RR Remains Confident in Long-Term Business Jet Market

With 2001 sales of nearly US$1 billion, and the world number one position in the business jet market, Rolls-Royce said (at NBAA) that it remains confident in the long-term strength of this sector over the next 20 years. Speaking at the National Business Aviation Association (NBAA) 55th Annual Meeting & Convention, Ian Aitken, President -- Corporate Aircraft, Rolls- Royce, said: "Detailed analysis of the business jet market continues to point toward excellent long-term prospects. Over the next 20 years, we see demand shifting toward medium and larger aircraft powered by engine thrusts of 6,000lb and higher -- a market in which we are well positioned. We also expect demand to remain robust in the 2,000lb-thrust category, another strong market for Rolls-Royce."

Despite the near-term downturn, the company expects to maintain its leading market position. In 2001 Rolls-Royce won a 32 percent market share of business jet engine deliveries, based on the value of its share of that year's estimated $2.5 billion corporate aircraft engine market. Rolls-Royce forecasts that 30,600 engines, valued at US$56 billion, will be needed over the next 20 years to meet demand for 14,670 new corporate jet aircraft. This compares to the company's 2001 forecast in which it was anticipated that nearly 31,000 engines, valued at US$52 billion, would be needed to meet demand for 14,330 new corporate jet aircraft. Although a similar level of engine delivery units is anticipated, the latest view of market structure and model availability shows a slightly increased trend toward medium and large twin-engine aircraft, giving an increased engine market valuation.

Aitken re-iterated the company's previous advice that the market faces a challenging business climate in 2002 and 2003, but that orders for new business jet engines are likely to begin rising toward 2005. The company will produce around 290 AE 3007, BR710 and Tay corporate aircraft engines this year, 7 percent fewer than in 2001.

"The September 11 terrorist attacks impacted the entire business jet market, and we plan fewer deliveries in 2002 and 2003 than were originally forecast prior to September 11, 2001. We expect that over time, the strong fundamentals of the market will lead to a return to 2001 levels," Aitken said.

The core sources of business jet demand will be replacement of current aircraft, economic growth and wealth creation, and use of business jets to enhance business productivity and personal time-saving. Significant numbers of new users will be brought to the market through fractional ownership, charter businesses, and the development of very light jets.

The business jet market has historically been stimulated by the development of new aircraft models. This trend is set to continue, with introduction of new models such as the Rolls-Royce powered Gulfstream V-SP, Bombardier Global 5000, Embraer Legacy and Williams-Rolls powered Raytheon Premier 1.

A replacement market is also beginning to develop. Whereas just 7 percent of business jets ever delivered have been retired from use, 40 percent of the current fleet will be replaced over the next twenty years -- generating a replacement market for 4,500 aircraft. As the tendency in this market is to upgrade to a larger type when changing aircraft, there will be a trend toward larger aircraft in the forecast period. Hence although the medium, long range and very long range sectors account for 24 percent of today's fleet in service, these three sectors will account for 43 percent of future deliveries.

Aitken said: "While the traditional market for business jets continues to dominate deliveries, we expect strong growth of the fractional business, where demand is currently outstripping supply. We also see the Supersonic Business Jet as a possibility within our forecast horizon. We are in discussions with several airframers, and our 30 years of powering supersonic commercial flight gives us unique experience in this sector. As always, though, the business case will dictate progress."

Fractional ownership programs, which are expanding the market by lowering the cost of entry and ownership, will take a third of projected deliveries.

In-production engines include the company's own AE 3007, BR710 and Tay; the FJ44 with Williams-Rolls; and the V2500 with International Aero Engines. These engines have the distinction of powering the world's fastest, longest range, largest and lightest business jets, plus a corporate jetliner.

In the last decade the number of business jet applications powered by Rolls-Royce, including joint-venture engines, has increased from one to 13. This includes aircraft built by Airbus, Bombardier, Cessna, Embraer, Gulfstream, Raytheon and Sino Swearingen.

"During the past 10 years, Rolls-Royce and its partners have brought to market five new corporate engine types," said Aitken. "As our installed base grows, we will continue to see increasing aftermarket benefits from the maturing fleet."

Aftermarket services are available under the brand name CorporateCare(TM), which offers operators a wide choice of options ranging from the latest predictive maintenance tools to spares provisioning, and access to a worldwide repair and overhaul network. Approximately 70 percent of Rolls-Royce AE 3007 business jet engines are covered by CorporateCare(TM), and the company is responding to continued high customer interest in the program for the BR710 and Tay engines.

Rolls-Royce offers long-term CorporateCare(TM) maintenance agreements for the BR710, Tay and AE 3007. The company also provides traditional field service, repair and overhaul for these engines, the V2500 and the company's out-of-production Dart and Spey business jet engines.

With CorporateCare(TM), Rolls-Royce manages all engine maintenance, repair and overhaul activity and provides engine data collection and analysis. Operators pay a monthly fee based on the actual number of hours the engine is flown. CorporateCare(TM) is available for new and in-service engines and provides operators with significant financial benefits, including predictable maintenance costs, reduced capital investment and improved residual value of the aircraft.

The provision of aftermarket services is an important part of the Rolls- Royce strategy across all its businesses. Aftermarket service revenues comprised 41 percent of the company's total sales in the first half of 2002, and long-term service agreements represent 20 percent of its total order book.

In 2001 Rolls-Royce launched the Corporate Aircraft unit within its Civil Aerospace activities and named Ian Aitken as president. Rolls-Royce established the business unit to capitalize on the company's leading position in the market, and to maximize the company's efforts on the specific needs and requirements of the manufacturers and operators in this sector.

FMI: www.rolls-royce.com