UPDATE 2-Rolls-Royce warns on profit as Trent 1000 costs mount

Rolls-Royce's warned its operating profit and free-cash-flow will come in at the lower end of its guidance this year as costs rise to address problems with the Trent 1000 engine that powers Boeing's 787 Dreamliner passenger plane.

Airlines have had to ground aircraft to replace components that are wearing out faster than expected. Rolls-Royce said it had struggled to fix one issue on the Trent 1000 TEN variant, and the solution it had found would require additional investment in spares.

It said it expected to take an exceptional charge of about 1.4 billion pounds ($1.80 billion) in 2019 on the Trent 1000 due to customer payments and future contract losses. Shares in Roll-Royce fell more than 3% before rebounding to trade up 0.7%.

CEO Warren East said his top priority was improving customer confidence in the Trent 1000. "We are today announcing additional action to further expand our maintenance capacity and increase our stock of spare engines," he said.

Rolls-Royce increased the 2017-2023 in-service cash costs of fixing the problems with the Trent 1000 to 2.4 billion pounds from 1.6 billion, with 400 million to come from normal program contingency. Rolls-Royce in August had forecast its 2019 underlying operating profit and free cash flow at 700 million pounds respectively plus or minus 100 million pounds in August.

It said it still expected 2020 free-cash-flow of at least 1 billion pounds and was still confident it could achieve 1 pound per share of free cash flow in the medium term as Trent 1000 costs subsided.

Also Read: Rolls-Royce sees operating profit at lower end on Trent 1000 issue