Rolls-Royce's Long-Term Investment in Aerospace Paying Off

Strategic Insights -

Rolls-Royce executives were celebrating a major contract signing with Air China at the Paris Air Show, but the seeds of this deal were sown a decade ago. In the mid-1990s, the company was trailing behind its rivals in the jet engine market and missed the opportunity to produce an engine prototype for Boeing's 737. This setback led to a period of sustained investment in research and development and a strategic decision to participate in the development of new wide-bodied commercial jets. Today, Rolls-Royce boasts 15 engine types and has sold more engines for wide-bodied jets than General Electric.

Key Takeaways:

  • Rolls-Royce invested hundreds of millions of pounds in research and development after falling behind in the jet engine market in the mid-1990s.
  • The company's decision to participate in the development of new wide-bodied commercial jets led to the creation of 15 engine types.
  • Rolls-Royce sold more engines for wide-bodied jets than General Electric for the first time last year, with its engines powering Boeing's new 787 Dreamliner.
  • The value of after-market parts and services for Rolls-Royce engines can outstrip the engine's purchase price over time, making long-term contracts valuable for the company.
  • Rolls-Royce has a reputation for aggressive sales tactics and has been accused of reducing profits for the industry by undercutting rivals.
  • The company's smaller size and quicker decision-making process are key advantages when negotiating with customers.

Statistics:

  • $800 million: The value of Rolls-Royce's long-term contract with Air China.
  • 10 years: The time frame in which Rolls-Royce made significant investments in research and development to catch up with its rivals.
  • 15: The number of engine types now offered by Rolls-Royce.
  • 200: The approximate number of people working in Rolls-Royce teams that handle customer relations.

Sources:

  • The Times, 2005.