Rolls-Royce rose the most in 18 months and was the biggest mover among Europe’s top
600 stocks after it reported good progress in resolving the last outstanding issue with
the 787’s Trent 1000 turbine and said one-time charges won’t exceed the £2.4 billion (€2.8
billion) estimated through 2023. Talking to journalists at a recent media presentation
event, Rolls-Royce civil aerospace chief customer officer Dominic Horwood shed light on the
causes of turbine blade cracking in the Trent 1000 gas turbine engine, which powers the
Boeing 787 Dreamliner.
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Comeback: How Rolls-Royce Solved Its Trent 1000 Issues." So without any further ado,
Let's begin.
Rolls-Royce RR.L will take longer than expected to fix problems with its Trent 1000 engine,
frustrating efforts to get Boeing BA.N 787s grounded by the glitch flying again and knocking
the British company's shares. Rolls-Royce, whose engines power large civil and military
planes, said it had sped up turbine blade replacement for some models, leading to additional
removals and delaying a reduction in the number of grounded aircraft to single figures until
the second quarter of 2020. The bill to fix Rolls-Royce’s Trent 1000 engine has risen
by another 800 million pounds ($1 billion) as the aerospace group battles to reduce disruption
to airline customers that have had to ground Boeing 787 passenger planes for repairs.
The British engineer said on Thursday its
operating profit and cash flow this year would come in at the bottom of its guidance both
at about 600 million pounds as the cost of the Trent 1000′s problems rose to 2.4 billion
pounds for 2017-2023. Rolls-Royce Holdings is increasingly optimistic that it can move
beyond the jet-engine issues that have cost it billions of pounds and provided an unwelcome
distraction during years of restructuring work.
Final fixes to a litany of glitches that plagued the Trent 1000 turbine powering Boeing Co.’s
popular 787 Dreamliner should be made this year, engineering and technology director
Simon Burr said. Blade cracks in the Trent XWB used on Airbus SE’s rival A350 wide-body
have turned out not to be a major concern.
“After a challenging first half, we had a good end to 2019, delivering 25% growth
in full-year underlying operating profit and an encouraging level of free cash flow”,
commented Warren East, Chief Executive of Rolls-Royce. “Our restructuring efforts
gained momentum, with run-rate cost savings of £269m (€309m). Civil Aerospace improved
its underlying profit significantly, with record engine deliveries, good aftermarket
performance, and improved OE unit losses. We made further progress on the Trent 1000;
cash costs are in line with guidance. We remain on target to reduce aircraft on the ground
to single digits by the end of the second quarter of 2020”, he added.
Warren East described the corrections made
to the Trent 1000 turbojet engine as “significant”. Speaking during the presentation of the company's
results for the year 2019, the CEO of Rolls-Royce said that the 578 million pounds associated
with the work on Trent 1000 in 2019 would mark a peak in spending for redesigns, engine
certifications, and replacements. Rolls-Royce has eliminated the backlog of Boeing 787s
grounded while they await maintenance in relation to Trent 1000 blade-durability issues.
Mr. East is seeking to draw a line under faults
that have burdened Rolls-Royce through much of his tenure, triggering a succession of
profit warnings, and souring relations with customers such as British Airways as they’ve
had to ground planes, and pushing orders in the direction of rivals.
“Rolls-Royce sounds rather confident,” Jefferies International analyst Sandy Morris
said in a note.
“The key long-term drivers were powerfully positive.” Cracking problems in the intermediate
pressure (IPT) section of the turbine have plagued the engine since early 2016, five
years after its launch. Unscheduled groundings of Trent 1000-powered aircraft cost Rolls-Royce
some £450m last year, and Horwood said that addressing the problem was “the single most
important issue” currently facing the company.
One of Rolls-Royce’s most important potential customers for Trent 1000, Air New Zealand,
recently announced that it has opted for General Electric power-plants for a new batch of 787-10
airliners, although it's 787-9 fleets still fly with Trent engines. According to Horwood,
the problem was caused by sulphurization; a chemical process affecting the nickel alloy
which comprises the IPT blades.
“We are very confident that this problem will not occur in any of our other engines,”
Horwood said. “We perceived a risk that further action would be required, potentially
leading to higher costs being incurred ... today’s announcement that guidance for the Trent 1000
cash costs in 2019 and 2020 remains unchanged comes as a relief,” Jefferies analysts,
who rate the stock as “buy”, said.
Rolls-Royce CEO Warren East said in August that a target of fewer than 10 aircraft on
the ground at the end of the year might take a bit longer to achieve as a result of an
additional repair load resulting from faster deterioration of a blade on the Trent 1000
TEN. Chief Executive Warren East said Rolls would spend more on parts and replacement
engines to reduce the time aircraft are grounded while turbine blades are replaced.
He said the plan meant Rolls could keep its
promise of reducing the number of aircraft on the ground to single digits by the second
quarter of 2020 and maintain it at that level. The Trent is one of two engine options for
the 787, which can also be powered by rival GE Aviation’s GEnx engines. Emirates President
Tim Clark said in September he was “a little bit irritated” with reliability issues at
Rolls and GE, adding he would not commit to ordering 787s as there was no stability in
Rolls’ engine program. East said the Trent 1000 problem was durability
rather than reliability, but the company had struggled to fix one issue on blades on the
TEN variant.
The solution it had found would require additional investment in maintenance capacity across
a number of sites and spare engines to reduce disruption, he said. Rolls-Royce rose as much
as 6.6 percent, the biggest intraday gain since August 2018, and ended the session by
3.23 percent in London.
That made it a standout performer on a Stoxx 600 index that was 4.5 percent lower as companies
warned that the coronavirus outbreak would disrupt business. Rolls’s chief financial
officer Stephen Daintith said the company is currently testing a design to fix the Trent
1000’s final issue with a high-pressure turbine blade and will provide an update mid-year.
All glitches should be resolved by 2022, Rolls predicted. The number of 787s idled for engine
repairs should also drop to fewer than 10 by the end of the second quarter, in line
with previous projections, the company said.
That should help bolster confidence in the Trent 1000 after 787 customers began to turn
away from the engine in favor of a rival powerplant from General Electric. The geometry around
the root of the IPT blade concentrated air sucked in by the engine’s compressor system,
which in some parts of the world (notably Asia) contained higher levels of sulfur-containing
pollutants than the engine had been tested with.
The temperatures within the IPT and some of
the specialized coatings on the blade may have exacerbated the problem, Horwood said,
producing air turbulence and local temperature increases that led to fatigue-like behavior
in the metal which resulted in cracking. Because of the way engines are tested inside enclosed
buildings called testbeds where the engines are suspended from ceiling gantries and run
on the ambient air from the surroundings, this problem could not be foreseen, Horwood
explained.
“The issue is how to find such issues on the test bench, how to convince the engine
it has been flying for years in, say, Asia,” he said. Such contextual issues are increasingly
incorporated into Rolls-Royce’s development and design programs, as well as its maintenance
operations which as most engines are leased under a package that includes aftercare, is
an important part of the business.
“This is about learning,” Horwood said, “and we are already applying that learning
in our Ultrafan future technology program.” Ultrafan, the next generation of Rolls-Royce
large airliner engines to follow the Trent series, is seeing the building of Rolls-Royce’s
largest-ever test-bed on Derby civil aerospace campus. Airlines have faced disruptions because
of the groundings, with Norwegian Air's NWC.OL strategy switch to prioritize profits over
growth was hampered by the global grounding of Boeing's 737 MAX aircraft and long-running
problems with Rolls-Royce's engines on Boeing Dreamliners.
Singapore Airlines SIAL.SI has also grounded
two 787-10 jets fitted with the Trent 1000 TEN engines. Rolls-Royce is keen to avoid
further problems with the engine and in March dropped out of the race to power Boeing’s
planned mid-market aircraft. East said Rolls’ other wide-body engines were performing well,
with the Trent XWB surpassing expectations.
In its Power Systems unit, however, he said a small number of larger projects had been
deferred until mid of 2022 and as a result sales growth this year would be in the low-
to mid-single-digit range. Despite the Trent 1000 problems, East said he still expected
2022 free cash flow of at least 1 billion pounds and was still confident Rolls could
achieve 1 pound per share of free cash flow in the medium term as Trent 1000 costs subside,
inventory is reduced and the company becomes more efficient.
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