Defence Aerospace

Defence Aerospace
2010 2009
Order book (£bn)6.56.5
Engine deliveries710662
Underlying revenues (£m)2,1232,010
Underlying OE revenues (£m)1,020964
Underlying services revenues (£m)1,1031,046
Underlying profit before financing (£m)309253

The Defence aerospace portfolio is characterised by its large installed fleet of engines, supporting more than 160 customers in 103 countries.

There continue to be risks to defence spending in our traditional markets in Europe and the US.  However, our broad product portfolio and strong service and support position on many of the new and established global defence aircraft programmes provide protection against these changes.

We still see growth opportunities in these traditional markets and, in addition, we are well positioned to secure growth from emerging economies in Asia, India, the Middle East and South America.

A significant number of new Rolls-Royce powered helicopter, transport and combat aircraft programmes continue to make good progress.  The F-35 Lightning II Joint Strike Fighter (JSF) LiftSystem™ achieved initial service release.  The first flight of an F-35 powered by the F136 is currently planned for 2011.  There continues to be uncertainty related to the funding of the F136 engine programme. 

The TP400 engine has achieved more than 3,000 engine flight test hours on the four aircraft involved in the flight test programme and has now completed all certification testing. In 2010, the Launch Nations reconfirmed their commitment to the A400M programme, although the Launch Nations and Airbus remain in final negotiations to modify the existing agreement. Europrop International, the engine consortium in which Rolls-Royce has a 28 per cent interest, and Airbus are simultaneously in negotiations to modify their agreement in support of the A400M. 

Orders in the period totalled more than £2.1bn, with £1.5bn related to service contracts.  These service contracts included the UK’s Royal Air Force’s fleet of RB199 powered Tornado aircraft and major orders from the US and Canada to support AE 2100 engines for the C-130J transport aircraft.  The completion of the Strategic Defence and Security Review (SDSR) in the UK had a modest impact on the portfolio, with some initial effects on combat sector aftermarket revenues from 2011 onwards.  Despite this, the order book remains strong at £6.5bn, in line with 2009.

Trading in the period made good progress.  Lower restructuring spend, improving operational performance and mix benefits from the completion of a long-term services arrangement supported good margin and underlying profit improvement for the year.

Outlook

The expansion of the portfolio, strong positions in military transport and access to a global customer base puts the defence business in a good position to access growing markets.
 
Revenues are expected to grow by mid single digits with further significant OE progress and stable service revenues reflecting changes announced with the SDSR in 2010.  Broadly similar underlying profits to 2010 are expected.

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