The Rolls-Royce share price is down over 70% from its all-time high: should I buy?

The pandemic hit the company hard as most of the world’s aircraft were grounded. However, since the beginning of 2022, the Rolls-Royce (LSE: RR) share price is down over 20% despite the aviation industry picking up after travel restrictions eased. Let’s explore why.

Will the Rolls-Royce share price take off?

For 2020, most of its income came from selling and maintaining commercial aircraft engines. This is encouraging news as travel restrictions ease, and the travel sector seems to be heading back to pre-pandemic levels. Additionally, I think a critical factor that could help the Rolls-Royce share price is diversification of its revenue to more industries. Its Defence and Power Systems divisions now represent 56% of its revenue, up from 44% in 2019. 

Following the group’s latest financial results, City analysts predict the business will report a profit of almost £400m in 2022. Significantly, Rolls-Royce raised approximately £5bn last year to help shore up its balance sheet, including £2bn from investors. With no debt maturing until 2024, I think there’s room for the company to start generating cash again. 

I think the Rolls-Royce share price may increase from the company’s recent development in electric aircraft. In fact, in November 2021, an all-electric aircraft built by the company broke a world speed record. Following this achievement, CEO Warren East said, “the advanced battery and propulsion technology development for this program has exciting applications for the Advanced Air Mobility market”. This project has reported pre-orders from some of the largest airlines in the world, and I think this could help propel the Rolls-Royce share price higher. 

Supply concerns

Earlier this week, Rolls-Royce has confirmed it has ceased trading with Russia, and the company will pause all activity with the Russian commercial airline Aeroflot. With Russia accounting for 20% of its titanium and around 2% of its revenue, I don’t think this will severely impact Rolls-Royce. However, it’s important to note that titanium is widely used in engines, fasteners, and other aircraft parts because of its strength, lightweight, and resistance to corrosion. 

In a recent earnings call, East said the company has been stockpiling and diversifying its sources for titanium. Shortages could magnify existing supply-chain issues, threatening production for Rolls-Royce and other major plane makers. Concerns over supplies of titanium and other metals over the coming months may add to supply constraints that existed before the Russia-Ukraine conflict. 

In my view, the Rolls-Royce share price could make long-term progress; however, I don’t believe it’s a bargain right now. Firstly, the conflict in Eastern Europe hasn’t helped. Furthermore, a primary long-term concern is the announcement of the departure of East, who has led the company since July 2015. Finally, it still has a huge debt pile at £5.2bn, and it has not paid a dividend to shareholders in years. I will wait to see what happens with the leadership before buying any shares for my portfolio.