Support revenues now exceed Rolls engine sales
In recent years, engine manufacturers have shifted their emphasis from straightforward production of engines to the far more lucrative business of after-sales support.
Rolls-Royce is no exception. In the last decade, its TotalCare engines business has expanded by a healthy 10 percent a year, creating a business that by the end of 2006 was worth $3.9 billion–more than half the company’s total civil engines business.
The Derby, UK-based company has arrived at Le Bourget in bullish form, talking about how it intends to grow its services business further, and progress in the latest big fan programs–the Trent XWB and Trent 1000. The latter is now more than 80 percent through certification and the first engines have been delivered to Boeing for rollout of the 787 on July 8. “We have a few tests remaining and we’re on track for certification ahead of the 787’s first flight later this year,” said Boeing programs director Dominic Harwood.
R-R is developing its new Trent XWB for the Airbus A350XWB, and at least until this week’s Paris Air Show–at which General Electric is likely to offer its own engine–was the sole manufacturer to offer a powerplant solution for the new widebody.
“We’re very excited about this engine,” said civil aerospace president Mike Terrett.
“We were delighted when Airbus made the changes to the original A350 and we feel they are now exactly where they need to be in this sector.” Terrett added that the A350XWB provides R-R with the chance to regain ground it had lost on the Boeing 777-300ER, which is exclusively powered by General Electric. The Trent will be optimized for the new Airbus and a single engine type will power all three A350XWB versions.
According to Terrett, the core strategies at R-R remain to invest in technology, capability and infrastructure, develop a broad portfolio of products and services, grow the fleet and add value for customers through product-related services. He claims R-R has “the broadest portfolio of products and services of any company in our business,” with 11 different engine types in service with aircraft from six airframers.
While the range of airframes it powers is vastly greater than a decade ago, the real money today is made in after-sales support, according to R-R services president Miles Cowdry. “Services offer a considerable opportunity to Rolls-Royce,” he told a pre-show press briefing. “When we sell an engine, it starts a relationship that will probably last for 25 years, and that means an opening to sell services for at least that long.”
The main venues for providing after-sales support are the TotalCare and CorporateCare programs. Cowdry said more than half of all R-R civil engines by value are under fleet management, which equates to more than 4,100 large turbofans and engines in service with regional airlines and around 300 corporate aircraft under CorporateCare.
By the end of last year, explained Cowdry, 60 percent of large and regional R-R powerplants were covered by 109 TotalCare contracts at 75 airlines and four leasing companies. In January the company signed a huge deal with Singapore Airlines for the Trent 800s powering its 58 Boeing 777s–an indication of the success of the previous deal covering the airline’s Trent 500s powering its Airbus A340s and Trent 700s powering its A330s.
“In the 1990s we were saying that if we could build up the installed base then services contracts would follow,” said Cowdry. “Today services business is worth more than the entire company was in 1997 and accounts for half our total business today.”
Clearly the TotalCare and CorporateCare business model is working–but where can R-R go from here? “We see a major business opportunity in the line-replaceable units [LRUs] wrapped around the engine,” said Cowdry. He added that airlines currently have a “huge logistical nightmare and associated disruption” when an LRU goes down. “It is quite difficult to manage because the LRU has to come off the wing, then goes to a repair station and is replaced by another from stores.
“We think we can be the route to market to extend the TotalCare idea to LRUs,” he added. “We’d provide a component care service which would take it from pure logistics to giving the customer an assured service level.”
While in the old days engine manufacturers made after-sales money only when the engine came off the wing, Cowdry noted that reliability has improved so much that engines remain on-wing for much of their life. This has given rise to the increasing use of performance-improving and life-extending techniques such as engine-washing and boroblending. Engine washing, which cleans vanes, blades and passages, helps recover temperature margins and keeps fuel burn down, while boroscoping allows engineers to carry out minor repairs to blades in situ.
R-R already has several joint ventures with airlines, including American, for the RB.211-535s powering its Boeing 757s, under which the airline carries out its own inspection and repair, backed by R-R’s extensive experience.
Real-time engine health monitoring (EHM) is now applied to more than 7,000 engines in the field and is being extended to other, non-R-R types. “We have a contract with a large American carrier to provide EHM for its Pratt & Whitney JT8Ds,” said Cowdry. R-R is changing the EHM model from providing clever software for the airline “which they hardly ever used,” to bringing the information back to R-R for analysis. “We can deliver a much higher value service by doing it ourselves,” he concluded.
Rolls-Royce now has a global services network, built up from the early 1990s when there were maintenance and repair operations only in Canada, Brazil and the UK.
Today, the business employs more than 8,000 and has, for example, seen the construction of five large-fan repair facilities in the last decade. “The Boeing 777 changed the rules of the game,” said Cowdry. “We had to develop the infrastructure because no one had the capacity to do the fan blades on their own.”
Manufacturing Changes, Too
The company has been busy closer to home, too, creating a completely new approach to manufacturing over the last few years. The supply base has been totally reorganized so that the proportion of what R-R buys from suppliers compared to what it makes increased to 70 percent. “In 2002 we looked at what we manufactured and decided we had to change the footprint,” said gas turbine operations president Mike Lloyd.
A series of “focused factories” has been built across all sites with simple layouts based on improving throughput, which mean lower inventories, and therefore costs.
Derby received a new turbine systems factory in 1999, followed by compressor aerofoil, combustion systems and fan systems factories at Inchinnan (2004), Hucknall (2005) and Barnoldswick (2006), respectively. A new rotatives facility is due to open this month at Derby, concurrently with a turbine systems and component services factory at Bristol. “We’ve invested $400 million in focused factories so far,” said Lloyd.
R-R is driving toward more and more strategic relationships “with fewer and more capable suppliers,” said Lloyd. “That means we’re working with bigger suppliers that can grow with us,” he added. In 2002, there were 230 suppliers for the Trent 500 when it entered service, now there are only 76 on the forthcoming Trent 1000.
The market expenditure is also changing, a fivefold growth in business with Far Eastern suppliers having materialized since 2003. “The trend is continuous,” said Lloyd. “We’re also buying more and more in dollars because aircraft are sold in dollars.”
Rolls-Royce’s civil engines market forecast for the next 20 years foresees a global requirement for 114,000 engines worth $600 billion, powering 51,000 commercial aircraft and business jets. In the 45,000- to 75,000-pound-thrust widebody category, Terrett said there is a “dogfight” going on with GE in the 20-year market to supply up to 18,000 engines–an implicit admission that R-R views Pratt & Whitney as being effectively absent after being pushed out of the battle to power the Boeing 787.
According to Terrett, R-R faces an even bigger battle in the 22,000- to 45,000-pound-thrust single-aisle market, which it currently has to share with CFM International. The GE/Snecma partnership has exclusivity on the Boeing 737, and shares the Airbus single-aisle application with International Aero Engines, in which R-R is partnered with Pratt & Whitney, MTU and Japanese Aero Engines. This leaves just 25 percent of the narrowbody airliner market to R-R, and Terrett admitted the company “does not have a strong presence” in this all-important sector. However, he reckons there is a “huge opportunity” in the sector over the coming 20 years, where R-R believes there exists a potential for up to 29,000 engines, although Terrett added, “I don’t see the airframers being in a huge rush. The market is further away than it was a year ago.”
Nevertheless, R-R has revealed that it is studying the “game-changing” open-rotor contrarotating turbofan as one of the advanced solutions to powering the next generation of aircraft. Colin Smith, engineering and technology director at R-R, said that while such an engine would require a “huge” configuration change to aircraft, because of its diameter, its “very, very high efficiency” meant it had to be taken seriously.
Studies under the European Commission’s ACARE program for research into more efficient engines have already shown that the open rotor concept could produce fuel burn savings of 10 to 15 percent over the most efficient engines available today. Interestingly, Smith said R-R has rejected Pratt & Whitney’s geared turbofan approach, which the U.S. company is campaigning here at Le Bourget.
“We don’t see this idea making sense,” Smith concluded. “It’s effectively a two-and-a-half-shaft engine with a gearbox. We prefer to stick with a three-shaft route, which we would have with the open rotor. Pratt may prove right, but I don’t think so.”