Rolls-Royce will put its UltraFan engine programme “on ice” when testing finishes in 2022, halting further investment until a new aircraft is launched, according to Warren East, chief executive.
The UK aero-engine maker will also postpone finding an industrial partner for the next-generation propulsion system until a new aircraft programme is launched, which is likely to be several years away, the chief executive told the Financial Times.
“We absolutely intend to . . . complete the phase we are in at the moment, which is to create and fully test our demonstrator,” said Mr East in a recent interview. “But at that point, we will put the thing on ice. I can’t force airframe manufacturers to invent new aeroplanes and if there is no demand for them then there is no demand for the engines.”
Rolls-Royce is relying on its UltraFan programme of engine technologies to help it break back into the market for narrow-body aircraft, which it left nearly a decade ago when it pulled out of a joint venture with Pratt & Whitney of the US.
The group has spent roughly £500m on developing the UltraFan demonstrator, which uses a geared architecture to improve performance, as well as composite fan blades, and aims to be 25 per cent more efficient than the group’s first Trent engines.
Mr East has previously said the company would seek new forms of industrial collaboration to help bring UltraFan technology to the commercial market. Speculation has focused on reviving the partnership with Pratt & Whitney, or a new collaboration with France’s Safran, which makes single-aisle engines through a joint venture with General Electric of the US. However these players have little reason to help Rolls-Royce re-enter the highest-volume segment of the aero-engine market, several analysts suggest.
But Rolls-Royce’s search for a collaborator has been made more pressing by the coronavirus pandemic, which has brought international air travel to a virtual standstill. This has sorely damaged the company’s cash flow, which relies heavily on the number of hours its engines fly. In December the company warned that it was burning through cash at a slightly faster rate than expected, just weeks after raising £5bn through a £2bn rights issue and new credit lines.
Over the past month, the shares have fallen from a high of 130p on December 7 to Monday’s close of 103.2p, down 7 per cent on the day.
Mr East said the group would take a disciplined approach to investing in the narrow-body segment.
“We are not going to invest in the industrial capacity required to create the volumes required for a single-aisle application . . . we don't have the industrial capacity, there's no point us investing in it,” he said.
Any serious discussion about industrial collaboration would also depend on the type of aircraft to be launched. It was still too early to strike any deals, Mr East said. “Nobody is going to invent a partnership for a business that isn’t there,” he said.
Both Boeing and Airbus — which together dominate the global market for manufacturing aircraft — are reluctant to launch a new aircraft while airlines remain financially stretched because of the global collapse in air travel.
If either manufacturer does decide to press ahead with a new aircraft platform, however, it is unlikely to be a twin-aisle, according to many industry experts. Domestic travel, largely served by narrow-body aircraft, is expected to recover more quickly than the long-haul market and demand for the widebody aircraft used on longer international journeys is expected to remain depressed for several years. Rolls-Royce’s Trent product range is focused on larger engines for twin-aisle aircraft.
The pandemic is widely perceived to have pushed back plans for any new aircraft programme by several years, with the industry set to record losses of $118bn this year and $38bn in 2021, according to the aviation trade body Iata.
“The whole sector has taken a battering from Covid, it is going to be bruised for several years to come and so I’d anticipate a reasonably significant delay before those new aircraft appear,” Mr East said.
The longer the delay, the greater the dilemma for Rolls-Royce, according to analysts. The UltraFan demonstrator is focused on improvements to traditional gas turbine technology, while Airbus has said it wants its next jet to be “green” to meet tough new net-zero emissions targets. The group is investing heavily in low-carbon technologies such as hybrid electric and hydrogen and has said it wants to launch a green passenger jet by the mid-2030s.
“If Rolls-Royce spends a fortune now to get a geared engine, the question is, will it be superseded by new technology before it can get an adequate return off the investment?” said Nick Cunningham, analyst at Agency Partners.
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