Quarterly news update from Rolls-Royce: 4Q05 review

LONDON (Rolls Royce) - The continued importance and potential of the Asian market for Rolls-Royce was illustrated by a number of significant orders and developments across most of the group’s market sectors in India and China during the fourth quarter of 2005.

In addition, the quarter saw a major export breakthrough for the Eurofighter powered by the EJ200, which is produced by the EUROJET consortium in which Rolls-Royce is a partner. The Eurofighter will form the core of the modernisation of Saudi Arabia’s armed forces.

The other theme in the quarter was the growth of the services sector, in both the Civil and Defence Aerospace sectors.

Asian highlights
Of the (to date eleven) customers for the Airbus A380, which toured Singapore, Malaysia, Australia and Dubai during November, seven have now selected the Trent 900. China Southern announced earlier this month that it had chosen the Trent 900 to power its five aircraft, with deliveries due to start in 2007. The deal is worth $600 million to Rolls-Royce.

Rolls-Royce won its first order for the industrial Trent in Asia .The order, for a combined-cycle generating plant packaged by Turbomach of Switzerland, came from a major energy company in Yinchuan, China. Trent-powered generating plants have now been installed or ordered by energy producers in North America, the UK, mainland Europe and the Middle East.

Rolls-Royce also won a $41 million contract for an additional three industrial RB211 gas turbine compression packages to be installed on Phase 1 of the West-East Gas Pipeline (WEPP) in China. Delivery of the original 12 RB211 packages for the pipeline sites has now been completed. The latest contract also includes upgrading seven Rolls-Royce compressors already operating on the 3,900 km/2,400 mile line.

A new factory in Shanghai, the largest investment by Rolls-Royce in China to date, was formally opened in November. Together with an existing facility in Korea, it forms a new production hub for the company in north-east Asia.

Asia’s shipbuilding accounts for around 80 per cent of all global commercial ship construction. Equipment produced or assembled by Rolls-Royce in Shanghai includes tunnel thrusters, rudders, control and steering systems and deck machinery.

In India, Rolls-Royce set up a wholly-owned subsidiary based in Bangalore to manage the growing volume of engineering work, engineering analysis and design subcontracted by the company in India. It will build on the company’s relationship with QuEST, a privately-owned engineering group in Bangalore.

Rolls-Royce also won business worth nearly $800 million as its share of V2500 engine orders from two Indian low-cost carriers, Indigo and Kingfisher.

Delhi-based IndiGo selected the V2500 to power a fleet of 100 Airbus A320 family aircraft in the single biggest firm order ever received by International Aero Engines (IAE), in which Rolls-Royce is a senior shareholder. The business is worth $600 million to Rolls-Royce.

Kingfisher selected the V2500 to power up to an additional 30 Airbus A320 family aircraft, business worth more than $160 million to Rolls-Royce. This airline already has 17 V2500-powered Airbus A320 family aircraft either in service or on order.

Services highlights
The second notable feature of the fourth quarter was the progress made in the customer services sector. The UK Ministry of Defence (MoD) and Rolls-Royce signed two important and innovative Mission Ready Management Solutions support contracts, valued together at more than £240 million.

The larger contract, worth £185 million, is for support of the RB199 engines on the RAF’s Tornados and is the largest single MRMS contract so far. The second contract, worth £57 million, is for the support of the EJ200 engines that power the RAF’s Eurofighter Typhoon fleet.

In addition, EUROJET received a contract from NETMA for the full-scale in-service support of the EJ200 engine powering Eurofighter aircraft with the UK, Germany, Italy and Spain. The Rolls-Royce share of the contract is worth £58 million.

Rolls-Royce repair and overhaul joint ventures Hong Kong Aero Engine Services Ltd. (HAESL) and Singapore Aero Engine Services Ltd. (SAESL) signed a contract with Emirates, potentially worth $600 million, to cover the servicing of all the airlines’ Trent 500 (A340), Trent 700 (A330) and Trent 800 (Boeing 777) engines for the next three years, with the work being shared between the HAESL and SAESL facilities.

Other business highlights during the quarter:

Rolls-Royce reached agreement with Airbus to supply the Trent for the A350. The Trent 1700, the sixth member of the Trent family, will be available for deliveries from mid-2011 and will be the only engine specifically developed and fully optimised for the 250-300 seat A350.

Newly-launched aircraft-leasing company LCAL selected the Trent 1000 to power six Boeing 787s in a deal worth $160 million at list prices. The engines will be covered by a TotalCare® agreement, which provides lifetime servicing for each engine and is transferable between LCAL’s customers. LCAL is the first leasing company to order the Boeing 787, and deliveries are scheduled to start in 2009.

Air New Zealand, the first airline to select the Trent 1000 for the Boeing 787, doubled its fleet to four aircraft. It also took delivery of the first of its first Boeing 777-200ER aircraft, powered by the Trent 800. Another seven of the extended-range twinjets will be added to Air New Zealand's fleet over the next 18 months.

Major new sales contracts for V2500 engines, potentially worth around $650 million to Rolls-Royce, were separately announced from CIT Group Inc., International Lease Finance Corporation (ILFC), Germanwings, Royal Jordanian Airlines and Aegean Airlines – all for Airbus A320 series aircraft.

CIT selected the V2500 for 12 firm and 12 option orders, ILFC for 30 firm aircraft and an additional 15 options. Royal Jordanian Airlines chose V2500-powered A320s and A321s as the first stage of a fleet renewal programme. Deliveries of the six leased aircraft will be completed by November 2006.

Greek regional carrier Aegean Airlines selected the V2500 to power up to 26 Airbus A320 series aircraft. The order is made up of eight firm and 12 options, plus six leased aircraft.

Germanwings, a Cologne-based low-cost carrier, selected the V2500 for the first time, to power up to 30 Airbus A319 aircraft. The order is made up of 18 firm and 12 options.

The Trent family achieved three notable achievements in the fourth quarter: the tenth anniversary of the Trent family’s entry into service, the achievement of 15 million flying hours, and the start of the build of the first Trent 1000. The Trent 800 on the Boeing 777 has clocked up eight million hours, the Trent 700 has completed five million hours on the Airbus A330, and the Trent 500, which began commercial operations in 2002 on growth versions of the Airbus A340, has reached two million hours.

Rolls-Royce released its annual forecast of demand for engines in the business jet market. The document forecasts an engine market worth $61 billion over the next 20 years. The company sees a requirement for 48,000 engines during the next two decades to power an expected 23,000 new aircraft ranging from light jets to large corporate jetliners.

Phase Two of the redevelopment of the company’s Defence Aerospace facilities in Bristol received the go-ahead. Work will begin in January on new buildings for the assembly of engines for the Typhoon, Hawk and Joint Strike Fighter aircraft and for the Group’s helicopter programmes.

A significant milestone was reached with the completion of the first series of tests of the TP400-D6 turboprop engine being developed by the EPI Europrop International consortium, comprising Rolls-Royce, ITP, MTU and Snecma, for the A400M military transport aircraft. In addition, Malaysia has now signed a contract for four A400M aircraft.

A new Operations Centre in Bristol will be the focal point of its rapidly expanding military engine-support business. The centre is the latest initiative in the expansion of MRMS, the engine-support package that now generates 55 per cent of Rolls-Royce defence sales. It will co-ordinate support for defence customers worldwide by integrating data that will enable support teams to predict likely operational issues and make decisions quickly to maintain aircraft operations or deal with technical problems.

The Rolls-Royce Turbomeca (RRTM) RTM322 turboshaft engine was passed fit for service under the specific stringent military requirements of the NH Industries (NHI) NH90 twin-engine multi-role helicopter. This milestone is in addition to the engine civil certification achieved in 2004.

MTR GmbH, in which Rolls-Royce is a partner, delivered its 100th MTR390-2C standard engine for the Eurocopter Tiger programme. The engine is the 38th MTR390 to have been delivered to the French Ministry of Defence for the French-German pilot-training school at Le Luc in south-eastern France.

The first Rolls-Royce Turbomeca RTM322 Mk250 turboshaft engine assembled by Kawasaki Heavy Industries (KHI) was delivered to representatives of Japan's Defense Agency and Japan's Maritime Self Defense Force (JMSDF). The JMSDF plans to buy a total of 14 RTM322-powered EH101 helicopters.

The US Department of Defense (DoD) Defense Acquisition Board approved full production for the V-22 Osprey aircraft. The Osprey is powered by twin Rolls-Royce AE 1107C-Liberty engines. Full production may include nearly 700 engines over the next decade for the unique tiltrotor aircraft.

One of the most successful design stories in the history of commercial shipbuilding reached a major milestone with the placing of the 500th order for a Rolls-Royce UT-Design vessel. The ship was ordered by Norwegian ship owner Island Offshore. UT-Design ships are sold as complete systems and fitted with a range of Rolls-Royce equipment.

Lockheed Martin installed two Rolls-Royce MT30s on Freedom, the first prototype Littoral Combat Ship for the US Navy, under construction in Wisconsin, USA. The gas turbines are the largest ever installed on a Navy ship.

A new version of the successful KV series of lean-burn gas engines was unveiled, promising lower emissions and improved efficiency in the generation of electrical power. The KV-G4.1 is already proving a success in the marketplace with 21 units sold, 13 of which are entering service in a new territory – the Netherlands – and in a new application, horticulture, which demands the most stringent levels of environmental performance.

Four dual fuel RB211 power-generating sets are to be installed on the F-53 Floating Production Unit (FPU) by Charter Development LLC-CDC, who will then charter the unit to Petrobras, the Brazilian national oil company for location offshore Brazil. Together with a Long Term Service Agreement (LTSA), the total value of the contract is more than $71million.

The units will be situated in the Marlim Sul field, located in the Campos Basin, which is Brazil’s most abundant oil production area, accounting for more than 80 per cent of the country’s total oil output.

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