall short this year, adding to the pressure plane makers face in delivering new jets to airlines on time.

Rolls-Royce, which makes engines for Boeing Co. and Airbus SE planes, said it would ship 500 rather than 550 airliner engines. The British manufacturer--no longer affiliated with the luxury car maker--blamed the setback on production problems with a new engine, the Trent 7000, used to power Airbus A330neo wide-bodies.

Boeing and Airbus have struggled this year to get planes into customer hands because of production problems. Boeing has had 737 single-aisle planes lined up on the ramp at its Seattle production site awaiting engines. Delays to fuselages also hit production.

For Airbus, the Rolls-Royce setback comes at a particularly difficult time. The company is already late with deliveries of its popular A320neo single-aisle planes. Both its engine suppliers, United Technologies Corp.'s Pratt & Whitney unit and a joint venture of General Electric Co. and Safran SA, fell behind this year on producing engines. Both manufacturers this week said they would meet 2018 targets.

Airbus has pledged to hand over around 800 airliners to customers this year. It had delivered 503 through September. Meeting guidance, Airbus has said, was heavily dependent on engine makers sticking to their targets.

Though Airbus has been able to adjust production plans in previous years to meet targets in the face of supplier headwinds, with little more than two months left of this year, Rolls-Royce's disclosure gives the Toulouse, France-based company little time to adjust. Airbus, which reports third-quarter results next year, declined to comment on the impact of Rolls-Royce's disclosure on its plans.

Analysts at Citigroup estimate Airbus will now deliver 10 fewer A330neos this year, with a small hit to earnings.

Airbus traded 2.75% lower and Rolls-Royce slumped 4.2% in midafternoon trading.

Boeing this week confirmed plans to produce 810 to 815 planes this year. Boeing Chief Executive Dennis Muilenburg on Wednesday said 737 fuselage deliveries were back on track and that engine delivery issues should be resolved by year-end. "We are seeing our supply chain return to a healthy condition but we're continuing to monitor that on a daily basis, " he told analysts.

That sense of optimism isn't universally shared. "The supply chain remains tremendously constrained and under pressure," with no signs of improvement in the past six months, Air Lease Corp. Chief Executive John Plueger said this month.

Airlines are increasingly frustrated by the situation. Willie Walsh, chief executive of British Airways parent International Consolidated Airlines Group SA on Friday said "these issues have gone on far too long already."

The airline's Boeing 787 Dreamliners have been beset by repair problems on their Rolls-Royce engines. Though IAG is being paid compensation by Rolls, Mr. Walsh called the situation "disappointing."

Norwegian Air Shuttle ASA, which has had to rent alternative planes because of the same engine problem, this week said compensation payments from Rolls-Royce didn't make up for the financial impact the struggling carrier has felt. The airline's Chief Executive Bjorn Kjos also said that Rolls-Royce had promised the issue would be fixed this year, but that Norwegian expected it to last into 2019.

Mr. Walsh also bemoaned that Airbus was falling behind on plane deliveries set for next year. IAG's Aer Lingus unit was planning to introduce a long-range version of Airbus's A321neo plane next year, but those are now late. Airbus said it was working with airlines to meet targets.

Rolls-Royce said 2018 profit and cash flow targets remained unchanged and that it regretted the impact on customers. "As we move into 2019 we are confident that Trent 7000 production and delivery volumes will increase significantly to meet our customer commitments," the London-based company said.

--Maryam Cockar contributed to this article

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

October 26, 2018 10:20 ET (14:20 GMT)

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