What Rolls Royce's New Boss Needs To Do To Keep The Wheels Turning
Rolls Royce invests money in new technologies. The company is continuing its research into electric aircraft, having broken the electric world speed record earlier this year with its Spirit of Innovation monoplane. It also has a hybrid testing program, aimed at taking advantage of the efficient power generation of a turbine engine and adding battery reserves when needed.
The company whose aim is to make its engines 100 percent compatible with sustainable aviation fuel, is experimenting with hydrogen as an energy source and plans to deploy its nuclear knowledge in the civilian power generation market with its small modular reactors.
However, he must find a way to do it with fewer employees and while recovering his finances – at a time when hiring talent is difficult and prices are skyrocketing.
East's restructuring to improve efficiency, which included cutting thousands of jobs and reorganizing back-office functions, had little time to take effect before the pandemic hit.
With Rolls Royce's finances then devastated by the coronavirus, East was forced to make more dramatic decisions.
Rolls Royce makes most of its money from passenger jets through aftermarket maintenance, and grounded planes meant that it was drying up, bleeding it faster than rivals. The company plunged into a record £5.4bn pre-tax loss in the first half of 2020 when Covid hit.
It has made sweeping cuts – by around 9,000 jobs – and cut costs by a third, with the aim of keeping them low after the recovery and boosting profitability. Assets were sold, including its Spanish operations for 1.7bn euros (£1.4bn), as Rolls struggled to consolidate a pandemic-ravaged balance sheet and a reduction in travel.
The outgoing boss also closed or sold 13 factories and invested in new equipment such as grinding turbine blades.
Rolls Royce now recycles the titanium parts it previously discarded, using laser technology to replace worn sections. It uses artificial intelligence to model blades and drive performance, which can save 40 percent on a palm-sized component that costs $100,000.
Maintaining this recovery in the face of labor shortages and runaway inflation will be the first challenge for his successor, says Nick Cunningham, aviation analyst at Agency Partners.
Yet "probably the most existential challenge Rolls has had since the 1960s," he adds, "is that if the industry is going to decarbonize, then what will be the winning technology?"
Jet engine makers will need a lot of money and a bit of luck to make the right leap, he adds.
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