Jan. 31, 2023, © Leeham News: Rolls-Royce’s new CEO says the engine group is a “burning platform,” failing to give returns.
Tufan Erginbilgic, who joined RR as CEO on Jan. 1, said this is the “last chance” to get its house in order and turn a profit.
The dire outlook has potentially disastrous implications for Airbus. The airframer relies exclusively on Rolls for its engines for the A350 and A330neo. Airbus is monitoring the situation closely. Market sources tell LNA that Airbus is assuring customers and potential customers that Airbus will make sure engines and aftermarket support are available, without detailing how.
An Airbus insider tells LNA that all scenarios are under consideration. Some speculate that Airbus might either provide financial support to Rolls or even, in the extreme, buy the engine company. Others believe either course is unlikely because Airbus has its own production problems to sort out. Its fiduciary duty is to its stockholders. “It’s not their job to inherit a problem that was created decades ago,” one London-based analyst says.
What’s at the root of RR’s current problems? Many of the reasons have been discussed before, but let’s summarize them.
Trent 1000 engines powering the Boeing 787 began failing. Flight restrictions for trans-ocean operations were enacted or airplanes were grounded while RR developed a fix or struggled to provide new engines. At one point, around 50 787s were grounded across the globe, some for years. Rolls was unable to meet the repair demand in its engine shops. This is warranty work, for which RR is on the financial hook.
As Trent 1000 work backed up, some routine MRO work on Trent 700s, which power the Airbus A330ceo. This displaced MRO revenue on which RR Engines relies for its profits. Engine company business models don’t make money on the sales; revenues and profits come from MRO. Rolls had to restate its financial assumptions years ago because of the impact the Trent 1000 had displacing normal MRO business.
The COVID pandemic shut down international travel and virtually all widebody regional operations. This meant the global A330 fleet was grounded, chopping MRO revenue even more. There are still around 1,500 engines on the ground today of all types, but mostly A330 engines because international traffic still is in recovery mode.
Operationally, the Trent XWB performs well. But on-wing time and Time Between Overhauls is much shorter than the Trent 700 experience, industry sources tell LNA. High-pressure turbine blades and Intermediate compressor blades do not last as long as designed. Neither are advanced materials needed in the super-hot operating engine environment that is required to in part meet reduced fuel burn. Some parts last only 2,000-3,000 cycles. On-wing time is three to four years instead of seven to eight for the Trent 700.
Years ago, Rolls sued Pratt & Whitney over patent infringement for blade design on the Geared Turbofan engine. The lawsuit eventually was settled, in part by RR withdrawing from the International Aero Engines (IAE) partnership that developed the V2500 engine used on the Airbus A320 family. RR shared in the MRO revenues for the V2500. Airbus preferred that the GTF, which succeeded the V2500 on the A320 family, be marketed and supported through IAE. PW does this exclusively.
The narrowbody market represents at any given time about 85% of the sales by Airbus (and Boeing). Giving up its share of this sector was arguably one of the dumbest decisions Rolls-Royce could make.