This article is from WeChat official account: a travel passenger (ID: carcaijing) , Author: Chenjia Qi, from FIG title: Visual China

Since 2018, Rolls-Royce’s (hereinafter referred to as “Rolo”, GBX: RR.) CEO Wo Len East(Warren East) is in the annual business risk( In the Viability Statement), the impact of global pandemics on aviation flights is included in the concerns. At that time, both industry experts and investors all downplayed it as a routine routine.

Who would have thought that in the end it became a truth.

No matter if you accidentally insert the willow or worry about it, the core of the question is, is Rollo’s own Noah’s Ark ready?


Boeing, Airbus, and airlines, I’m upstream, but you are all my dads. I design the engine based on the model, but the sales contract is matched with the model for the airline dads to sign.

Boeing and Airbus in the midstream have already stretched their hips, and the downstream airlines are full of grief. How can Luo Luo, who is in the upper reaches of the industry, be peaceful?

Note: Luo Luo used to use “Potential Underlying” financial data to analyze and evaluate company performance. Compared with “Reported”, the average exchange rate during the reporting period is used to convert various financial indicators instead of the actual exchange rate at the end of the period.

If the title of this article is changed to “Blood loss of 5.4 billion pounds in half a year, Luo Luo is in danger!” and so on, it will appear to be quite exaggerated and layman-because the loss is a matter of reason, and the natural cause is the epidemic Impact.

From the analysis of financial data alone, the civil aviation department must bear the burden. In the first half of the year, both the number of wide-body aircraft engine deliveries and the number of flight hours showed a cliff-like decline of 50%. Especially in the second quarter, the number of flight hours decreased by 75% year-on-year, which directly led to a significant reduction in after-sales service revenue. The only thing that is gratifying is that the business jet engine business and regional aviation flight hours remain relatively stable.

In addition, a non-recurring profit and loss of up to £1.2 billion was also provided, includingLTSA(Long Term Service Agreement) of 800 million pounds of LTSA’s book losses under relevant accounting standards, 300 million pounds of additional expenses for the Trent 900 project and specific The invalidation of the customer mortgage contract.

It’s also a face of sad tears. The performance of civil aviation, which could have contributed 50% of revenue and 60% of profit to Luo Luo, has taken a sharp turn in 2016 and then plummeted. The original pillar is now the tail of the crane. In sharp contrast, the number of engine deliveries has been increasing.

Since 2016, due to the adjustment of IAS accounting standards, after-sales service revenue cannot be recognized during the contract period as in the past, resulting in accounting profits lower than actual operating income; however, in 2017, it suffered a blow: all Trent 1000 series “Rollover”, resulting in huge costs in the next few years-except for the entire systemIn addition to the need to redesign the high-pressure/medium-pressure compressors and turbines, during this period, it is necessary to increase spare parts and inventory, and improve the maintenance capabilities of MRO. Of course, the corresponding economic compensation is also included. The total related costs are estimated to be 2.4 billion pounds. !

What’s even more ridiculous is that Due to the large-scale grounding of the 787 in the first half of the year, Luo Luo has a blessing in disguise and has greatly reduced the cost of related maintenance and inspections. It is estimated that by 2022, it can save nearly 250 million pounds. When you think that life is a tragedy, it is actually a comedy.

The superimposition of the profound impact of the outbreak of the epidemic has made the years-long disadvantaged Luoluo civil aviation business department even more… “ice”, but because of this simply and rudely throwing the pot to external causes, it seems “too young, too naive” . In the civil aviation engine business and its business model, although it wears a 2C coat, the inner tank is 2B-the engine must be sold together with the aircraft. Therefore, facing aircraft manufacturers such as Boeing and Airbus, it is a 2B business; but the business The contract was signed with various airlines, and at this time it became a 2C business.

At first glance, engine sales have achieved an increase in current revenue, while after-sales service is the source of long-term cash flow, especially as the service time of commercial aircraft is getting longer and longer. But the reality is skinny. First of all, it must be squeezed into the list of engine suppliers for this model, followed by a long process of design, development, and certification. Then, sell the product to customers who bought the model, if there is a competitive engine.

In addition, the production situation should be arranged according to the order contract. Each link is comparable to the experience of the West, and the operation is as fierce as a tiger, and the final checkout is a dog. In the 2019 annual report, Luo Luo sincerely hopes that the OE loss of a single wide-body engine will be controlled within 1 million pounds.

The core reason for its loss lies in its business model. If you say “use 2C products to make 2B money” is the most ideal business model, but “use 2B products and make 2C money” like the civil aviation engine business is embarrassingly bold. For example, if you, as an engine salesperson, prepare a 1GB presentation PPT in advance to present it to the customer to show how the product is performing, but the customer can straightforwardly say “The weather is really good today, um, Boeing I gave me a 40% discount when I sold this batch of planes, what do you plan to say”, if there is still a competing engine, “I’m in a hurry, XX is going to give me a 30% discount”…

Big brother eats meat, younger brother drinks soup; airplanes are discounted, do you want to not cut meat? In fact, it doesn’t matter if you sell at a loss. As long as the installation base can continue to expand, the service costs for inspections and repairs in the future will most likely be doubled back by Naoki Hansawa. Therefore, the after-sales service market is the engine manufacturer. This is why the model can continue. However, if the future prospects of a certain model are unfortunately misjudged, such as the A380, which “wins face but loses lining” model, it happens to catch up with the epidemic and directly GG to make up for Rollo and Trent 900 A vivid lesson in venture capital education.

(As for why the aircraft is on sale, please move here: “Do you think Boeing alone is miserable? Airbus also has a hard-to-read book”< /span>)

If the current commercial model of civil aviation engines cannot be changed, then only pray that the 2B end is an explosive model, and the only supplier in 2C—GE90-115 and 777-300ER realize GE and Boeing The mutual achievements of the two parties are also the most typical cases and role models, and the current trend is becoming clearer. Trent XWB and Trent 7000They are the only engine suppliers for the A350 and A330 neo, respectively, while GE is the best choice for the 777X and 747-8.

In addition, the seemingly worry-free long-term after-sales service can provide a steady stream of cash flow, but please don’t forget that the aviation industry itself is a strong cycle industry that is highly positively correlated with the economic cycle, so this model is extremely vulnerable to financial The objective perturbation of the cycle or economic cycle is the best evidence that the social and economic operation stalls caused by the epidemic is the best evidence. A series of LTSAs such as Total Care, which Rollo is proud of, suffered huge economic losses during the current period.

So, to sum up, the epidemic is just a magnifying glass. It directly exposes Rolls-Royce, or the shortcomings in the existing commercial model of civil aviation engines, and the loss is the result of internal and external factors.


If the civil aviation engine business is called Luo Luo’s mainstay, then the defense department can be described as stable as (dead)shan< span class="text-remarks" label="remarks">(dog).

Over the years, the defense business has remained relatively stable in terms of revenue and profitability.When stable, especially under the impact of the epidemic, its special market environment turned this department into Rolls-Royce’s biggest performance highlight.

From the perspective of long-term business cycles, defense operations are directly linked to economic development, while security threat levels and geopolitical disturbances are short-term disturbance factors. As the world’s second largest supplier of defense aviation engines, Rolls-Royce has a series of products whose technical characteristics and political symbols of the country they belong to ensure its market position and share in North America and Europe.

Unexpectedly, the report card of the power system department did not show a significant decline, and even maintained a slight profit. It is important to know that the markets and customers for its products and services are industrial terminal enterprises. Most of these industries are hardest hit areas during the epidemic. Moreover, thanks to the contrarian growth of the Chinese market, the order revenue in the first half of the year reached 1.2 billion pounds, laying a solid foundation for the increase in service revenue in the future.

Any enterprise will enter a bottleneck when it develops to a mature stage. At this time, it needs to make a strategic decision whether to go up or down, or to turn left and right; but whether it is vertical merger of the industry chain or horizontal expansion of business, the core is still the return on investment .

It is written in the textbook, and Luo Luo did the same.

As early as the 1906 articles of association, Rolls-Royce defined himself as a manufacturing company that produces air, land and marine power systems. In the following hundred years, Rolls-Royce made full use of his expertise in gas turbine technology. Expand the business landscape to almost all aspects of power and power systems. Therefore, when I first glanced at the whole picture of Luo Luo, I felt a little messy-in every field, but the non-core business contributed very little to the company’s overall revenue, and the profit margin, such as the nuclear business, was the reason to stick to it. where is it?

“The expansion of the business scope has created corresponding business opportunities. Although the nuclear industry is small, it can increase Rolls-Roy’s influence and enable us to reach the top government officials. Many of our business needs and government agencies Maintain a good relationship.” said Ian Davis (Ian Davis), Chairman of the Board of Directors of Rolls-Royce Group.

There is no pure aerospace power system company in the world, and a wide range of business investment portfolios must match different markets and investment cycles. Throughout the business fields that Luo Luo has cultivated, there are two characteristics: One is the ability to maintain long-term growth; the other is the need for more and more complex engineering solutions. The former can provide sustained profits, while the latter continues to form a corporate moat.

But this kind of business approach is bound to bring about two main negative effects, bloated organization and huge financial assets. The market that Luo Luo faces is driven by globalization, urbanization, and environmental protection. It can be compatible with the overall GDP growth rate in a long business cycle, but the demand side is slowly released As a result, its overall ROE is not satisfactory. Therefore, it can only improve efficiency through continuous optimization and structural adjustment of the company’s organization, and look for opportunities to sell some businesses that lack vitality and prospects.

When the company’s tentacles spread to every corner of the world, it will inevitably encounter the problem of currency selection in business settlement. In order to deal with the performance impact of different exchange rate fluctuations, the balance sheets of almost all multinational companies All of them have complex and huge financial derivatives subjects.

Rolo Luo is no exception, and he has no choice. Although this is not a speculative act, and in some fiscal years, these derivative financial products can indeed protect their assets and bring additional benefits, but they have The natural nature of financial risks also makes multinational corporations worry all day long. For example, the financial market shock accompanying the epidemic has profoundly affected Luo Luo’s current weak balance sheet.

Due to the forecast that U.S. dollar revenue will decrease significantly in the next few years, Rolls-Royce is forced to reduce the scale of GBP 10.3 billion against the U.S. dollar exchange rate derivatives. This requires a total capital expenditure of GBP 1.46 billion in the next 7 years. But even so, Rolls-Royce also continues to hold 26.2 billion GBP/USD exchange rate derivatives, in addition to 5.6 billion EUR/USD exchange rate derivatives. In addition, because of the huge book losses suffered by financial assets during the current settlement, the company’s net profit performance has also been seriously affected.