Rolls-Royce Bullish on Long-Term Market

The DJ and S&P500, as well as the FTSE and Nikkei, may be in the tank, but Rolls-Royce officials said Tuesday they're confident in the long-term strength of the business jet market over the next 20 years. Echoing remarks made Sunday by Honeywell officials, Ian Aitken, president RR corporate aircraft business unit, said the conclusions were reached after "detailed analysis" of the business jet market. Demand for medium and large business aircraft using engines with 6,000-pounds-thrust or more will be especially strong. In addition, RR officials believe "robust demand" will continue for entry-level jets using 2,000- to 3,000-pounds-thrust engines. Notably, in 2001, RR landed an almost one-third share of estimated $2.5 billion business jet engine sales.

Notwithstanding the short-term downturn, RR forecasts that during the next 20 years, 30,600 turbofans will be needed for 14,670 new corporate aircraft. This represents sales of $56 billion. Last year, in contrast, RR officials forecasted a market for 14,330 new aircraft during the following 20-year period, requiring nearly 31,000 new engines valued at $52 billion. The revised projections reflect a shift toward more medium- and large-cabin aircraft, boosting the value of the engine market.

While today is the first anniversary of the 9/11 attacks and RR expects that 2002/2003 deliveries will be lower, engines deliveries over the long term should increase to 2001 levels because of underlying market strength. The core reasons are the need to replace current aircraft, growth of the world economy, creation of wealth and use of business jets as productivity tools to save executive time. New users are being introduced to the business jet market through fractional ownership programs, charter and the development of microjets, RR officials added.

Company officials said, somewhat modestly, that the business jet market historically has been catalyzed by the introduction of new models, such as the Cessna Citation CJ3, Gulfstream 500/550, Bombardier Global 5000, Embraer Legacy and Raytheon Premier 1. Actually, the development of new models has been paced by engine advances since the first flight of the Wright Brothers.

Such new products help to stimulate the replacement market. During the next 20 years, 40% of today's business jets will be replaced by operators. However, only 7% will be retired from use. This will create demand for 4,500 new turbofan aircraft, with strong growth in the medium-size and heavy-iron sectors. While these two sectors account for slightly less than one-fourth of the fleet today, they will represent 43% of new aircraft deliveries in the future, according to RR officials.

Traditional flight departments will continue to order the lion's share of business jets. Demand for aircraft by fractional operators will increase, accounting for one-third of new aircraft deliveries in coming years.

RR officials also believe that there's hope for a supersonic business jet in the future, as the firm's officials are in discussions with several manufacturers.

By Fred George