© Rolls-Royce Group plc 2004
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   Highlights of the year
Defence is a solid and growing business which is profitable and cash generative in all its phases. We have a sound order book with good forward visibility and in 2003 we continued to strengthen our market position, winning significant engine and service contracts. Aftermarket services represented 56 per cent of defence aerospace sales, further demonstrating our customers’ acceptance of our Mission Ready Management Solutions (MRMS) services offering. New engine deliveries accounted for 28 per cent of sales, while income from research and development work to government customers reached 16 per cent of sales. The United States, which is the world’s largest defence market, increased its defence budget again in 2003. The United Kingdom is the largest market within Europe, and Europe itself is the second largest defence market in the world. Approximately 45 per cent of the global market is related to air systems and a third of this, or 15 per cent overall, is spent on power systems. The gas turbine propulsion element for new engine deliveries is expected to grow over the next five years. A large proportion of future defence business is already contracted for, providing a high level of forward visibility. Our broad portfolio of product programmes reduces our dependence on any single programme and provides strong positions in the key market sectors – from combat and light attack to trainer, transport, helicopters, maritime reconnaissance and aerial surveillance. The 24,000 engines in service and our large global operator base create a growing business opportunity as customers seek to maximise the value of their equipment and reduce their operating costs. Each of the programme phases, from development through to production and in service, provides a value creation opportunity for the defence business. Customers’ priorities are changing and increasingly they are buying capability rather than just equipment. This translates into a services business opportunity for MRMS spans the total range of services, from engines and spare parts supply to Power by the Hour contracts. The latter are modelled on the Group’s successful commercial aftermarket experience and use remote condition monitoring capability developed in the energy markets We have transformed our capability and footprint in the important United States market through the presence of On the Joint Strike Fighter programme, 2003 saw the successful completion of the Critical Design Reviews for both F135 and F136 propulsion system programmes, allowing the teams to begin manufacture and testing of all components. Successful rig tests of LiftFan™ development hardware have been concluded, validating system capability and mitigating future development risk. The V-22 Osprey programme received a significant boost in the year, with the continuation of a successful flight test resulting in affirmation of the programme by the DAB (Defense Acquisition Board), which lays the groundwork to continue initial production through to 2008. In Europe, through Our strategic defence priorities are to:
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