Rolls-Royce and Pratt & Whitney announce new partnership to develop next generation engines for mid-size aircraft and restructuring of IAE collaboration

Wednesday, 12 October 2011
  • New joint venture with Rolls-Royce and Pratt & Whitney to develop new engines for future generation mid-size aircraft
  • Pratt & Whitney to purchase Rolls-Royce share of International Aero Engines (IAE)

1. New Joint Venture

Rolls-Royce, the global power systems company, and Pratt & Whitney, a United Technologies Corp. (NYSE:UTX) company, are pleased to announce an agreement to form a new partnership to power future mid-size aircraft (120 – 230 passenger aircraft).  The two companies will establish a joint venture company, in which each will hold an equal share, to develop new engines for the next generation of aircraft that will replace the existing mid-size fleet.  The new venture will draw on the most advanced technology from two world-class companies to drive enhanced performance for this fast growing segment in which worldwide demand for around 20,000 new aircraft (or nearly 45,000 engines) is predicted over the next 20 years. 

This new joint venture will focus on high bypass ratio geared turbofan™ technology.  In addition, the venture will collaborate on future studies for next generation propulsion systems, including advanced geared engines, open rotor technology and other advanced configurations.

The new collaboration brings together complementary technological resources and is designed to offer the best, most competitive response to customer demand for the next generation powerplant in the mid-size segment. The collaboration could bring about significant value for customers as both parties are able to benefit from each other’s strengths.

The new joint venture between Pratt & Whitney and Rolls-Royce also benefits from the success of the V2500 and the PurePower® engine in establishing a broad customer base.  It builds on the long-standing and successful partnership between Pratt & Whitney and Rolls-Royce in the mid-size segment.   Japanese Aero Engine Corporation (JAEC) and MTU Aero Engines (MTU), partners of IAE and the PurePower® PW1100G-JM (Geared Turbofan™) programme for the Airbus A320 New Engine Option (neo), also intend to join the new collaboration.

2. Rolls-Royce and Pratt & Whitney restructure IAE participation

As well as establishing the new partnership, Rolls-Royce and Pratt & Whitney will restructure their participation in IAE, which produces the V2500 engine for the A320 family of aircraft. Under the terms of the agreement Rolls-Royce will sell its equity and programme shares in IAE to Pratt & Whitney for $1.5 billion and in addition receive an agreed payment for each hour flown by the current installed fleet of V2500-powered aircraft for fifteen years from completion of the transaction.

Under the continuing leadership of Pratt & Whitney, JAEC, and MTU, IAE will continue to deliver the same high-quality product and customer support without interruption.   Rolls-Royce remains committed to IAE and its customers and will continue to be responsible for the manufacture of high-pressure compressors, fan blades and discs as well as the provision of engineering support and final assembly of 50 per cent of V2500 engines.

Since its creation almost thirty years ago IAE has become a major force in international aviation with approximately 4,500 V2500 engines in service and approximately 2,000 on order.

“Today’s announcement charts a clear course for the future of Rolls-Royce in the important mid-size aircraft segment” said Mark King, President - Civil Aerospace, Rolls-Royce. “We are building on many years of successful collaboration with Pratt & Whitney in this segment to develop advanced aero engines, which we are confident will set new standards in aviation technology, performance and fuel efficiency.”

“These agreements position Pratt & Whitney, JAEC, MTU and IAE to best serve the needs of their customers for all of the A320 aircraft family”, said Todd Kallman, President, Commercial Engines and Global Services, Pratt and Whitney. “We are delighted to collaborate with Rolls-Royce, with its complementary capabilities, as we look forward to the next generation of aircraft engines that will offer even greater operational and environmental benefits.”

In addition, Rolls-Royce will make a modest financial investment in the PurePower® PW1100G-JM (Geared Turbofan™) engine for the Airbus A320 New Engine Option (neo) programme.

These transactions are subject to various closing conditions including regulatory approvals. 

3. Financial implications for Rolls-Royce

These transactions are not expected to have a significant impact on the 2011 trading performance nor the financial guidance provided for 2011, as last updated with the Group’s half yearly results on 29 July 2011.

Looking forward, the restructuring of our involvement in IAE will produce a number of important effects on trading performance. These include net cash proceeds of circa $1.5bn subject to some working capital adjustments when the transactions complete, and improvements in the trading performance over coming years.  The cash proceeds will be retained for general corporate purposes. The effect of these transactions on Civil Aerospace will be to improve trading profitability over the next few years, with the full year improvement in operating profits expected to be more than £140m in the first year, with a slowly diminishing contribution in successive years depending on the utilisation of the current V2500 fleet. Overall the majority of value to Rolls-Royce will be derived from flight hour payments due over the next fifteen years.

About International Aero Engines

IAE is headquartered in Glastonbury, CT, USA with more than 400 personnel globally and as of 30 December 2010, had gross assets of $1.6 billion.

The current IAE fleet of around 4,500 engines represents approximately 112 million lbs of installed thrust, has an average age of around 8 years and currently operates around 5,000 hours per year each – delivering more than 20 million flying hours per annum.

As of the 30 June 2011 there were approximately 2,000 V2500 engines with associated future service contracts included in the Rolls-Royce order book, representing a total of £4.5bn.

About Pratt & Whitney

Pratt & Whitney is a world leader in the design, manufacture and service of aircraft engines, space propulsion systems and industrial gas turbines. United Technologies, based in Hartford, Conn., USA, is a diversified company providing high technology products and services to the global aerospace and commercial building industries. 

About Rolls-Royce

Rolls-Royce is a world-leading provider of power systems and services for use on land, at sea and in the air, and has established a strong position in global markets - civil aerospace, defence aerospace, marine and energy.

Rolls-Royce has a broad customer base comprising more than 500 airlines, 4,000 corporate and utility aircraft and helicopter operators, 160 armed forces, more than 2,500 marine customers, including 70 navies, and energy customers in nearly 120 countries, with an installed base of 54,000 gas turbines.

Annual underlying revenues were £10.8 billion in 2010, of which more than half came from the provision of services. The firm and announced order book stood at £61.4 billion at 30 June 2011, providing visibility of future levels of activity.

Rolls-Royce employs over 39,000 skilled people in offices, manufacturing and service facilities in over 50 countries.  Over 11,000 of these employees are engineers.

In 2010, Rolls-Royce invested £923 million on research and development, two thirds of which had the objective of further improving the environmental performance of its products.

Revenues derived from the IAE consortium are reflected in the Civil Aerospace division. In 2010 total V2500 new engine deliveries and service revenues represented approximately 13 per cent of Civil Aerospace revenues, circa 6 per cent of total Rolls-Royce group revenues. The large majority of Civil Aerospace revenues (more than 60 per cent) were generated from new engine deliveries and services associated with the wide body fleet. 

As of the 30 June 2011 there were more than 14,000 Rolls-Royce engines, representing 392 million lbs of installed thrust across all main sectors – Wide body, mid-size and corporate and regional. The V2500 engines represent approximately fourteen percent of the civil fleet which equates to 56 million lbs of installed thrust. Strong market share positions across all modern wide body aircraft types (including the Airbus A380, Boeing 787, Airbus A350XWB) suggest that around 700 million lbs of installed thrust for the wide body sector alone will be delivered by Rolls-Royce over the next 20 years, based on long term industry demand forecasts and existing Rolls-Royce market share.

Cautionary Statement

This Announcement contains certain forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing to the Company, anticipated cost savings or synergies and the completion of the Company's strategic transactions, are forward-looking statements. By their nature, these statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. The forward-looking statements reflect the knowledge and information available at the date of preparation of this Announcement, and will not be updated during the year. Nothing in this Announcement should be construed as a profit forecast.  

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