Kevin O'Toole/LONDON
AFTER THREE years spent re-shaping the business, there is growing confidence within Rolls Royce that the company is now poised for an upturn in its lack-lustre financial performance.
Chairman Sir Ralph Robins says that the group's extensive restructuring programme, launched at the start of 1993, is nearing an end and that the benefits should start to show through on the bottom line next year.
The restructuring has seen R-R, shed more than 7,000 aerospace jobs and close seven plants. The total aerospace workforce now stands at 22,200 - down from 36,500 just five years ago.
A more immediate benefit to the company has come from the dramatic fall-off in research and development costs as the heavy spend on the Trent programme draws to a close.
Robins admits that a large part of the profits improvement posted for the first half of 1995 stemmed from the tail-off in research spending, which was down by £28 million ($43.5 million).
That helped the group's aerospace division to turn in pre-tax profits of £34 million, having achieved little more than break-even in the first half of 1994. The group is expecting to continue the improvement into the second half of the year.
Robins dismisses criticism that R-R over-stretched itself with the launch of the Trent into the overcrowded big turbofan market, and categorically denies speculation in the UK media that the group has been forced into alliance talks with Pratt & Whitney.
"It's absolute rubbish. We're not talking to P&W," he says, adding that the three big-fan programmes are simply too far advanced to contemplate mergers.
With no immediate prospect of a new large-engine launch from any of the major manufacturers, the next opportunity for alliance talks could be more than a decade away, he believes. "I believe that we'll make money out of the Trent, but we don't expect to turn to positive cash on the programme for 12 years," says Robins.
Trent deliveries are already beginning to improve the group's mix of civil engine deliveries, pegged at a total of around 400 units a year. Delivery of some 40-50 Trents in 1996 would represent around 30% of the value of this business.
Robins believes that a full recovery in civil markets is still at least a year away, but as it does return he argues that R-R is on track to achieve the 30% share it targeted almost a decade ago at the start of its expansion. "We are now at 25% and we've come from 8%," he says.
R-R's occasionally painful struggle into the big league of engine sales has also been storing up a wealth of spares business, most of which, the group has yet to realise. Robins says that it has taken longer than expected for the boom in engine sales (up from only 100 a year in the mid-1980s) to translate into spares markets, but adds that there are signs of a pick-up in work for Tays and RB211-535s.
Spares business should account for a lucrative 30% of sales, but has been running at no more than 25%.
The group's military business is also beginning to rebound, on the back of programmes such as the Hawk and Eurofighter. The group expects to see deliveries climb to around 100 units in 1996, up from a low point of half that volume in 1994 and 1995.
The acquisition of Allison, finalised in March, is expected to strengthen the group in US defence markets, providing an onshore manufacturing base and a place on key programmes. "We have a good track record in the US but we've never been on the major programmes," says Robins.
Senior-level talks have already taken place over the possibility of supplying US Army McDonnell Douglas Apaches with the RTM-322 engine, following the engine's selection on the airframe for the UK attack helicopter order. Robins says that the talks are still preliminary, but adds that "now it is a possibility, before it was not".
Allison has proved its worth after only three months within the group by contributing a £12 million operating profit on sales of £105 million to the first half result.
Source: Flight International