Rolls signals runway to recovery…

Rolls-Royce gave its clearest indication yet that the long-suffering civilian aerospace sector is on an upward curve as it unveiled a big boost in interim profits.


Along with upbeat noises from Airbus and Boeing (see below) – the UK aero-engine giant’s most important OEM partners in the civilian sector – Rolls-Royce’s assessment is a boost for an industry that has been under the cosh since the end of 2001.


Many had expected 2004 to represent a trough in the civil sector with recovery beginning next year at the earliest. But announcing its interim financial results, Rolls said civil engine deliveries grew by nine per cent to 384 in the first half of the year, with sales expected to end 2004 a little ahead of 2003.


Rolls’s Trent engine will enter service with the two most significant airliners under development – the Airbus A380 Superjumbo and Boeing’s 7E7 Dreamliner.


With every engine order secured by Rolls comes the prospect of hugely lucrative maintenance and overhaul work, an area the company has successfully exploited as part of its growth strategy over the past few years.


Civil aerospace aftermarket revenues grew by 22 per cent in the first half, accounting for 58 per cent of Rolls’s sales in the sector.


The company claimed progress in its other three global markets for its engines – defence, marine and energy. Together they enabled Rolls-Royce to announce that pre-tax profits more than doubled in the first half to £129m, while its orders ended the period at a record £18bn.


The group claimed that its strategy of ‘investing once in technology and applying it many times’ allowed it to reap the benefits of core products such as the Trent in multiple markets.


Rolls increased underlying profits in the defence sector, where it is working on the propulsion system for the US Joint Strike Fighter (JSF). The company delivered the first fan module for the JSF’s F136 engine during early 2004, while the Spanish and Italian navies ordered 10 Pegasus engines for their Harrier aircraft.


Rolls-Royce’s marine activities enjoyed a less buoyant start to the year, with lower sales and profits than the equivalent period in 2003 as sales in the offshore support vessel market slowed down.


The company said this situation had now stabilised, and pointed to new marine contracts with Lockheed Martin and the Romanian Navy. Rolls has also been selected to lead the 10-year project to develop NATO’s Submarine Rescue System, a new hi-tech submersible that can dive to a stricken vessel and bring its crew to the surface.


Energy, Rolls-Royce’s final global market, saw the group win a £59m contract to supply six compression packages to the Dolphin Gas project in the middle east. A long-term service agreement with project operator Dolphin energy could be worth as much as £165m over 30 years, the company said.


<b>… as EADS and Boeing turn in improved forecasts</b>


The world’s big two civil aircraft manufacturers both offered better tidings from their beleaguered industry when they delivered financial updates within days of each other. EADS – majority owner of Airbus — and its US rival Boeing raised their forecasts for aircraft deliveries. Airbus said it is on track to beat last year’s delivery level of 305 planes, while Boeing raised its 2005 estimate to between 315 and 320.


EADS said the recovery of civil aviation was ‘already visible’ in its financial results for the first half of 2004, which saw the pan-European aerospace and defence group turn in a 66 per cent pre-tax profits increase to £650m. It said the boost was driven by Airbus, which delivered 12 aircraft more than at the same stage last year. EADS owns 80 per cent of Airbus, with the remainder held by the UK’s Bae Systems.


Airbus will respond to the improving conditions by ramping up aircraft production in line with demand from its airline customers.


EADS also benefited from an improved performance at its loss-making space systems division, which came close to break-even by the middle of the year.


Boeing was more cautious over the scale of the recovery in the civil aviation market, but was still broadly optimistic. It claimed strong airline interest in its fuel-efficient long-haul 7E7 Dreamliner, which the company is touting as a better option for its customers than Airbus’s giant A380. Boeing’s overall performance in the second quarter of 2004 was helped by its thriving defence business, which grew by nine per cent compared to the same period last year.


Aviation analysts said there were clear signs that both aerospace giants had weathered the storm of the past few years. However, as the commercial crisis that followed September 11 and the Asian Sars outbreak demonstrated, the commercial aviation sector is acutely exposed to unexpected global events with an inevitable knock-on effect to aircraft manufacturers.



On the web