April 20, 2015

Rolls-Royce wins their largest ever order in US$9.2 billion deal with Emirates

At a time when other sectors of Roll-Royce are suffering order cancellations, good news for the company has come in the form of its largest ever order in its long and distinguished history. Having been mooted in the past, Emirates have now confirmed their order for Rolls-Royce to supply engines to power their 50 Airbus A380s that are currently on order and which are due to start going into service in 2016. The news for Rolls-Royce is even better as the deal also includes the ‘Totalcare’ package, which means Rolls-Royce will offer service and maintenance support to Emirates as well. Not only is this the largest order Rolls-Royce have ever received, but it is also the biggest order placed with a British company outside the defence sector. As a consequence, shares in Rolls-Royce rose an initial 2% after last Friday’s announcement.
This is the first time the Emirates has ordered Rolls-Royce engines for its superjumbo fleet, the remainder being powered by Engine Alliance, a joint venture between General Electric and Pratt & Whitney. Rolls-Royce is, also optimistic for the future as Emirates are also keen to see what modifications Airbus are going to make to the A380 superjumbo. Emirates, the leading buyer of the Airbus A380, with 140 orders, has indicated that if they go ahead with a revamp of the A380 superjumbo it would place a big order for that model. Emirates President, Tim Clarke, has made it clear he expects any so-called A380neo to be powered by Rolls-Royce engines based on its Trent XWB engine. “As far as the neo is concerned, we await the deliberations from Toulouse,” Clark told reporters on Friday, Toulouse referring to the headquarters of Airbus.
Rolls-Royce had recently been issuing profits warnings as much as a drop of 13% as, while its aerospace division is operating successfully, the company also makes power systems for the oil and gas, marine and industrial sectors, where it has been plagued by cancellations. As a consequence, the company had decided that staffing levels need to be ‘streamlined’ and approximately 2,600 jobs are to be axed in an effort to increase profitability. Despite this new order, Rolls-Royce’s Chief Executive, John Rishton, confirmed that they would still go ahead with these job cuts, though the major order would help secure remaining positions within the company.
It is unusual for carriers to change suppliers of engines, even though Clark had hinted at his intentions earlier in the year. However the move is likely to anger those involved in discussions regarding the open skies agreement between the USA and Gulf carriers, including Emirates. Part of the complaint from major American carriers, such as Delta and American Airlines, is that they believe the Gulf carriers, particularly those from the UAE, have been in receipt of advantageous state funding loans. While the Gulf airlines have strategically denied this, these airlines, including Emirates, had argued as part of their case to keep the open skies agreement in place that the Gulf carriers were heavily investing in US aerospace companies. Changing from the US Engine Alliance supplier of engines for the A320 superjumbo, a joint venture of General Electric and Pratt & Whitney, to the British company, Rolls-Royce, flies in the face of any comments regarding heavy investment in US companies, especially when considering that Airbus is also a European company.



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