Rolls-Royce "did not do anything extreme" to win the first
three engine competitions to power the giant Airbus A380, insists
John Cheffins, CEO and president of the Briton's civil aerospace
business.
Cheffins refuses to comment on widespread reports that Rolls sold
the engines to launch customers Singapore Airlines, Virgin Atlantic
and Qantas for almost or less than nothing, except to stress: "There
are exaggerated claims made on discounts. But we will never, ever
comment on discounts."
Widespread reports suggested the three airlines received discounts
of as much as 105% below list price. While discounting is common
in the engine business, and especially so for launch customers,
Cheffins insists that Rolls "does not do extreme things"
to win business. "We have a business case and we stick to it,"
he told Show News.
Civil engine programs typically reach the break-even point 10 to
15 years after the program is launched, but an engine can be in
service for up to 50 years, according to Rolls. "Over each
program the financial rewards are substantial and are weighted towards
the aftermarket for spare parts and service. The supply of spare
parts over the life of an engine generates revenue equivalent to
the original list price of the engine."
"On the Boeing 777 there were some extreme things done-but
we did not do them," Cheffins says. "We will make money
on the 777 program." The Rolls Trent has won a reported 35.4%
of the 777 market in which it competes (by engine count; compared
to 36.7% for the GE90 and 27.9% for the PW4000), but only the GE90
is available on the popular 777-ER after GE was named sole powerplant
provider in return for a GE investment in the 777 program.
But Rolls' success in parlaying its Trent and RB211 designs into
a whole family of engines, as well as continued strong deliveries
of the shared V2500, have greatly increased the number of powerplants
it has in service. This in turn bolsters the strategic development
of its aftermarket, spares and services activities.
Last year saw Rolls capture 31% of all new engine orders (by value),
making it a "solid No. 2 in world rankings," Cheffins
says. That percentage has been sustained now for four years running,
resulting in Rolls' installed base rising from 17% to 20% of the
market. Increased deliveries are expected to double its installed
base over the next five years, making the aftermarket even more
important to future profitability.
Commercial engines turned a profit before interest of $464 million
last year on sales of $4.4 billion, compared with $324 million from
$3.6 billion in 1999.
Rolls is quite deliberately pursuing the aftermarket on two fronts:
with Total Care (power-by-the-hour guaranteed cost maintenance contracts)
and by forming joint ventures with large airlines on engine maintenance
facilities. In the last five years it has doubled its share of repair
and overhaul of Rolls aero engines.
It currently has 1,500 engines under Total Care maintenance management
plans. That, according to Cheffins, represents 19% of its airliner
engines in service, a figure it will push to 40% by 2004. It currently
has $5.5 billion of maintenance contracts booked on its RB211 and
Trent engines.
He sees this trend as a breakthrough in previously confrontational
airline-supplier relationships where each battled the other over
responsibility for costs, warranty work and guarantees. "Now
this aligns our upside with their upside," Cheffins says. "If
the product is durable and reliable we both have an upside. It allows
us to be more profitable if we have a better product-and there's
a rightness about that."
By John Morris
PUBLICATIONS
