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| Rolls-Royce acknowledges the downtime on the XWB-97 engine is greater than expected but denies suggestions that the performance level equates to being “defective”. PHOTO: REUTERS |
Shares in the engine maker rose after CEO Tufan Erginbilgic
unveiled a strategy on Tuesday to revive its fortunes including a sharp
increase in profit margins and "value-driven pricing," suggesting
higher servicing bills.
But Emirates Airline President Tim Clark, who criticised
Rolls over pricing and the performance of its largest engine at this month's
Dubai Airshow, appeared unswayed by the plans which rely on sharply increasing
civil engine profit margins to 15-17%.
"If you have an engine ... not performing as it should
do, your costs are going to rise. But your ability to extract value from the
client is going to fall simply because the client won't accept
non-performance," he told Reuters, referring to the costs borne by engine
makers due to service contracts per flight hour.
"It's a very clear kindergarten understanding of cause
and effect. Get your product right, design it to what the client wants, give it
that high level of reliability. And yes, paradoxically, you can extract more
value for your money for your buck in terms of your investment."
At this month's air show, Clark ruled out an immediate deal
to buy Airbus A350-1000 jets, the larger of two models, blaming a dispute with
Rolls over the poorer-than-expected durability of its engines, coupled with
pressure for higher servicing prices.
"I said, guys, you need to go back to basics. Design
engines that meet what the client base wants," Clark recalled saying to
the engine maker during negotiations, which ultimately gave way to a top-up
order for the smaller A350-900.
"We were ready on the -1000. You have no idea how much
work I've spent on the interiors of these airplanes," Clark said, adding
the engine stand-off had "opened the door" to reviving the Boeing
777-8 as a passenger variant as well as a freighter.
Rolls-Royce had no further comment beyond Tuesday's investor
presentation. Airbus declined to comment.
Rolls has acknowledged that the downtime on the XWB-97
engine is greater than expected but has denied suggestions by Clark that the
performance level equates to being "defective".
Clark said the idea of ordering the A350-1000 was "not
off the table" but added it depended on progress on downtime, noting that
Rolls plans to introduce some modifications inherited from its Ultrafan engine
technology research in late 2025 or 2026.
"I would say get your engines right .... I promise you: you come up with a good engine, and we will talk to you seriously about a sort of maintenance cost, which gives you the kind of returns that you seek without being over-greedy."
Erginbilgic said on Tuesday the problem of durability was
specific to the XWB-97 engine used on the A350-1000 and only in challenging
climates. He said Rolls was working with Airbus "to improve that engine to
a great level".
The dispute between Emirates and Rolls has brought to light
a tug of war between fuel efficiency and "time on wing" or durability
of engines, which often have to be traded off against each other on the drawing
board, especially for hot climates.
Engine makers want to be rewarded more for their investments
in cutting-edge technology given the value of the fuel savings and lower
emissions they offer airlines on every mile of flight.
Airlines say they bear the brunt of the disruption and
reputational damage when aircraft face unplanned repairs, and have to do so on
far narrower profit margins.
"When I see people talking about rates of return ... of
10% or 15%, and we're struggling as an airline industry generally in the realm
of 3% or 4% - it's a partnership," Clark said.
He brushed aside the idea of renegotiating existing engine
contracts to raise hourly pricing, saying "don't go there".
Clark, who is seen as one of the airline industry's most
influential leaders and who runs the largest wide-body fleet, described Rolls
as the "gold standard" in engineering but added they and others had
been "coming at it the wrong way".
The Emirates boss has also sharply criticised quality
problems at Boeing. Broader industrial or supply problems have lingered since
the pandemic, while some in the industry including Raytheon Technologies are
returning cash to investors.
Clark's message to the wider industry was straightforward.
"You're all fixated on buybacks, rates of return ... I
promise you, build us the airplanes that we want and all this will fall into
place".