Costs driving R-R out of UK
Rolls-Royce’s plans to build a greenfield factory in Singapore to manufacture and test the latest Trent engines came as no surprise given the increasing importance of the Asia Pacific region as a market for aircraft engines. Also, in recent years Rolls-Royce has been relentless in its quest to offload its cost base from Britain, where not only higher production costs but difficult economic conditions challenge the group’s ability to remain competitive.
According to Rolls-Royce’s chief operating officer Tony Wood, the company obtains between 70 and 75 percent–in terms of value–of Trent engines from an external supply chain that has been broken into 10 major commodity groups representing major engine subsets. “We’re fundamentally committed to globalizing the company,” he stated.
Both the Singapore factory and another to be built in the U.S. state of Virginia to manufacture the RB282 business jet engine and its derivatives are to begin operations in late 2009. Wood pointed out that the all-new facilities will permit the introduction of clean-sheet designs able to feature the latest production technologies. “In the UK in the last decade we have moved from building engines on a static line to building engine modules in a number of steps,” he told AIN. “In Singapore and the U.S.A. we’re going beyond that to a continuously moving production line such as those you see in the automotive industry. We believe this is a pioneering move in aeroengine manufacture. Eventually we see the technology being fed back into the UK site at Derby.”
The Singapore site, to be located at the Aerospace Park at Seletar, will be responsible for manufacturing Trent 1000 and Trent XWB engines for the Boeing 787 and Airbus A350XWB widebodies, respectively. It will have a similar production capacity to that of Derby, up to 500 engines a year, and will meet an expected doubling of Trent production in the next 10 years.
While closeness to burgeoning Asian markets is one of the main strategic reasons for the new site, Wood said Singapore will also manufacture Trent 1000s and XWBs for the U.S. and other markets. The annual production split between Derby and Singapore will be made on the basis of demand. “We are creating options to allow us to be flexible,” he added.
Wood also pointed to the opportunity for leverage provided by having two sites instead of a single facility producing Trent engines. “We’re clearly anticipating important savings in cost,” he said. Referring to the potential danger of strikes elsewhere affecting production, he added that the new site “also reduces the risk of any disruption to our business continuity.”
Singapore was chosen not only for its strategic location but also because, according to Wood, it has an extremely high level of engineering expertise. “Forty percent of the workforce is engineering-trained, which is unique,” he maintained. “Productivity is also excellent and labor costs are significantly lower than elsewhere.” Rolls-Royce was also impressed by Singapore’s investment in a logistics capability which has made it a highly successful global distribution hub.
Derby will remain the center of expertise for large civil engines and will continue to provide design, development and test capability. Wood explained that more than 40 percent of Rolls-Royce’s workers are now employed outside the UK, half of new programs are located elsewhere and over 45 percent of all new investment in research and technology is now placed in non-UK facilities. “And that is evolving,” he said. “The message is that the footprint of this company is moving beyond the UK.”
The Virginia factory will be located at Prince George County and will receive some support from both state and county authorities. Around 500 people will be employed producing around 400 to 500 engines each year. This facility also will manufacture blisks for the F136 engine for the U.S. Joint Strike Fighter.
Overall, the UK company is investing more than $600 million in the two new facilities over the next five years. Wood said the trend will continue in an effort to protect the company from the headwinds encountered during economic downturns, seen only too clearly in the global credit crisis. “As long as we’re positioned globally,” he said, “we’re better able to combat increasing costs and remain competitive.”