Andrew Doyle/MUNICH
BMW is surrendering its majority stake in loss-making aero engine maker BMW Rolls-Royce (BMW R-R) in a deal which will see joint venture partner Rolls-Royce take full control. The German automotive group will in turn increase its holding in the UK powerplant giant to 10%.
R-R says it plans to "fully align" BMW R-R with existing aerospace operations "to achieve operational and marketing efficiencies". It says the venture is at a pivotal stage in its history, and that the takeover will allow investment to be made unencumbered by a business plan and break-even targets agreed with BMW. "We can now make those investment decisions in the context of our own portfolio," it adds.
BMW's commitment to BMW R-R, a non-core activity, had already been in doubt, with industry sources suggesting it was reluctant to commit cash to products such as a turboprop engine for Airbus Industrie's proposed A400M military airlifter.
BMW R-R, set up in 1990, made a loss of DM460 million ($250 million) last year on sales of DM791 million after delivering 97 engines. It expects to have handed over 170 engines by the end of the year and 210 next year, but is not due to break even before 2005.
In return for its 50.5%holding in the Dahlewitz-based joint venture, BMW will receive 33.3 million new R-R shares worth about £64 million ($106 million). The German company, which already owns 2% of R-R, has further decided to boost its holding to around 10% by buying another 90 million shares on the open market.
R-R says the takeover of BMW R-R - to be renamed R-R GmbH - will increase its net debt by £170 million, although the transaction will be "earnings neutral" in the first year. BMW will retain a risk-sharing stake in the venture's existing products.
BMW R-R is still establishing itself as a production company with the BR700 series of engines. Its BR710 was selected as the sole powerplant for the Gulfstream V and Bombardier Global Express long-range business jets, but long-term prospects in other markets look less healthy.
Boeing's 717 regional jet, powered by the BR715, has been slow-selling, while Fairchild and Embraer recently selected General Electric's CF34 over the 700-series for their 70-plus-seat airliner families. The BR715 remains a serious candidate for Bombardier's planned BRJX family, however, and the BR710 has been selected for UK Royal Air Force British Aerospace Nimrod upgrades.
Source: Flight International
