Rolls-Royce: A Manufacturer at Your Service

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"The success of Rolls-Royce suggests that the world will not be neatly divided into firms (or countries) that make things and those that sell services. Flying high depends on being able to do both." ¹

-The Economist, January 2009.

"It's long arc income. We realized we had to take back control of after-sales. Much of it had been given over to third parties. But we knew if we were to build a global organization we had to represent ourselves in that area. And, of course, the synergies help with profitability." ²

-John Rose, CEO of Rolls-Royce plc in 2005.

Introduction In February 2009, UK-based Rolls-Royce plc (Rolls-Royce), the world's second largest aero engine manufacturer, announced its preliminary results for the financial year 2008. It announced that during the year, it had been able to secure orders for aero engines worth £21.5 billion, increasing its order book by 21% to a record £55.5 billion (See Exhibit I for more information on Rolls-Royce's financial performance over the years). However, it announced that it had made a net loss of £1.34 billion mainly because of the adverse impact of changes in exchange rates.

In a statement, Rolls-Royce said, "The pace and extent of currency movements have had a significant effect on the group's financial reporting in 2008, with the sterling exchange rates against the dollar and the euro having the biggest impact."³

Rolls-Royce was started in 1906, and initially manufactured and sold cars. Later, the company started manufacturing aero engines, which were widely used in civil and defense aircraft. By the late 1940s, the company had become a major player in the aero engine business in Europe. However, it remained a relatively small global player and to grow further, the company realized that it needed to have a significant presence in the US aero engine market.

In the late 1960s, Rolls-Royce managed to bag a big contract with Lockheed Corp. (Lockheed⁴) , to supply a new aero engine called the RB211-22. However, the company faced several setbacks, and incurred high costs on developing the engine. In 1971, it declared bankruptcy and was nationalized by the British government. In 1973, its automotive division was spun off from the aero engine business. However, Rolls-Royce completed the development of the RB211-22, which later went on to become a highly successful aero engine.

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1]"Britain's Lonely High-Flier," www.economist.com, January 8, 2009.
2]"Rolls Revs Up: How Sir John Rose Saved Rolls-Royce's Aircraft Business from the Post-9/11 Abyss," www.thefreelibrary.com, January 1, 2005.
3]"Rolls-Royce Reports Loss of £1.34 Bln," www.google.com, February 12, 2009.
4] Lockheed was established in 1912. In 1995, it merged with another American aerospace company called Martin Marietta Corporation, and the merged entity came to be called Lockheed Martin.

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