Rolls-Royce vying to become major global player in MRO

Farnborough Air Show » 2006
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November 16, 2006, 8:52 AM

After celebrating a bumper year in 2005, Rolls-Royce is pushing ahead with a huge program of reorganization to capitalize on its increasingly strong global position and secure its long-term stability.

The UK company is positioning itself as one of the major global players in the engine repair and overhaul business, sales from its aftermarket business having grown by 12 percent, to almost half of its $6.5 billion total sales in 2005. “We have a much better business balance today than we had five years ago,” said Rolls-Royce chief executive Sir John Rose just before the show. “This means we’re more resilient in the longer term and can offer an increased range of services.”

Most of the new business comes from the civil sector, one of the main successes being Rolls-Royce’s TotalCare program, which was formed to take advantage of an installed base which had grown to 11,500 civil engines. Since its launch in 2001, TotalCare contracts worth $13 billion have been signed covering 80 percent of new customers. Rolls-Royce also saw record growth for its CorporateCare business aviation product, with 90 new contracts signed in 2005, covering 77 percent of all engines ordered in the sector. “We expect services sales to continue growing at a double digit rate,” says civil aerospace president Mike Terrett.

The company will no doubt point potential customers to the Rolls-Royce Trent 900-powered Airbus A380 on its daily flying displays here at Farnborough this week as evidence of its successful investment in technology, which has resulted in what Terrett calls the “best big civil engine program we’ve ever run.”

The Trent 900 has achieved more than 6,000 hours of flight test time in the A380, setting “extremely good durability and reliability standards,” Terrett claimed. Rose added that Rolls-Royce is “not particularly concerned” at the one-year delay in the A380 program. “The Trent 900 is only a small component of our overall portfolio,” he said. “We can live with the delay.”

Less easy to explain is where Rolls-Royce will go with the Trent 1700 it announced last year as its powerplant for the now-cancelled Airbus A350. All Rose said is “we’re in constant dialogue with Airbus and we’re sure we’ll be offering something for whatever they come up with.”

The heavy investments Rolls-Royce has been making is evident on visiting its main factory at Derby, where the concept of “focused factories” has taken hold with several new buildings in which the principle of lean manufacturing has been the key driver to their design.

In the UK Rolls-Royce has spent around $370 million in new factories in the last five years, opening units specifically dedicated to manufacturing turbines, compressors and combustion systems, and closing smaller, less efficient, facilities such as the light alloy factory in Derby. The new compression systems factory at Derby, for example, replaces a Victorian-era building and besides being heavily based on robot manufacturing brings in the latest working practices to improve productivity.

More flexible shifts, workforce multi-skilling and self-directed working were all concepts alien to aero engine manufacturing until recently. “The result has been a 50 percent increase in sales per employee since 2001,” said Rose.

Suppliers Under Pressure

Suppliers have also come under scrutiny as Rolls-Royce has looked hard at how much work should be outsourced and how much kept in-house. Core items such as compressors and turbines that are central to maintaining “world class manufacturing performance” are retained, while non-core items such as sensors, pumps and wiring, are outsourced. Where necessary, investments are made in companies with a strategically useful capability, either through partnerships or joint ventures.

The most significant outcome of the restructuring process has been a major reduction in suppliers. “Even though we added 38 new suppliers in 2005, we reduced the overall supplier base by 13, to 698,” said chief operating officer John Cheffins. On specific engines, the number associated with the Trent 500 (powering the Airbus A340-500/600), has, for example, been slashed from 230 to just 75. “We launched the Trent 1000 (powering the Boeing 787) with an external supply chain of only 71 suppliers,” said Cheffins.

In its “Future Engine Vision” Rolls-Royce envisages having only 25 first-tier suppliers and a total of 40 for its civil engine line-up. “We’re driving toward more strategic relationships,” added Cheffins. “The idea is to achieve closer relationships with fewer and more capable suppliers.”

Increased penetration of the long-term services contracts business is another strategic aim at Rolls-Royce. “We’ve made progress in all sectors,” said Miles Cowdry, director, services. “We started in the late 1990s and today 45 percent of business in the civil sector by value is TotalCare-based. We turned the business model on its head by aligning the interests of Rolls-Royce with those of its customers. We’re getting ever-deeper into their operational system by working collaboratively with them to drive down logistics costs and carry out more data management so that we can better predict their engine maintenance needs.”

To carry out TotalCare, Rolls-Royce draws on its engine health monitoring expertise, in which it claims global leadership, to provide the predictive capability. “More and more we’re using information and data to anticipate when engines need to come off the wing,” said John Paterson, managing director of Rolls-Royce’s Aero Repair and Overhaul business. “But we try to keep engines out of the shop and increasingly we’re using techniques such as borescope blending and welding to repair blades without having to remove the engine. It’s like performing keyhole surgery.”

Paterson added that in 2004 there were just 34 requests from customers for on-wing care services. This rose to 400 in 2005 “and to-date this year we’ve had 340,” he stated.

The heart of the TotalCare system is found in the operations room at Derby, where personnel are available 24-hours a day, 7-days a week to provide airlines with a “seamless link between on-wing and in-shop management of engines.” The center provides technical advice as well as Rolls-Royce’s long-term experience with its engine range. “The aim is to reduce disruption to the airlines as much as possible,” said Paterson. The operations room is the focal point of our technical expertise and fleet performance intelligence.”

In Arnstadt, Germany, construction has just begun of a fifth Trent engine overhaul facility as part of the joint venture between Rolls-Royce and Lufthansa, servicing Trent 500, 700 and 900 engines. Another major investment is under way in the U.S., to build an outdoor test center at NASA’s John C. Stennis Space Center in Mississippi, initially for the new Trent 1000 and 900, but later for all Trent variants.

“This is a very long-cycle business,” Paterson said. “Decisions we made years ago are affecting us now. We have to live with the consequences of tactical decisions for a generation. If you fail to win a place on an airframe it’s likely to be for the life of that program.”

With its engines powering all current airliners and a 70 percent growth in the order book, it would seem that the strategy of the last five years is working. “Our investments are paying off,” added Rose. “We’ve won a far more significant position in the global market.”

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