Rolls-Royce has announced it will seek to raise billions of pounds to bolster its finances after a “sharp deterioration” in civil aerospace because of the pandemic.
The plane engine maker will seek to raise £2bn from its shareholders through a rights issue.
Rolls-Royce will also raise funds by issuing new debt, while the rights issue could unlock further financing.
The company has been hit by the fall in air travel amid the Covid-19 outbreak.
The rights issue could trigger a further £1bn loan from UK Export Finance, the government’s trade finance body. Rolls-Royce has already borrowed £2bn from the state.
But Rolls-Royce said an extension of a government loan was dependent on both UK Export Finance and HM Treasury approving the terms of the rights issue. “There is therefore no guarantee that this increase will take place,” it said.
The government holds a “golden share” in Rolls-Royce which prevents the company – which is deemed to be of strategic interest to the UK – from coming under foreign control.
There had been rumours that Rolls-Royce had been in talks with sovereign wealth funds in Singapore and Kuwait to invest in the business.
The company also said it had secured commitments for a new £1bn two-year loan facility andit is planning to issue bonds to raise a further £1bn.
Rolls-Royce chief executive Warren East, said: “The capital raise announced today improves our resilience to navigate the current uncertain operating environment.
“The sudden and material effect of the Covid-19 pandemic has had a significant impact on the commercial aviation industry, resulting in a sharp deterioration in the financial performance of our civil aerospace business and, to a lesser extent, our power systems business.”