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Rolls-Royce 2002 |
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Rolls-Royce plc is an engineering company that specialises in the design, manufacture and integration support of engines. It has provided gas turbine aero-engine facilities to 100 armed forces, including human rights abusing regimes such as China, Indonesia, Saudi Arabia and Turkey. Around a quarter of its sales are military and, in terms of revenue, its contribution to the UK's arms trade is second only to BAE Systems.
Introduction
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Rolls-Royce operates in the highly lucrative markets of military and civil aerospace, marine and energy. The company has around 43,000 employees in 48 countries, providing gas turbine aero-engine facilities to 135 different countries and 100 armed forces. Its engines presently power around 25% of the world's military aircraft fleet. Rolls-Royce has long been more inclined toward the North American markets than many of their UK competitors, but in recent years there has been a noticeable intensification in the development of their US links, demonstrated by the acquisitions they have made and their present order book.
After the attacks of 11th September, Rolls-Royce announced the imminent loss of 6,000 jobs (Independent 20/10/01) due to the sharp down turn in the civil aviation market. To claim that these redundancies were entirely due to the attacks seems rather dubious, in that the demand for civil aero-engines was already poised for a downturn. It is also interesting that Rolls-Royce have been shedding around 2,000 jobs a year for the last three years, possibly in response to the indifferent state of their share price despite the apparent health of their order book. They may therefore have seen the sudden global downturn in trade as an opportunity to make these unusually large cuts with the minimum amount of resistance from the unions.
By way of contrast, as armed forces around the world seek to upgrade their equipment, the military weapons and machinery sector appears in line for an upturn.
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YEAR | NUMBER OF
EMPLOYEES | TOTAL SALES
| ARMS SALES
| WORLD ARMS
RANK | ARMS SALES AS
% OF TOTAL |
2000 | 43,200 | 8,982 | 2,105 | 15 | 24 |
1999 | 49,900 | 8,925 | 2,410 | 15 | 27 |
1998 | 42,000 | 7,447 | 2,150 | 14 | 29 |
1997 | 42,600 | 7,098 | 2,130 | 17 | 30 |
1996 | 42,900 | 6,702 | 2,010 | 21 | 30 |
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A Brief History
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Rolls-Royce began life as a collaborative venture around 1904 when Henry Royce, who had been building cars for some years, met Charles Rolls who sold quality cars in London. The success of this partnership led to the establishment of the Rolls-Royce company in 1906 and the launch of the 'Silver Ghost'. Their expansion into the defence industry was instigated in response to the First World War with the design and production in 1914 of their first aero-engine, 'The Eagle'. The involvement of Rolls-Royce in the fledgling aviation industry left them ideally placed to become a considerable force in the development of aero-engine technology during the Second World War, powering both the Supermarine Spitfire and the Hawker Hurricane with their Merlin engine.
A significant shift in emphasis, however, was taking place at the same time through the work of Sir Frank Whittle in developing the aero gas turbine, a field in which Rolls-Royce are still very prominent. During the next two decades Rolls-Royce set about promoting the gas turbine engine as the accepted cornerstone of the civil and military aviation industry. After a series of mergers between the major and lesser players during the sixties, the two emergent forces in the UK aero-engine industry were Rolls-Royce and Bristol Siddeley. These two companies then consolidated their dominant position by themselves merging in 1966. In 1973, after the initial failure of Rolls-Royce's RB211 engine used in the Lockheed L-1011 Tri-Star, the company was taken into state ownership and the motor car business was floated on the stock-market as a separate entity. Exactly why the Conservative government of the time decided to prop up a company that was financially moribund is still a mystery, but for what ever reasons, Rolls-Royce Plc was rescued and remained in state ownership until 1987. After this helpful government intervention, the company was ideally placed as the state's primary producer of aero-engines for both civil and military use to enter the private market.
In 1990, Rolls-Royce furthered its global presence by establishing an aero-engine joint venture with BMW, a venture of which they took full control in 2000 and which is now named Rolls-Royce Deutschland & Co Ltd KG. Five years later, Rolls-Royce took a major step into the highly significant American market with the acquisition of the Allison Engine Company, providing not only new engine technology but also profitable on-going military orders.
1999 was also a big year for Rolls-Royce. It began with the full acquisition of the US oil and gas company Cooper Rolls, and of Cooper Energy Services who deal with rotating compression equipment. Add to this the repair and overhaul facility of National Automotive in California and it was already a good year. However, the year's largest deal was yet to come, with the acquisition of the tank and marine equipment manufacturers, Vickers, in September. This was a deal worth £576m, and combined with all their other aquisitions during the nineties, left Rolls-Royce in an extremely strong position to progress in both the civil and military engine industries.
Rolls-Royce Products
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In 2001, the military sector constituted 24% of the total annual sales for Rolls-Royce (Rolls-Royce Annual Report 2001). Their military business consists of the design and manufacture of mainly aero-engines and a prolonged after-care and maintenance service. This service has been increasingly developed in recent years in an effort to maintain their reputation for longevity and reliability, and equally because of the potential revenue that can be gained from an after-care contract that may continue for up to ten years. It seems that the company manages to compete with its larger American rivals by selling the actual engines for little or no initial profit, hoping to increase their income through after care. An example of this apparent trend is the contract recently won by the Marine department of Rolls-Royce to continue the maintenance and refurbishment of the Royal Navy nuclear submarine flotilla. This contract, worth up to £400 million over the next ten years, also serves to enhance the already well established links between Rolls Royce and the Ministry of Defence (Rolls-Royce News 14/11/01, available on the Rolls-Royce website).
In the modern globalised world of weapons transfers, most major contracts involve a degree of collaboration between companies. This is very much the case for Rolls-Royce. A recent high profile example of this is their involvement in the Joint Strike Fighter programme, potentially the largest single arms deal ever made. Due to their leading position in the technology of Short Take-off and Vertical Landing (STOVL) - as used in the Harrier Jump Jet - they were integral in both of the main bids made by Boeing and Lockheed Martin. Lockheed Martin turned out to be the eventual winners of the contract and although the project is only at the development stage, it is already worth more than £1 billion to Rolls-Royce (Rolls-Royce News 26/10/01).
In acquiring Vickers, Rolls Royce took on a company that was struggling due to the severe downturn in demand for conventional combat vehicles. This downturn had left Vickers with only one significant customer, namely the UK Ministry of Defence. Its facilities for marine engine manufacture are what made the acquisition attractive to a company like Rolls-Royce, whose area of expertise has up to now been concentrated in the volatile and exceptionally competitive market of aerospace.
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Military Aero-Engines Supplied by Rolls-Royce
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TURBOSHAFT RANGE |
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TURBOPROP RANGE |
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TURBOFAN RANGE |
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TURBOJET RANGE |
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Most of Rolls-Royce's deals are directly with aircraft manufacturers, such as Lockheed Martin for the massive Joint Strike Fighter programme. However, some activity is carried out directly with governments and some recent examples are given below:
Rolls-Royce launched a new marine support operation in India to maintain their products already in service. Despite the increasing tensions in the region, Rolls-Royce sees Asia as one the most lucrative markets that is still to be targeted. (Rolls-Royce News 17/02/02)
Vickers Defence Systems were awarded a contract to maintain the Deltic engines used in the Royal Navy's hunt class mine warfare vessels. The contract is worth £20m. (Fighting Talk 09/01)
The Brazilian Navy will be provided with 42 Gem engines plus spares for their AgustaWestland Lynx helicopters. The deal is worth £10 million to Rolls-Royce. (Flight International 28/08/01)
Rolls-Royce will provide propulsion systems for three Astute-class Royal Navy submarines. Delivery is expected to commence in 2003 and should finish by 2006. (Defence News 6/8/01)
After the initial order was made during the 1970s, 80 to 90 Spey Turbo fan engines were delivered to be used in FBC-1 Flying Leopards. The engines had been left in storage for over 20 years. (Airforce Monthly, 8/01)
In a joint venture with Data Systems and Solutions, Rolls-Royce won the contract to supply Jetscan hardware and support for engine condition monitoring on the F16's of the US Airforce. (Flight International 17 - 23 July 01)
Vickers Defence Systems won a contract worth £250m to supply the British Army with a fleet of Trojan obstacle clearing vehicles and Titan bridge laying vehicles. Deliveries are expected to begin in 2005. (Times 14/03/01)
These three countries placed orders worth $133.4 million for 52 engines to power the Northrop Grumman E-2C+ Hawkeyes. These are all weather, carrier-based tactical airborne warning and control aircraft. (Rolls-Royce News 24/02/01)
After the Asian Aerospace 2000 arms fair, Rolls-Royce sealed a major deal with the US Navy to supply turboprop engines and parts. It also gained a provisional order to provide their model 250 engine to power a new type of unmanned vertical take-off and landing aerial vehicle. These contracts together are worth over $150 million. (Rolls-Royce News 24/02/01)
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Recent Acquisitions
- The acquisition of the German engineering company, for an undisclosed sum, provided further evidence of Roll-Royce's intention to diversify into marine services. (Rolls-Royce News 30/05/01)
- This major acquisition brought two of the most high profile names in British engineering together, at a cost to Rolls-Royce of £576 million plus £200 million in Vickers debt. This seemed to some to be far more than it was worth (Daily Telegraph 21/09/99). The deal was struck in order to be at the forefront of the growing market for marine power systems, a sector in which Vickers became prominent after the acquisition of the Norwegian engine marine group Ulstein for £304m. The armoured vehicles that have traditionally been the strength of Vickers is nowadays considered by analysts to be something of a burden, due to the rapid decline in global demand. Consequently, Rolls-Royce are expected to sell this area of the business in the near future.
- , the gas and oil company, and who manufacture rotating compression equipment. This again highlighted the apparent desire of Rolls-Royce to secure a very strong presence throughout the U.S. (Rolls-Royce website 16/11/01)
- The company was acquired with the intention of merging with Allison and the further enhancement of a strategically crucial presence in the American military market. This move seems to have already reaped great rewards with the involvement of Rolls-Royce in the highly lucrative Joint Strike Fighter contract that was recently won by a consortium led by Lockheed Martin, and is already worth over £1 billion to Rolls-Royce. (Flight International 4- 10/6/97)
- Acquired for £320 million, the purchase of this US military engine supplier was supposedly made in order to promote Allison aero-engines in the civil aerospace market which they would have been unable to do on their own (Financial Times 25/3/95). It was fairly obvious, however, that this was an acquisition made with an eye towards establishing themselves in the commercial and military American markets.
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Rolls-Royce Sites, Offices & Facilities
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Head office: Rolls-Royce PLC, 65 Buckingham Gate, London SW1E 6AT. Tel: 020 7222 9020 Fax: 01332 622 935
Rolls -Royce plc Raynes Way, Derby, DE21 7XX. Tel: 01332 661461 Fax: 013323 622935
Rolls-Royce plc Queen Elizabeth Avenue, Hilliungtron Industrial Estate, Glasgow G52 4TY.
Rolls-Royce plc Watnall Road, Hucknall, Nottingham NG15 6EU. Tel: 0115 964 2269
Rolls-Royce Nuclear Engineering Hinkley Point, Bridgewater, Somerset, TA5 1UD
Vickers Bridging P.O. Box 37, Spring Road, Ettingshall, Wolverhampton WV4 6YN. Tel: 01902 405 050 Fax: 01902 355 355
Vickers Defence Systems Manston Lane, Leeds LS15 8ST. Tel: 0113 264 812 Fax: 0113 260 7674
Vickers Defence Systems Scotswood Road, Newcastle-Upon-Tyne NE99 1BX. Tel: 0191 273 8888 Fax: 0191 273 2324
Vickers Specialist Engines Sunny Bank Rd, Crewe, Cheshire CW2 8WB. Tel: 01270 411500 Fax: 01270 411555
Board of Directors
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Sir Ralph Robins Chairman (£345,000) Also Chairman of the Defence Industries Council.
Mr John E V Rose Chief Executive (£539,000)
Mr Colin H Green President - Defence Aerospace (£314,000)
Mr James M Guyette President and Chief Executive Officer of Rolls-Royce North America Inc. (£355,000)
Mr Paul Heiden Finance Director (£322,000)
Mr Philip Ruffles Director - Engineering and Technology (£299,000)
Mr Richard Turner Group Marketing Director (£247, 000)
Lord Moore of Lower Marsh non-executive Deputy Chairman and Senior Independent non-executive Director
Sir Robin Moore non-executive Director Also a non-executive director of BP and on the UK Government's Council for Science and Technology.
Mr Carl Symon non-executive Director Formerly Chairman and Chief Executive of IBM UK Ltd.
Sir John Weston non-executve Director Formerly Deputy Secretary to the Cabinet and Political Director in the Foreign Office. He served as Ambassador to NATO (1992-5) and as British Ambassador to the UN until 1998.
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