British engineering company Rolls-Royce downgraded this year's cash outflow forecast and warned of a challenging outlook as the slump in air travel continues.

But the company said its deep cost-cutting plans were on track and would help turn its cash burn rate around, as reported by Reuters.

The company, whose engines power Boeing 787s and Airbus A350s, has been hit by the travel slump during the coronavirus pandemic. To help it survive, it raised £2 billion from shareholders in November.

Now Rolls-Royce said it expects this year's cash outflow forecast to be £4.2 billion pounds, worse than the 4 billion pounds it was guided to in October.

It also warned the recovery in engine flying hours, a key measure of how much it is paid by airlines, had slowed due to a second wave of coronavirus infections in a number of places.

Shares in Rolls-Royce were down seven per cent to £1.18, eating into some of the 80% gains the stock made since positive vaccine news emerged in early November.

Despite tapping shareholders for funds and taking on £3 billion of new debt last month, the company says it has sufficient liquidity to get it through 2021.

Meeting 2021's cash flow target will depend on the recovery of flying hours.

Over the 11 months to November, engine flying hours were approximately 42 per cent of the 2019 level, meaning the company is likely to miss its base case forecast for engine flying hours to come in at 45 per cent for 2020.

To ride out the pandemic, the company plans to sell assets worth £2 billion and is cutting £1.3 billion in costs by axing 9,000 jobs and closing factories.