Rolls-Royce Plc

views updated

Rolls-Royce Plc

65 Buckingham Gate
London SW1E 6AT
England
01-222 9020

Public Company
Incorporated: 1971
Employees: 41,500
Sales: £1.802 billion (US$ 2.901 billion)
Market value: £1.36 billion (US$ 2.18 billion)
Stock Index: London

Rolls-Royce plc., the aeroengine manufacturer, has a common origin with Rolls-Royce Motors, the manufacturer of what many people regard as the finest automobiles in the world. Both companies were divisions of Rolls-Royce Ltd. until 1971, when they were separated by the British government as a means of solving the company’s financial crisis. Although the distinction between the two companies can often be a source of confusion, Rolls-Royce plc concerns itself primarily with the manufacture of jet engines.

Rolls-Royce was founded in 1906 by Frederick Henry Royce, an engineer, and Charles Stewart Rolls, a London automobile dealer. Through their partnership, Rolls and Royce established a new standard in automobile production. Rolls was particularly interested in the development of powered aircraft, and in 1907 inaugurated production of aircraft engines. Subsequent models were used in some of the world’s first aircraft, and Rolls-Royce gained the distinction of being one of the world’s first aircraft engine manufacturers.

Charles Rolls was tragically killed in 1910 when his Wright biplane crashed from a height of only 23 feet. Royce, who did not like aircraft, nevertheless maintained his company’s interest in aircraft engines. The intertwined “RR” logo, which had appeared on the company’s automobile grilles in red, was changed to black by Frederick Royce as a symbol of mourning for his partner.

When World War I broke out in Europe in 1914, Britain was drawn into the fighting as a result of a number of secret diplomatic agreements with France and Czarist Russia. As armies began to employ more aircraft for reconnaissance and battle missions, they created more demand for Rolls-Royce engines. The company’s Hawk engine was superseded by the Falcon, and later by the Eagle. By the time the war ended in 1919, Rolls-Royce accounted for more than half of Britain’s total aeroengine production.

A version of the Eagle engine, the 360-horsepower Eagle VII, powered the aircraft which carried Capt. (later Sir) John Alcock across the Atlantic in 1919. A new engine, the Phantom, was introduced in 1925, and among other things served as an important prototype for subsequent models.

Royce was created Sir Henry in 1930 in recognition of his contributions to Britain’s automotive and aeronautic industries. He became ill late in 1932, but continued to work on new engineering projects from his bed. His health, however, deteriorated, and he died in 1933.

During this period the aeroengine division of Rolls-Royce developed a new engine called the Kestrel. Demand for these engines remained relatively low, despite the rapid rearmament of the increasingly belligerent Nazi regime in Germany. The British government refused to acknowledge the danger that Germany posed. When the “appeasement” policies of Prime Minister Neville Chamberlain appeared to have failed, it became increasingly apparent that Britain would be drawn into a second war with Germany. When German armies invaded Poland in 1939, Britain and France declared war on Germany. France was defeated the following year, and Britain prepared for an intense aerial war against the numerically superior forces of the German Luftwaffe.

At this time Rolls-Royce introduced a new 1260-horse-power engine called the Merlin. This engine was used to power Supermarine Spitfire and Hawker Hurricane fighters. The Merlin also powered a variety of bombers manufactured by Avro, most notably the Lancaster. The Packard Company built Merlin engines in the United States for Avro and North American Aviation, which used the engine in its Mustang fighter.

Rolls-Royce suspended its automobile operations to devote all its production capability to the manufacture of aircraft engines. During the “Battle of Britain” every first line fighter in the Royal Air Force was equipped with a Merlin engine. German aircraft initially resorted to low-altitude flying in order to avoid anti-aircraft fire during raids on Britain. Rolls-Royce responded by modifying the Merlin’s supercharger to give it increased power at lower altitudes. German aircraft were forced to fly at the higher altitudes at which they could more easily be shot down.

In 1941 Rolls-Royce was instructed by the Ministry of Aircraft Production to engage in the manufacture of jet engines of the kind originally developed by the inventor Sir Frank Whittle. In conjunction with Power Jets Ltd. and the Rover Company, Rolls-Royce perfected its first jet engine, the Welland, in April of 1943.

With involvement of the Soviet Union and the United States, the war began to turn against Nazi Germany. The power of British aircraft was greatly increased after Rolls-Royce introduced its 2000-horsepower Griffon engine. Despite its introduction of formidable Messerschmitt jets in the last months of World War II, Germany was forced to surrender in May of 1945. By that time, Rolls-Royce had manufactured more than 150,000 Merlin engines.

Rolls-Royce began to make deliveries of the Welland engine in 1944, but the aircraft it was intended for, the Gloster Meteor, arrived too late for use during World War II. The Welland was superseded by the more durable Derwent engine. A parallel project produced the Nene engine, out of which developed the Tay.

Rolls-Royce resumed auto production after the war, and established a diesel engine division. Most of the company’s resources, however, were employed with the production of aircraft engines. Rolls-Royce was interested only in the development of aircraft engines specifically for the military until the late 1940’s, when it introduced a new turboprop engine. The turboprop provoked such strong interest from commercial aircraft manufacturers that it was introduced in commercial form in 1952 under the model name Dart.

Rolls-Royce was similarly persuaded to alter the design of its Avon jet engine for commercial purposes. The Avon was later chosen by de Havilland for its new Comet jetliner, the world’s first passenger jet, and by Nord Aviation, the French manufacturer, for the Caravelle.

In 1947 Rolls-Royce signed a 10-year licensing agreement with Pratt & Whitney, which allowed that company to manufacture Tay and Nene jet engines in the United States. A subsequent agreement was signed in 1953 with Westinghouse (whose F-40 jet engine proved a failure), giving them American production rights to all Rolls-Royce jet and turboprop engines, except the Tay and Nene. Westinghouse and Rolls-Royce collaborated on a number of projects, which placed Rolls-Royce in a leading position in aircraft engine development on both sides of the Atlantic.

The Dart turboprop came widely into use in 1955 when Fokker began production of its successful F-27 Friendship. A new turboprop engine called the Tyne was chosen by Vickers to power its Vanguard when it entered service in 1960. A newer jet engine called the Conway was developed in the late 1950’s and was specifically intended for use on the forthcoming Douglas DC-8 and Boeing 707 jetliners.

Rolls-Royce formed a joint venture company with Vickers and Foster Wheeler in early 1956 called Vickers Nuclear Engineering Ltd. Like similar companies in the United States, particularly Convair, the joint venture was specifically interested in investigating the feasibility of a nuclear-powered jet engine. Like Convair, however, the project was abandoned when certain logistical problems proved unresolvable.

At the beginning of the 1960’s, more than 80% of Rolls-Royce’s revenues were generated by the aeroengine division. The company decided to more aggressively market its aircraft engines in the United States, where companies such as Boeing, Douglas, and Lockheed were developing a variety of new jetliners, all of which were expected to have very long lives. The company chose to concentrate on the promising jumbo jet market, for which a more powerful jet engine had not yet been developed. With experience gained from the recent Spey engine program, Rolls-Royce engineers began the expensive process of designing their largest, most powerful engine to date, the RB.211.

When the design was completed in 1966, Rolls-Royce began to negotiate sales agreements with several aircraft manufacturers and airline companies. One Rolls-Royce target was the Lockheed Corporation’s L-1011 Tristar. Another objective was a share of the Boeing 747 program. Strong competition with General Electric forced Rolls-Royce to greatly reduce the price of the RB.211. Company officials decided to underbid General Electric in order to gain a share of the American market and to put the RB.211 into production. Lockheed emerged as the largest customer in March of 1968; it ordered 555 engines.

Increasing development costs forced the company to divert all its profits from automobile production into the aeroengine division. The first RB.211 was assembled in the summer of 1969. After rigorous testing, however, a number of design errors were discovered, most notably with the forward compression fan. The necessary corrections consumed an even greater amount of money and placed the program far behind schedule. As a result of penalty clauses written into its contracts, Rolls-Royce was forced to compensate Lockheed and its other customers. Privately, the British financial community began to question whether Rolls-Royce could meet its obligations. The only outward sign that the program was in trouble was the company’s announcement that its dividend was being reduced from four to three percent.

In November 1970 the British government suddenly announced that it was arranging a loan of £60 million to Rolls-Royce. Company officials simultaneously revealed that they were writing off £45 million for anticipated losses on the RB.211 project. The company’s board of directors turned managerial control over to a four-man committee, and shareholder dividends were further reduced. Two days later the government announced in the House of Commons that it would nationalize Rolls-Royce.

The government implemented a reorganization of Rolls-Royce, which included a recommendation that the financially solvent automobile division be separated from the company and returned to the private sector. The recommendation was accepted in 1973, and Rolls-Royce Motors Ltd. was created as a public company.

With its flaws corrected, the RB.211 entered service in 1972, but not before having nearly ruined Rolls-Royce and heavily damaging Lockheed in its attempt to secure its projected L-1011 market share. The RB.211 did, however, demonstrate several advantages over other engines, including durability, efficiency, and easy maintenance.

Although the L-1011 was widely recognized as the best wide-body aircraft available, economic realities forced Lockheed to phase out the production of their plane in the early 1980’s after only 250 had been delivered. With the loss of Lockheed as a customer, Rolls-Royce was forced to rely on Boeing, which had chosen the RB.211 as an alternate engine for its 747.

In the mid-1970’s Boeing initiated two new commercial aircraft programs, the 757 and 767. In a move which confirmed the strong merits of the Rolls-Royce engine, Boeing chose the RB.211 for the 757. The production run of the RB.211 (currently at about 1200 engines) has been extended indefinitely.

In 1979 the chairman of Rolls-Royce, Sir Kenneth Keith, resigned in protest at the government’s policies toward the company, which he characterized as a “bureaucratic contraceptive.” He was replaced by Francis Scott (Frank) McFadzean, a former managing director of Royal Dutch/Shell and chairman of British Airways.

When Conservatives regained control of Parliament in 1979, the government of Prime Minister Margaret Thatcher, an adamant opponent of nationalized industry, prepared a schedule of companies for “privatization.” One of those companies was Rolls-Royce.

A delegation of workers and managers from Rolls-Royce toured their competitors’ facilities in the United States in 1978 and discovered productivity rates as much as 50% greater than their own. Rolls-Royce production facilities were restructured, emphasizing automation and eliminating redundant labor. Several thousand workers were retired or released, but by the end of 1980 productivity had risen by 25%. Between 1981 and 1983 a further 20,000 workers were released.

Frank McFadzean retired in March of 1983 and was replaced by Sir William Duncan. Sir William was selected specifically to help prepare Rolls-Royce for privatization. He died unexpectedly the following November. Norman Tebbitt, the secretary for Trade and Industry, and the only man who could authorize the appointment of a successor to Sir William, was injured during an attempted assassination of Mrs. Thatcher at a hotel in Brighton. Because of these events, privatization was deferred. Despite the delay, Rolls-Royce proceeded to engage in joint ventures with General Electric and Pratt & Whitney, both of which had been established under Sir William. Then in May 1986, after years of preparation, Rolls-Royce was reregistered as a public limited company and 801.5 million shares of stock were offered for sale to the public. The government’s assigned value was well below market value, causing oversubscription by speculators and triggering a “clawback” rationing provision that effectively eliminated institutional investors from the offering. The method of Rolls-Royce’s privatization provoked the criticism that private investors were allowed an immediate windfall profit at the expense of the taxpayers.

Today, Rolls-Royce pic remains almost exclusively involved in the production of aircraft engines. Some models, however, have been modified for a variety of applications, including use in industrial and marine equipment.

Principal Subsidiaries

Rolls-Royce (hereafter “RR”) of Australia Pty. Ltd. (Australia); RR (Canada) Ltd. (Canada); RR Capital, Inc. (USA); RR (China) Ltd. (PRC); RR Credit Corp. (USA); RR Developments, Ltd.; RR Diesels, Ltd.; RR de España S.A. (Spain); RR Far East Ltd.; RR Finance Ltd.; RR (France) Ltd.; RR Holdings, Inc. (USA); RR Inc. (USA); RR India Inc.; RR Industrial & Marine Ltd. (Canada); RR Industrial Turbines (Saudi Arabia) Ltd. (Saudi Arabia); RR Industries Canada Inc. (Canada); RR and Japanese Aero Engines Ltd.; RR Leasing Ltd.; RR (Middle East) E.C. (Bahrain); RR Plant Leasing Ltd.; RR Turbomeca do Brasil Ltda. (Brazil); RR Turbomeca International S.A. (France); RR Turbomeca Ltd.