Rolls Royce profits down 76% as Trent 900 costs start to kick in

BBC reports:

Manufacturing giant Rolls-Royce has said the mid-air failure of one of its Trent 900 engines on a Qantas superjumbo had led to costs of £56m. The explosion in the engine forced an emergency landing of the A380 in November last year. The one-off cost contributed to annual pre-tax profits dropping 76% to £702m in 2010 from £2.96bn. Foreign exchange costs and interest rate and fuel hedging contracts also contributed to the profit fall.

But the Derby-based company said that underlying pre-tax profits – which strip out one-off costs – were up by 4% to £955m in 2010 and were a better indication of its performance.

Rolls Royce say that the may face further “modest costs” but this seems to be far too optimistic considering that all the engine servicing costs have yet to show up and all the various compensation claims from Qantas, Airbus, Lufthansa, and Singapore Airline will take some time to work their way through. Once all the claims are presented there is an even chance that some will need arbitration before settlement which will take some time.

Jorn Madslien also writes:

Investors will be scrutinising Rolls-Royce’s financial figures to try to find out how the recent engine failure that led to the grounding of six Qantas Airbus A380 aircraft affected the company. ……..

….. The long-term effects of the engine failure, for instance a potential fall in new orders over the months and years ahead, cannot be measured at this stage. Consequently, the final impact on the company’s bottom line is not yet known.

It does not seem as if Rolls Royce have made any provision for further costs which is a little worrying and I stay with my estimate of around $300 million as the total hit that Rolls will have to swallow for the Trent 900 for the A380 in addition to any impact on engine sales.

Judging from the delays the development cost of the Trent 1000 for the Dreamliner is also likely to be significantly more than budgeted or expected.

It will be at least 2012 before the full financial impact is known though some residual impacts will continue for many years.

The wrecked engine after QF32 landed in Singapore in Nov. 2010:Photo: AFP

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3 Responses to “Rolls Royce profits down 76% as Trent 900 costs start to kick in”

  1. Rolls Royce engine failure will eat up $80 million of Qantas profits « The k2p blog Says:

    […] Rolls Royce have already announced  a hit on profits for direct costs of £56 million (about $89 million) for the engine explosion and related events for the year till December 2010. No doubt the losses suffered by Qantas will be part of their compensation claim against the engine maker. […]

  2. airfoilmod Says:

    Three Hundred Million?? On PPRuNe I was estimating a Billion (total) within a week of the incident. A brief look at recurring costs into the future, say three years, has totals from dozens of areas that quickly spring to mind. Modules 1-5 and 8 comprise the “core” (TRENT 9) and are touted as unit mobile, a term that will Haunt the Marketing goal of its genesis. This engine needs rebuild (off wing and Strip) every 75 cycles, a term of roughly one month in maximized service.

    The reality of the exercise is to report a “Pull from the Air” figure, and pimp it until it becomes the “Gold Standard”. 56 million is the cost of only two engines, and does not take into account r/r, and loss of revenue. Given the true potential of the damage, it is absurd on its face to start quoting “numbers”.

    just sayin’……. bearfoil

    • ktwop Says:

      I wouldn’t be surprised if it got up to 1 Billion. It took GE, Alstom and Siemens over one billion each to fix the Frame 7, GT24/26 and V93 issues. Some say it was over 2 billion for Alstom but the bottom line is what actually gets reported in the financial results. The 56m is already visible and so will be the amounts paid for compensation. Everything else will be hidden either as R & D or service costs. The much higher margins for service make the service business a good hiding place for some of these costs. Any impact on the top line of course can never be attributed. I think that around 300 m will be what gets visibly reported.

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