Why I don’t own Rolls-Royce shares (yet)

Rolls-Royce Shares (LSE: RR) have been skyrocketing lately, rising 34% in the last six months. But from a low starting point, and stocks remain a formidable long-term investment.

I could have bought stocks during the financial crisis of 2007/08 – when the global capitalist system itself seemed to be collapsing – and still be down on my investment today.

Of course, some predict that a worldwide pandemic will destroy the global travel industry in 2020. But the fact remains that during a crucial period, Rolls-Royce shares have lost investors’ money.

Do I have no stock

I have come close to investing in Rolls-Royce Shares several times before. The first time was a few years ago when I was digging up unstoppable global travel. Millions of other Chinese citizens take long-haul flights every year to visit every corner of the earth.

I wanted to find a way to gain exposure to this growth without taking individual airline stocks. Rolls-Royce stock looks like it’s worthless. It sells machines around the world and then makes money after serving this installed base. But the profits were really lumpy, I went Boeing to change.

This investment turned out to be a nightmare, but that’s a story for another day. In the end, it turns out that I should invest in it Airbus, the Rolls-Royce company supplied the Trent XWB engine for. The stock is up 134% in eight years!

Anyway, the second time was at the beginning of the pandemic in 2020 when the stock lost 63% in 12 weeks. I am looking elsewhere because the company has to take on a lot of debt to survive.

Am I tempted to invest now

In January this year, there was a new CEO of Rolls-Royce. And Tufan Erginbilgic has never said anything about what he considers to be a failure of the company. He called the engineering company “burning platform“which must change in order to survive.

He is now setting about this task, including reducing the company’s significant debt pile. Net debt stands at £5.1bn by mid-2022, and reducing this while reinvesting in growth could be a delicate balancing act. There is a risk here.

However, air travel is global is recovery, especially with China finally reopening its borders. Large engine flight hours were at 65% of 2019 levels in the four months to the end of October, the company announced.

In the long term, the global civil aviation sector is sure to grow. This should create more demand for Rolls-Royce engines, and result in increased service revenues.

Finally, after three years of huge losses, the engine maker is back in the money in fiscal 2021. Yes, it’s only £120m in post-tax profits of £11.2bn, but it’s a start. The company reports earnings tomorrow and I will be interested to see if there is any further improvement below that.

If there is progress here, I might invest in stocks. I think we may be at the beginning of a massive, multi-year turnaround story in engine manufacturers. As a long-term investor, I don’t want to miss out!