Dividend Decision at Rolls-Royce (Part A)

The origins of Rolls-Royce could be traced back to the early 20th century. Rolls-Royce was founded by Henry Royce and Charles Rolls in 1906. Initially, the company focused on manufacturing luxury cars. Later, it diversified into aircraft engine manufacturing.

Rolls-Royce was the major supplier of aircraft engines to Britain’s allies in World Wars I and II. The Merlin aero engine, the last design on which Henry Royce worked, was released in 1935. It was considered a British icon. The Merlin engine was used in most of the World War II aircraft and was considered an important factor in the Allies winning the war. Post World War II, Rolls-Royce proved itself to be the most successful and competent British aircraft engine manufacturing firm. The company developed the gas turbine engine design further. The Dart and Tyne turboprop engines increased the speed of aircraft while the turbojet engines in jet airlines ensured longer services in the 1950s. In the late 1950s, the demand for wide-body jet engines was high due to the rising demand for wide-body commercial aircraft. Rolls-Royce shifted its focus to developing civil engine market. The development of the new civil businesses rested on the idea of breaking into the United States market by developing a new and large turbofan engine. Denning Pearson, then Chairman of Rolls-Royce, said, “Building a new engine would not guarantee we stayed in the business. Not building one would certainly guarantee that we went out of the business. ..