2020 was a dire year for the aerospace industry. The disruptions caused by Covid-19 have significantly impacted the Rolls-Royce (LSE:RR) share price and more importantly its business. Almost half of the engineering giant’s revenue originates from the sale and maintenance of aircraft engines. And the demand has not exactly been high, given most flights were grounded last year.

But since last October, the Rolls-Royce share price has moved from 40p to around 113p today. That’s an increase of more than 180%! What caused this rapid recovery? Can it continue throughout the rest of this year? And should I be adding the stock to my portfolio?

The rising Rolls-Royce share price

With nearly half of the business’s sales evaporating, there was some serious concern over its longevity. After all, the firm still had expenses to cover, along with debts to repay. 

But these concerns quickly vanished after the management team announced it had successfully raised an additional £5bn to help cover costs by selling bonds and rights issues.

Another contributing factor, I feel, is the slow recovery of the aerospace sector in general. Recently the UK government revealed its plans to ease lockdown restrictions. Under the proposed roadmap, international travel is set to resume as of May 2021. Within a few hours of the announcement, companies like easyJet, and TUI reported a massive surge in flight and package holiday bookings.

With planes getting ready to once again take to the skies, Rolls-Royce’s revenue stream may begin to return to pre-pandemic levels and potentially take its share price with it.

A long road to recovery

While the effects of the pandemic may soon be over, Rolls-Royce has a long road ahead. Even before the pandemic hit, the company was in trouble. In the last five years, it has only been profitable for one of them, and that was back in 2017.

Consequently, the firm has been reliant on debt financing for many years to keep the lights on. As of December 2020, Rolls-Royce has over £7.3bn of debt. By comparison, the market capitalisation of the business today is around £9.3bn. Needless to say, the company is highly leveraged, which makes me question its long-term financial health and stability.

To make matters worse, the Norwegian government recently put a sales block on Rolls-Royce’s marine engine manufacturer, Bergen Engines. The company intended to sell Bergen to the Russia-based TMH Group as part of its disposal plan to raise £2bn of capital by 2022. The deal was ultimately blocked over security concerns, and Rolls-Royce now has to find a new buyer.

The bottom line

The easing of travel restrictions is undoubtedly goods news. And its disposal plans may be able to raise enough funds to bring its increased debt levels back down to pre-pandemic levels.

However, at this stage, the firm looks rather unhealthy in my eyes. And as I’ve seen with the Bergen Engines block, the sale of Rolls-Royce’s smaller businesses may prove to be a long and complex process.

While I believe that the Rolls-Royce share price can recover over the long term. But this will likely be a multi-year process. And so, personally, I won’t be adding any shares to my portfolio since I think there are far better investment opportunities out there.

Opportunities such as…