January 18, 2009

The Economist describes how the current strength of the the jet engine business come about. An understanding of the firm’s success requires some understanding of the technology that goes into its civil-aircraft engines. This is not just Rolls-Royce’s biggest business, it is also the one that both felled the company in 1971 and proved to be its salvation two decades later, Rolls-Royce’s triumph was not to build a slightly better engine and thus earn a temporary technological edge, but to design a completely different one. Remarkably, it did so from a position of weakness.

Until the late 1960s the market for big jet engines was dominated by Pratt & Whitney, with a share of about 90%. Rolls-Royce played a bit part, making engines mainly for European aircraft manufacturers. These were losing, bit by bit, to America’s biggest aircraft-makers, which had the benefit of a much larger domestic market and substantial military orders. Rolls-Royce realised that unless it could develop a large jet engine that would fit an American-made airliner, its sales of jet engines would collapse within a decade.It bet everything on two revolutionary technologies. The first was to use carbon composites to make fan blades (the big ones you do see) far lighter than the metal ones of the time. The second was to change the basic architecture of jet engines by using three shafts instead of two. Both tasks turned out to be harder and costlier than Rolls-Royce thought. Its composite blades shattered when hit by hail or birds. Eventually it had to abandon them for the tried and tested metal ones. And by then an embarrassing series of delays and missed performance targets had caused it to run out of cash. A Conservative government nationalised the company in 1971. Although the new design broke Rolls-Royce, it also proved to be the base for a whole family of winning engines. These were more complex to design, build and maintain than those of rivals, but they also used fuel more efficiently and suffered less wear and tear. Much more importantly, they could be scaled up or down to fit bigger or smaller aircraft. As a result, Rolls-Royce did not have to design a new engine from scratch each time a new airliner came onto the market, allowing it to compete for sales across a far wider range of aircraft than its rivals. This was a huge advantage because the main determinant of whether a jet engine sells well is whether the aircraft it is married to sells well. Rolls-Royce can sell across the board. It is the only one of the three main engine-makers with designs to fit the three newest airliners under development, the Boeing 787 Dreamliner, the Airbus A380 and the new wide-bodied version of the Airbus A350. Of the world’s 50 leading airlines, 45 use its engines.

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