Has Rolls-Royce lost its plot in commercial aviation?
Rolls-Royce has been one of the well-established names in commercial aviation, as its engines have powered many iconic aircraft over history, including such legendary aircraft as the Boeing 747, Concorde and the Lockheed L-1011. The engine makers power plants’ also serve the newer generation of icons, such as the Airbus A380, Airbus A350, and the Boeing 787. However, most recently, the tide had turned against the company.
Rolls-Royce struggled, even before the current pandemic-induced downturn. The COVID-19 crisis only made the pain more intense at RR, as seemingly, the engine maker was particularly exposed to a market downturn. So much so, that the company is planning a two-week-long break at its commercial aircraft engine manufacturing facilities in order to curb costs. In addition, Rolls-Royce is in active negotiations with its unions to deliver a 10% “productivity and efficiency improvement across our Civil Aerospace operations in the UK.”
But the source of the trouble at the British company could be traced back through several points in history, as some strategic decisions have led to this point.
However, was the British company particularly exposed to the current downturn, considering its lineup of products?
After all, the Rolls-Royce Trent family powers such aircraft as the Airbus A330, A340, A350, A380, and Boeing’s 777 and the 787. The common theme among all of them? They are wide-body aircraft, which have lost popularity amongst airlines as international travel was essentially halted since March 2020. According to data by the International Civil Aviation Organization (ICAO), narrow-body aircraft usage dropped by 59.5% in July 2020 compared to the same month a year prior. Meanwhile, twin-aisle aircraft saw 75.1% less usage by that point. Since then, aircraft usage has only been on the rise: yet by December 2020, single-aisle jets had 48.4% fewer flights, while twin-aisle had 59% compared to December 2019, highlighting the rift between the two aircraft types.
Furthermore, airlines largely shied away from quad-engine aircraft such as the Airbus A340 or the Airbus A380, or older twin-aisle jets. Due to their higher operating costs, carriers opted to retire many of them permanently. For example, only 21 out of 219 Airbus A380 aircraft were actively flying, while the number of active A340s was 53, compared to 118 at the end of 2019, according to Cirium data.
“The 777 overhaul costs are among the highest in the industry for any aircraft type, and A330s are in oversupply with much younger aircraft available,” according to Cirium aviation analyst Syed Zaidi. “The result is the older A330s and 777s getting retired sooner than originally anticipated and being replaced with newer generation, more economical wide-body aircraft like the A350 and 787,” he added.
Seemingly, the retirement of older aircraft has left Rolls-Royce particularly exposed, as new aircraft deliveries were not particularly favorable to the British company.
Glimmers of hope?
While cargo has provided a glimmer of hope for commercial airlines, as the demand crunch caused by fewer flights taking belly capacity with it has provided some revenue, signs of hope for Rolls-Royce were few and far between.
Neither the Boeing 777F nor the 767F, which the aircraft manufacturer has delivered 102 and 95 respectively since 2015, are powered by a Rolls-Royce power plant. Even converted freighters, like the 767-300 BDSF or the 777-300ERSF will carry General Electric engines. Overall, out of the total 1,352 wide-body aircraft that Boeing delivered between 2015 and 2020, 275 were powered by the British manufacturer’s engines, all of them of the Dreamliner family. Out of the total 1,621 orders for the 787 with a specified engine choice, the British company managed to nail down 504 (31%), allowing the General Electric GEnx to dominate the market share for the 787’s engines. Some airlines, like All Nippon Airways (ANA), have made the switch from the Trent 1000 to the GEnx, when the Japanese airline ordered 12 Boeing 787 aircraft in October 2020. Prior to the order, the aircraft manufacturer delivered 74 Dreamliners to ANA with the Trent 1000 engine, including the first-ever delivery of the 787 in September 2011.
The issues of Trent 1000 have been well known, as the company had to re-design nine components of the engine to fix various issues. By the end of 2019, Rolls-Royce had completed the design of eight components, with seven of them certified by various civil aviation authorities. All in all, the company estimated that between 2017 and 2023, the issues with the Trent 1000 will set the company back around £2.4 billion ($3.3 billion). At the end of 2019, the troublemaking engine amounted to 13% of Rolls-Royce’s total wide-body engine fleet.
While COVID-19 has ravaged the aviation industry, it also allowed the engine maker to save cash, as airlines used fewer wide-body aircraft than previously, including the Boeing 787. According to the company’s H1 2020 update, the pandemic allowed Rolls-Royce to save £498 million ($685.9 million), as the zero Aircraft on Ground (AoG) point was reached in June 2020. At the end of 2019, Rolls-Royce’s goal was to reduce AoG numbers to below 10 by Q2 2020. The “elevated level” of AoG was as much as 42 in H2 2019, highlighted the company. Still, the pandemic has had its effect on the engine maker, as it made the decision to let go at least 9,000 of its employees by the end of 2022.
Nevertheless, if Boeing is not as important to Rolls-Royce, then Airbus definitely is: every wide-body of the European manufacturer has an option to be powered by a member of the Trent engine family.
Helping hand in Toulouse?
RR’s last hope seemingly remains with Airbus with the A330 and the A350. The Trent 700, which is one of the three engines to power the A330ceo, has enjoyed a fairly sizeable market share, with 58% A330-200s and 68% A330-300s powered by the Rolls-Royce engine, according to ICF data. However, the backlog of A330ceo aircraft is only going down and will soon dry up, with 16 orders for the A330-200 and eight for the A330-300 remaining as of January 31, 2021, per Airbus Orders and Deliveries data. Unfortunately, the upgraded A330neo is hanging on a thread, as a large chunk of the re-engined aircraft’s backlog is dubious. Such airlines as AirAsiaX or Iran Air have questionable capabilities to take new orders from the European manufacturer for a different variety of reasons, including financial difficulties exhibited by the Malaysian low-cost carrier.
Nevertheless, there is the option for the A330ceo to be converted to a freighter under the A330 P2F program. While the demand so far has been lackluster, as only six aircraft of the type were converted to a freighter, per planepsotters.net, it could improve with the wide-body’s value going down. Ishka and OAG pointed out that the A330-200 lost around $12 million (from around $39 million to $27 million) in value, while the A330-300’s value went down (from around $47 million to around $31 million), potentially providing an abundance of feedstock for the conversion program and hope for Rolls-Royce for a very lively second-hand market. According to Airbus’ estimates, the demand for the converted mid-size freighters stood at around 900 conversions. Out of the six currently converted A330s, all are powered by the Trent 700.
In addition to the wide-body engine family, Rolls-Royce was one of the founding partners of International Aero Engines, which in turn developed the IAE V2500 engine. It is currently used on such aircraft as the Airbus A320ceo family (excluding the A318), the McDonnell Douglas MD-90 and the Embraer KC-390. However, the British company backed away from the consortium, which was founded in 1983. In addition, the A320ceo backlog, much like the A330ceo, is shrinking. According to Airbus Orders and Deliveries data, as of January 31, 2021, there are four A319ceo, 18 A320ceo and 25 A321ceo aircraft remaining on order.
“More than 7,600 V2500 engines have been delivered to customers worldwide,” said a Pratt & Whitney spokesperson in a comment to AeroTime News. The company did not provide information of the market share it holds on the A320ceo.
Exiting the narrow-body market
Rolls-Royce completed its move away from IAE in 2012, as it sold its stake in the consortium for $1.5 billion in June of the same year. While it did exit the joint venture, the British company seemingly cast itself a safety net, as it agreed to “receive an agreed payment for each hour flown by the current installed fleet of V2500-powered aircraft for the next fifteen years,” read RR’s statement at the time. At the end of 2019, the British conglomerate earned £35 million ($48.1 million) from the V2500, a significant turn for the worse compared to the revenue it earned in 2018: £126 million ($173.5 million).
The decision to part ways from IAE seemingly came from a disagreement with another engine maker, Pratt & Whitney regarding the future of the consortium. While P&W wanted to offer new engines for the A320neo through IAE, Rolls-Royce vetoed the move, as the US-based company developed the PW1000G family, previously known as the Geared Turbofan (GTF). While Rolls-Royce’s former President of the Civilian Aerospace Division Mark King indicated at the time that “the two companies are saying we want to work together in the future,” the British company walked away from the A320neo program – a program that so far has amassed over 7,400 orders since its launch in 2010 – making the move questionable, to say the least.
Pratt & Whitney made further strides with the PW1000G family, as it is the sole supplier of engines for the Airbus A220, Embraer E2 jet and SpaceJet families. While P&W competes against CFM, a joint venture of General Electric and France’s Safran for the A320neo and Aviadvigatel for the Irkut MC-21, the number of potential narrow-body aircraft orders that Rolls-Royce missed out on is quite substantial.
Whether the British conglomerate could once again return to the narrow-body is perhaps still an option on the table. While RR’s future products include two engines for wide-body aircraft, namely the Advance3 and the UltraFan, and a power plant aimed to cater to the business jet market, there could be the possibility that Rolls-Royce would once again team up with Pratt & Whitney to compete for new and upcoming projects. There are a fair share of projects coming up, whether that would be Boeing’s newly-rumored mid-market aircraft or Airbus zero-emission aircraft tentatively called ZEROe.
Perhaps that is the future where Rolls-Royce fortunes lie. At the same time, the company is looking to develop the aforementioned Advance3 and UltraFan, both targeted at wide-body aircraft and that could be the direction that the company is looking to move forward without shifting its focus away. Ultimately, the current pandemic-induced crisis is a black swan event and this too shall pass. Re-jigging your whole business due to a temporary, yet painful blip could be a short-sighted decision that could come back to bite one in the bottom in the long-term.
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