Leeham News and Analysis
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Leeham News and Analysis
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Rolls-Royce profit soars, reinstates dividend after turnaround
By Leeham News Team
February 27, 2025, © Leeham News: Underlying operating profit at Rolls-Royce surged to £2.5bn ($3.17bn) in 2024, up from £1.6bn the previous year – a 57% increase – according to the company’s full year 2024 results announced on Thursday.
Profits soared this year. Credit: Rolls Royce
Strong financial performance in the group’s civil aerospace, defense and power systems divisions all contributed to the result, which beat analysts expectations (aside from power systems, which came below expectations) and has been hailed as evidence of a turnaround for the once-struggling company under CEO Tufan Erginbilgic’s leadership. The former BP executive previously described Rolls Royce as a “burning platform.”
Rolls Royce’s operating margin grew by 8.7pts to 13.8% last year, while free cash flow leapt to £2.4bn from £1.9bn and revenue rose to £17.8bn from £15.4bn. The £2.5bn operating profit was ahead of a forecast for between £2.1bn and £2.3bn.
As a result of the financial progress, the UK-based company has reinstated its dividend for the first time since the pandemic, announcing a 6 pence per share payout.
Growth across the board
Although supply chain difficulties persist and are expected to continue in the short-to-medium term, amounting to a £150-200m cash impact last year and this year, all major business segments have shown significant improvement.
Civil Aerospace’s operating margin rose to 16.6% from 11.6% in 2023, driven by higher widebody aftermarket profit and stronger performance in business aviation.
In recent months Rolls Royce has tested its UltraFan demonstrator and is confident that its civil aero engine design work will position the company “strongly for a new generation of narrow and widebody aircraft”.
Having set a mid-term target to improve the time on wing of its modern engines by an average of 40%, Rolls Royce now expects to improve this by an average of more than 80%.
Contributing to this, flight testing of a new HPT blade for the Trent 1000 TEN engine was completed successfully in January 2025. This is expected to more than double the time on wing of the engine.
Imminent improvements to the Trent 1000 and Trent 7000 engines will also deliver an incremental 30% time on wing benefit by the end of 2025, with testing commencing in April.
Progress has also been made on the Trent XWB-84 and Trent XWB-97 to improve efficiency and durability.
Rolls Royce continues to gain market share of the widebody installed fleet, which has grown from 32% at the end of 2022 to 36% at the end of 2024, supported by a market share of more than 50% of new engine deliveries over the past two years.
Business and defense
Within the business aviation segment, operating profit has more than doubled in two years with Rolls Royce now accounting for 70% market share on large cabin jets. The newly certified and delivered Pearl 700 engines that will power the Gulfstream G700 and the forthcoming G800 helped here.
Increased defense spending amid ongoing geopolitical uncertainties has also contributed to the growth.
Rolls Royce won the Survivable Airborne Operations Center (SAOC) contract to deliver a replacement for the United States Air Force’s current fleet of E-4B “Nightwatch” aircraft, and the TACAMO contract for Northrop Grumman (alongside an eight year submarines contract worth around £9bn with the UK Ministry of Defence).
The Power Systems unit, which is working to deliver a next generation engine that will enter the market in 2028, delivered an operating margin of 13.1%, up from 10.4% in 2023.
However, over the last year Rolls Royce made the decision to close its advanced air mobility, electrolyser and fuel cells activities. Notably, in a November 2024 trading update, the company confirmed its exit from electric propulsion activities in the advanced air mobility (AAM) sector.
‘Significantly improved performance’
Commenting on the full-year results, CEO Tufan Erginbilgic said the results demonstrated Rolls Royce’s transformation into a “competitive, resilient” business.
“All core divisions delivered significantly improved performance, despite a supply chain environment that remains challenging,” he said. “Significantly improved performance and a stronger balance sheet gives us confidence to reinstate shareholder dividends and announce a £1bn share buyback in 2025.”
Erginbilgic’s “efficiency and simplification program” alone delivered over £350m of savings by the end of 2024, although the mantra remains that there is “still more to do”.
Looking ahead, Rolls-Royce has set ambitious targets, with a goal of increasing its underlying operating profit to £2.7bn-£2.9bn in 2025 and between £3.6 billion and £3.9 billion by 2028.
Looks like “the burning platform” (Trent) is doing quite alright after all, CEO Tufan Erginbilgic. 😉
I hope RR increases its investments in the ultrafan. I would love to see it on the A350.
Wow, that was one quick turnaround! 😉
Funny ol’ world..
If RR can do it Boeing can do it!
I have my doubts about Boing.
Someone likes to buy an “e”?
Call me the eternal optimist!
Ortberg looks to be taking a whole different approach. Yes he has a major mistake to his credit.
But it may have been he could only get into a fix after a strike that so many wanted (not disagreeing but would anything have stopped that short of defined pension which no one is going to do)
wow, only because Tufan Erginbilgic is such a great guy, a burning platform turned into a money-shitting cow! RR should be delighted to pay this genius an astronomic bonus!
Jokes aside, it is good to see how innovation, craftmanship and quality starts paying off for RR.
I wish, the Ultrafan will live up to the high hopes and it is ready for the market soon, thereby bringing the final frontiers in civil aviation .in sight
Check the financials for ‘big drop in extraordinary costs’
You dont go from Civil Aero free cash in one year like this without dropping expensive thing like airlines payouts and onerous contracts
2024 £2,030
2023 £626
All the other sectors FCF were stable year on year
What about all the 787 parked due to engine issues. Isn’t this affecting them? The airlines are
It still is, the paid out losses seem to be behind them but the ongoing impact on NZ was just mentioned.
Market share on the 787 probably keeps going down (its almost a MAX vs A320 ratio).
But they do have the A330NEO market, that is 4 a month.
El Al in November 2024 chose RR Trent 1000 for the new B787s https://www.flightglobal.com/airlines/el-al-stays-with-trent-1000-for-additional-787s-rolls-royce/160640.article
Looks like they may be getting a sales rebound as they fix and continue to improve the performance on in service engines. https://aviationweek.com/air-transport/aircraft-propulsion/rolls-royce-ceo-eyes-787-market-share-rebound-trent-1000-fixes
Just 25% of 787 market would put the TEN on equal footing with the GEnx already. The Trent XWB will outsell the GE9X at least 3:1.
RR is definitely the largest large engine manufacturer for foreseeable future. Not offering an engine for the XWB has to be one of the most costly business mistakes by GE.
I would have to do some math I am not sure I can handle.
70% of the GE market is on the 787. I don’t buy people are going to move back to the Trent 10. NZ, ANA and BA have all voted with their engines as it were despite a large base of RR. I am going with a long term 20% RR. Future orders are not fixed yet engine choice wise and its all been downhill for RR there.
Throw in 777X production, adds some go GE but looking at those numbers.
10 x 787 a month. (working at it, 5 now). So that is call it 100 a year GE.
3 x 777X a month: All GE so 36 a year (though I think 5 a month is more likely).
A330NEO is rate 4 and stays there. With their actually year build, call it 44.
A350: 6 a month (now). Working to 9. Given Airbus build year, 90?
So, if the 777X matches the A330NEO build, that is pretty much even.
Some 777F still rolling out as well as some 767. GE a bit ahead I think.
Pretty close to even with a small edge for GE (though size RR wins) and do’t forget P&W on the KC-46A
I agree that in future, both 787 and 350 will be produced at most 9-10/month. The day of 14/mo is long gone, supply chain cannot support that with 350/777x/330 also in production.
A330 is 4/mo. 77X is 5/mo.
RR: (9 XWB+3 787+ 4 330)x2= 32 engines/month
GE: (5 X + 7 787) x2 = 24 engines/month
And Airbus is much better at execute ramping up, unlike Boeing which hitting roadblocks (or shooting own feet) is almost a certainty. So it’s certain RR is going to out-produce GE for a long time. Of course GE has 50% of CFM and is actually much bigger than RR.
I for one lost my own bet with myself over how long RR would struggle.
I hope its not a bubble (business analysis is far from my simple financial wheelhouse calcs though I just got a thank you from my wife for managing paying off our house and able to buy a new car!).
Hopefully this will continue.
One caution, never make a offer to Tim Clark you can’t deliver.
I would expect the Ultra Fan will do fine if it gets a chance. Sadly, unless there is another NEO by RR on the 787, I don’t see it.
Single aisle for Boeing is 5-10 years away assuming RR decides to compete down there.
Congrats to RRs, an impressive result from the cash burning state they were in.
Where there’s a will, there’s a way.
Contrast that with a certain other outfit, which continues to languish in total dysfunction.
Go Boeing!
Interestingly, I think the business model that cost them so dearly during the pandemic was ideal for (re)injecting large amounts of cash, quickly, back into the business once the aviation industry recovered.
The best thing RR did was to not panic too much.
With their power-by-the-hour deals, I wonder if they’ve made money out of aircraft that were parked and thought likely never to fly again? E.g. Lufthansa had to bring back A340-600s into service, due to late delivery of newer aircraft. Has RR made unexpected bucks out of such revivals? All those A380s coming back into service must have helped too. More than a few of those were Trent powered.
Profits, a dividend, and a very promising new engine design waiting in the wings, with apparently no immediate competitor in sight. Things are looking good.
Any bets on Tufan Erginbilgic ending up as ceo of Boeing?!
@Gerard: He can’t. Not a US citizen. All the DOD-ITAR work mandates that.
Ah, never knew those constraints (makes sense though) on the CEO position. Probably extends quite far down the management hierarchy, and obviously the same issue for other companies.
Pity though, limits potential excellent candidates
He would have to become naturalized. It’s not impossible just more work
Yeah, especially as there is the “five eyes” organization for intelligence sharing. It wouldn’t be much of a leap to have citizens of the respective countries under the same or harmonized regulations for DOD-ITAR work.
Is there any good review or analysis on this RR turnaround? I can’t find one that gets into the nuts and bolts of it.
Nice case study on what is possible.
A good review would indeed be very interesting. I suspect that the best “review” (as such) presently available would be the company’s own reports.
I suspect that it boils down to not panicking, surviving, keeping their “power by the hour” business model intact, and benefiting from the fairly impressive explosion in the amount of long haul wide body flying being done by the aviation industry. Fixing the Trent 1000 must be a big part of it too; they’re through the worst of that now.
What must surely have contributed a lot is the fact that Airbus – for all their own supply chain woes – are delivering A350 and A330neos in good numbers, and the engines RR built for them are pretty good (i.e. good enough for most airlines to be happy and RR to be profitable).
As they’re working to make all these engines better, it’s a fairly good bet that RR’s profits will continue to grow.
For me, the key thing will be if Airbus NEO-ise the A350 or A330neo with Ultrafan. If that happens, Airbus and RR could walk away with a very large slice of the long haul market in the decades to come.
A380 isn’t necessarily finished either; Emirates will eventually need to replace all of their’s , and despite what many have said and think, an A380neo is the most realistic option for that replacement. Anything else – including 777X – would be a downgrade in Emirate’s capacity. RR are probably front runners to build an engine for that.
Thanks for the reply, great insights, I’m learning more, bit by bit, from you and everyone else here on what has driven the RR transformation.
I don’t think I can agree with you on an A380neo, unless you mean a reengining of the existing fleet that Emirates has. The devil is in the detail, who pays for the certification, Emirates and RR, as I don’t see Airbus spending on it. (I have no idea of how gib or costly it would be for either a A350 or A380 neo certification)
That said, if there is a 350neo, then if there is a similar engine for a 380neo, it would be an attractive prospect.
There’s certainly a lot of barriers to producing more A380s. The engineering design / certification work is likely to be the least of them (though, still significant)!
The improvement in time on wing and the ultrafan potential (if true when tested in real world – I’m optimistic) is wonderful to read. It can be done if there is a will, balls to call it out, and skills to remedy. Keep it going RR… Airbus awaits
This is an interesting read. Mostly from RR but worth it. Particularly of note is solving the Trent 10 blade issue which means a Trent 7000 blade issue as well.
https://archive.ph/cW5Cx
As I understand it,Ultrafan is “paused”.Huge numbers of engineers have been sacked,R&D slowed right down and the family silver sold off.All of these fantastic reliability improvements began development before Erginbilgic arrived.
A bit more like Boeing than most of you would like to admit
Interesting, I know that they have been selling off noncore units, such as naval propulsor unit, electric propulsion and also lower power diesel.
I actually don’t disagree with doing that, focusing on core and UK strategic systems, such as nuclear.
But, letting go engineers and slowing R&D, that is an issue.
Just like Boeing, if the engineers and R&D are not kept ticking over, with new programs, then that expertise will atrophies.
And your source for all this news is…?
I can’t find any of it on a web search.
9000 jobs 2020
2500 jobs 2023
ITP sold for €1.8 billion 2022,RR power division sold for what is thought to be €700 million (seems that MTU has already got most of that back in profits),Bergen engines£€88 million,L’Orange several hundred million dollars and many more.
Ultrafan paused in 2023 until 2030,although it seems to have restarted recently
747 testbed cancelled after much investment
Plus quite a bit of help from the British government with loans,military orders and nuclear civil power stations research funding
“Jobs” are not the same as “engineers”…
The 2020 job cuts under former CEO East were primarily retirements and from administrative staff, not the engineering and R&D teams.
East should be the one credited with the turn around. He bit the bullet and did what was necessary, cost cutting, debt restructuring, suspension of dividends and share buyback programs, and sell off of assets. He even had plan in place to increase equity through new share issues in 2020. East also initiated the Ultrafan engine program that the new CEO initially was disparaging when he came in in 2023. East was following the incremental product improvement and development plan that RR management (which he East had been a part of) had formulated with the Trent program that included the Advance 2 and 3 engine core developments for the 2 and 3 spool engine line up in the portfolio.
The new CEO is taking a victory lap he had little to do with. In fact he is already going back to GE type “financial engineering” to boost his pay packet by starting share buyback programs and dividend payouts. Pray he is more prudent with these activities than the former management team at Boeing.
RR has restarted development of the Ultrafan and has expanded it scope to include NB aircraft (that segment will be crowded next gen)
https://www.reuters.com/business/aerospace-defense/rolls-royce-exploring-technology-narrow-body-jet-market-2024-07-23/
When RR was burning cash in a barrel, they stopped or slowed down development, but as stated, its been restated.
P&W maintained their R&D for many years to get the GTF to a market capable product.
That is the right long term mind set business needs.
Hopefully RR stays on track, tough to do so when there is no new application to be seen.
the 787 is a candidate for an NEO, but GE has not GTF and RR is not developed.
That leaves P&W with at least a design for that class.
RR also has the issue of having done an NEO to the 787 with the Trent 10. Not a success, but it also was the basis for the A330NEO which was a sole source engine.
Boeing has to be looking down the road 5-10 years now and an NEO offering there.