Rolls Royce, the British company that no longer makes cars but accounts for 38% of the world’s market for large jet engines, may face financial disaster as it struggles to correct issues with one of its biggest sellers, the Trent 1000.
The Trent 1000 is one of the two engine operations available for the 787 Dreamliner; its problem has been compressor wear earlier in the engine’s life than anticipated, leading to some failures. The company has already put billions into a solution that also requires additional investment in maintenance facilities and spare engines on hand. Cost for the fix is estimated at about $3 billion.
That’s a significant issue, because the company actually loses money, about $1.2 million, on each engine it sells. Like the famous story of Gillette which lost money on razors and made it back on blades, Rolls Royce loses money on engines but makes it back in maintenance contracts. But if engines need more and more frequent service, the model could collapse.
Added to that is a decision the company made a few years ago to focus on engines for wide-body planes, ignoring the potentially profitable market for engines for planes in the A320/737 size range. The company is looking to raise about $2.5 billion in new capital as well as a $2.5 billion government loan. It’s share prices are down, its dividends have been cancelled. Some British analysts believe it is time for the company to consider a merger.
