Rolls-Royce has announced it will seek to raise £3bn to bolster its finances after a “sharp deterioration” in civil aerospace because of the pandemic.
The plane engine maker will tap shareholders for £2bn through a rights issue and the remainder will come from issuing new bonds.
There has been speculation for weeks that Rolls-Royce will seek funding.
The company has been severely affected by the slowdown in air travel because of coronavirus.
The rights issue could unlock a further £1bn from UK Export Finance, the government’s trade finance body. Rolls-Royce has already borrowed £2bn from the state.
However, 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.
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.”