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Tue 9 Nov 2010 12:46 PM

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Troubled Rolls-Royce

The British engine maker is a brand in crisis –and its silence isn’t helping, writes Ed Attwood

Troubled Rolls-Royce
Rolls-Royce engine

Billions have been wiped off share prices and journalists worldwide have already had a field day in predicting the demise of some of the world’s biggest brands. The story is a media dream: a British institution under severe pressure, misery at Australia’s flag-carrier, and a near-death incident featuring the world’s biggest aircraft.

Qantas may have levelled the blame at Rolls-Royce over the incident - which saw an A380 aircraft forced into an emergency landing following an engine failure - but op-ed columnists Down Under have already accused the flag-carrier of having 'a lazy brand'.

The engine blow-out was a brand disaster in itself, but prior to the jet's safe landing in Singapore, social media networks were awash with rumours that the Airbus had crashed in Indonesia. Only two years ago, more damaging pictures showed a hole nearly two square metres in size, ripped through the side of an airborne Qantas 747 fuselage by an exploding oxygen bottle.

The engine woes come at a particularly tough time for the carrier, which is this week celebrating 90 years of flight. And in the markets, at the close of play on Monday, Qantas shares had lost $385m in value. Add that to the amount that the operator is losing every day by keeping its biggest jets on the ground, and it looks like being one of the more expensive weeks in a period when the aviation world is finally starting to get back on its feet.

But that is relatively small change in terms of the problems being faced by Rolls-Royce. The brand is considered one of the UK's last manufacturing bastions, and is meant to denote reliability, craftsmanship and engineering excellence. While the car and aerospace divisions are now separate, it's interesting to note that around 70 percent of all the Rolls-Royce cars ever built are still on the roads.

Until recently, that brand remained untarnished, but in August, a Rolls-Royce Trent engine blew up at one of the firm’s test facilities in Derby. For a test engine to blow up is not necessarily a big deal. But in this case, the client was Boeing, and the engine was for the already long-delayed 787 Dreamliner, pushing the launch date for the US manufacturer’s landmark new jet back several months. Despite the fact that the Qantas blow-out involved a different engine, it’s inevitable that links have been drawn between the two incidents.

Furthermore, in all the media furore over the A380 engine problems of last Thursday, many have overlooked the fact that a second Qantas jet - this time a 747 - was also forced to make an emergency landing at Singapore airport after reporting issues with another Rolls-Royce engine of a different make on Friday.

Skip forward to Tuesday and rival Pratt & Whitney - one half of Engine Alliance - has filed a lawsuit against the British firm, just the latest blow in a long-running saga between the two companies. Commentators in the UK are now referring to the firm as 'the new BP'.

Rolls-Royce finally broke its silence over the issue on Tuesday evening, saying that it had ‘made progress’ on the A380 engine, and that the August Dreamliner engine failure had been ‘unconnected’. Shares rose slightly on the news, although some estimate that as much as $1.2bn has already been wiped off the firm’s market value.

In fact, the only big winners from this have been General Electric and Pratt & Whitney, whose Engine Alliance provides the only other engines that are currently available on the A380. The saving grace for Rolls-Royce is that engine and plane orders are made together. From an engineering perspective, it’s not easy to switch engines once orders have been made.

Long term, however, it’s by no means clear as to how this issue will play out. That share prices will fluctuate is a given, and it’s certainly the least of either Rolls-Royce or Qantas’ concerns right now. While the pressure is on Rolls-Royce now, stronger communication from the firm will undoubtedly help its case. Whether the engine concerns are a one-off or a design fault, the issue will be eventually be resolved.

The proof of the pudding will come via future engine orders for new Airbus and Boeing aircraft. But Rolls-Royce’s contribution to the industry will remain a vital one for years to come, if only by dint of the fact that this is a sector in which there are few competitors. No airline buyer wants to see a situation where one engine supplier moves to take a monopoly position.

 

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