Profits on the wing

In the aerospace sector, the

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However, over the past few years, another side to Rolls-Royce's activities has grown at such a furious pace that, in terms of value, it could soon outstrip the production of engines. Overhaul and repair, the provision of maintenance services to the owners of aircraft fleets, has emerged as a highly lucrative string to Rolls' bow. And the company now plans to build on this growth area through the opening of several more engineering maintenance facilities around the world.

Jim Sheard, director of business development for aeroengine repair and overhaul, says: "Around 40% of Rolls-Royce's business is now aftermarket revenue, and that figure is growing. The aftermarket is now worth L1.3 billion a year, up from L258 million in 1995. Increasingly we are finding that fleet owners want to concentrate on their core business of flying passengers, and want to leave engine maintenance and support to specialist service providers like ourselves."

As far as Rolls-Royce is concerned, one of the main pluses of the maintenance and repair business is that it locks customers into long-term contracts, giving the company predictable revenue streams. What the airlines get, effectively, is an insurance policy: they know exactly how much it will cost to look after the engines that power their planes, therefore avoiding any spikes in expenditure and allowing them to plan more accurately for the long term.

The exact nature of the maintenance and repair package depends on what the airlines want. "Some customers repair and maintain their own fleet, and merely require our technical support and advice," says Sheard. "Others do not want to incur the expense of setting up maintenance facilities of their own, so choose to use ours. It is a case of finding a flexible solution for what the airlines actually require."

Much of Rolls-Royce's repair and maintenance services are offered under its TotalCare package, which was launched in 1998 and now boasts contracts with some of the world's biggest airlines including British Airways and American Airlines. TotalCare comprises several service options, from engine health monitoring through to in-service support, off-wing repairs and inventory management.

Health monitoring

The latest airline to sign up to TotalCare is Hong Kong's Dragonair, which is to buy long-term maintenance worth L103 million for its Trent 700 engines which power its fleet of Airbus A330 twinjets. The work will be carried out at Hong Kong Aero Engine Services, a joint venture involving Rolls-Royce. David Lui, Dragonair's general engineering manager, says: "TotalCare gives us a high degree of budgeting visibility and places the care of our engines in the hands of the original manufacturer."

So what does TotalCare actually offer the airlines? Real-time downloads of data from the cockpit to the ground allow Rolls-Royce to forecast technical difficulties by monitoring the health of the engine in situ. Any potential problem can be rectified before it becomes critical. Performance and technical records are also collated to develop engine management programmes specifically for the customer's engines. These are used to minimise in-service disruptions and to maintain optimum levels of reliability and costs.

In-service support is offered through the provision of technical knowledge, support and emergency inventory to avoid engine-related problems disrupting flying operations. TotalCare provides a wide range of technical documentation, training and support to keep the airlines well informed on technical know-how, and the capabilities and performance of the engines they are operating. If the airlines require personal assistance, Rolls-Royce has field and headquarters support staff in 70 locations around the globe to provide back-up 24 hours a day, 365 days a year.

Where engines or engine parts cannot be replaced on-wing, TotalCare provides repair and overhaul cover. All repairs are carried out at Rolls-Royce authorised overhaul facilities, with the service including materials, labour and testing for things such as unscheduled maintenance, mandatory repairs, parts replacement and damage by bird strikes.

Sheard says: "We have a worldwide network of 16 facilities - many of which we wholly own, while others are joint ventures with our partners. When off-wing work is required, we try to do it as close to the customer as possible with engineers recruited locally.

"The complexity of the work varies dramatically. For a mid-life repair of, say, 10,000 hours, we would not need to break open every single module within the engine. But for a full overhaul we would. A big Trent aircraft engine typically takes 70 days for such work, but smaller engines, such as the Allisons used on the Embraer regional jets, would take in the region of 30 days. We think this is a pretty reasonable timetable."

One of the newest services that Rolls-Royce offers is the aeromanager e-business portal, which gives airlines instant internet access to the work being carried out on their engines. This service allows complete management of the slot-booking process at Rolls-Royce's facilities. Once an engine is inducted, customers can view their engines or modules while the work is taking place and view the forecast delivery dates, condition reports and technical updates.

Customers can also complete the time-consuming scrap authorisation process through aeromanager, with the site allowing users to view requests for scrapping, complete with digital photographs of the parts in question. Surplus inventory information can be accessed, and airlines can also benefit from a library of technical publications and bulletins on aeroengine products, as well as an online industry news service.

Sheard says: "Aeromanager is a great way of sharing information with airlines, providing real-time images of their engines on the shopfloor. It is already a broad service but we will be adding to it in the future."

Indeed, it would seem that Rolls-Royce's overhaul and repair business is constantly evolving. Two months ago the company announced a joint venture with German carrier Lufthansa, which will specialise in repair and overhaul of three types of Rolls-Royce Trent engine. Around 40% of the work at the joint venture - to be called N3 Engine Overhaul Services will be the overhaul of engines for Lufthansa's Airbus A330, A340-500/600 and A380 series aircraft, while the rest of the capacity will provide services to customers in Europe, the Americas and Africa.

Expansion plan

N3 should grow to 250 employees by the end of the first year of operations in 2007 and is expected to increase to 450 employees after three years. In its first year, the 200 million euros outfit is expected to overhaul 50 engines and to double that total within two years.

Sheard says: "This is the sort of deal that Rolls-Royce will be looking to secure with other fleet owners - not necessarily for Trent engines, as our network for those is now complete, but for other engines such as the V2500 on the Airbus narrowbodies."

Looking to the future, he predicts continued growth within the overhaul and repair business. He concludes: "Rolls-Royce needs margins that will enable it to invest to come up with new engines. These margins are recovered from not just the sale of engines, but increasingly the aftermarket support too. Both activities need to flourish for Rolls-Royce to make its long-term business case work."