Warren East says it has been a “privilege” to drive a Rolls-Royce for seven years as he prepares to retire at the turn of the year. But it also came with considerable pain.
Orient’s struggles ranged from a £671 million settlement in a giant bribery and corruption scandal that predated its time to the discovery of costly cracks in its jet engines. Then COVID-19 hit and crashed those planes, whose engines are built and maintained by Rolls-Royce.
The crisis was existential for Britain’s best-known industrial company. Eastern planned to find more than £7 billion from investors and lenders and cut 7,000 jobs.
Now he says his successor, former BP boss Tufan Erginbilgic, has the tools to improve his financial performance and perhaps even survive the ongoing crisis. Erginbilgic, who is two years older than the 61-year-old East, will take office on January 1.
“I hope he has an easier time with things,” says East, sitting in Rolls-Royce’s London office. East, an Oxford-educated engineer, joined the Rolls-Royce board in 2001.
However, after the abrupt departure of predecessor John Rishton, he was pushed to become CEO. It was a second-act surprise: East announced in 2013 that he was stepping down as chief executive of Cambridge-based Arm, which had built itself into Britain’s most successful technology company (before it was later snapped up by Japan’s Softbank).
The Derby-based company sells the jet engines at a loss and makes a profit on maintenance afterwards, so when flying hours fell to just around 10% of 2019 levels during the pandemic, it was a disaster. After earning just under £1 billion in cash in 2019, the company will require £4.2 billion in 2020, even as the UK government’s redundancy scheme has helped boost wages.
However, East says that the company, which was nationalized in 1971 after being liquidated over development costs for the RB211 engine, did not seek direct government support at that time (although the £2 billion loan was backed by a government agency). The eponymous luxury car business was divested of nuclear jet engines during nationalization.
Motor flight hours have returned to more than 70% of pre-pandemic levels, but even as the recovery continues, pandemic fears have weighed on long-term investors.
However, there are reasons to be optimistic about East’s successor. In China, where wide-body planes with twin aisles and Rolls-Royce engines are often used on short routes, Xi Jinping’s zero-Covid policy has meant flight hours are still around 30 percent. But the decision to reopen airspace and lift quarantine rules for arriving passengers after the interview with China is turbocharging the airline industry.
Is Rolls-Royce struggling financially to do it alone?
He claims that everything is fine at the company. The company has scale from its divisions that build engines for boats and large land vehicles and its defense industry, which makes reactors for nuclear submarines, and points to its 50 percent investment in engines for large twin-engine aircraft.
But if Rolls-Royce wants to win new work—and especially if it wants to move into the faster-growing single-aisle market—it will have to wait for aircraft manufacturers Airbus and Boeing to commit to a new plane. It can take years. Boeing is still trying to recover from the 737 Max disasters, while Airbus has the luxury of waiting and making easy profits.
East says that Rolls-Royce is “absolutely confident” that another twin-nave widebody is coming. During the pandemic operation, he continued to invest in a new engine capable of transporting 200-ton aircraft while consuming a fifth less fuel. Aerodynamic Advisory Consultant
Richard Aboulafia said it was impressive that Rolls-Royce remained unchanged during the pandemic and continued to invest in the new engine, known as UltraFan, “despite the lack of a clear application and despite significant pressure on the company’s design.” budget.”
East said Rolls-Royce could recoup its UltraFan investment before it ever builds the engine because it can use things from older engines, such as materials and cooling techniques.