Sunday, February 19, 2012

The Rolls Royce brains proving Britain can still beat the world - and no, they don't get for mega bonuses in the City

By Robert Hardman
Last updated at 7:34 AM on 18th February 2012

Times aren’t as giddy as they once were for the Ferrari dealers and elite watch shops of central London. Even so, as the City’s annual bonus awards are published in the days ahead, there will be the usual stories of eye-swivelling remuneration.

MPs will express the usual outrage that those who took the world to the brink still expect seven-figure tips for gambling with other people’s money. By return, there will be the usual warnings that any further demonisation of the bankers will precipitate a stampede to pastures new in Monaco and the Alps.

Meanwhile, out in the real world, the public is left to ponder which is worse: having to stomach these masters of the universe and their deluded sense of entitlement, or losing our world-class financial services sector?

For without all those bankers and brokers, we are always told, this country would be Greece without the squid. That is why the finest brains from our greatest universities no longer bother with industry or the Civil Service. The Only Way is Canary Wharf. Or is it?

For amid the latest rows about performance and pay in the City, and Whitehall, too, another set of annual results was largely overlooked this week. There wasn’t a murmur about executive compensation at this company. But if any company deserves a bonus or two, this is surely it.

Here is a British business which doesn’t shuffle money around, it actually makes things. And it quietly generated £7.8 billion of our GDP last year. It employs 22,000 people in this country, almost the same again overseas, and 85 per cent of its sales are in exports.

At any given time, day or night, 400,000 people depend on its world-beating technology to keep them in the air. And it has just had the best year in its history, turning in a profit of over a billion quid.

Most staggering of all, perhaps, is Rolls-Royce’s order book. That now stands at £62 billion — nearly four times the value of RBS. It does not even include yesterday’s news: another half-a-billion in orders from the Singapore Air Show, followed by the sensational news — announced by the Prime Minister himself — that Rolls-Royce will build key parts for the next generation of Anglo-French nuclear power stations. In time, that deal should be worth billions.

And yet we are still being told that the City is the best bet for our economic salvation?

One of the odder things I discover soon after arriving at Rolls-Royce is that it doesn’t actually own one. The car business, of course, was sold off to the Germans years ago. These days, Rolls-Royce conquers the world with machinery for planes, ships and power stations.

Even so, you may imagine that a company with one of the world’s great brand names — voted Business Superbrand of the Year in 2011 — might, perhaps, own one example of the product which made it famous. Not so. Even the vintage Rolls-Royce in the company museum is borrowed.

But, as I soon discover, they’re not big on nostalgia here at Rolls-Royce’s Derby head- quarters.

Aside from a statue of Sir Henry Royce, nothing stays the same for long.

Last year, David Cameron brought his ministers here for an out-of-town Cabinet meeting. While on the premises, he opened the company’s new technology showroom, where the star exhibit is not the Spirit Of Ecstasy, or a Spitfire engine.

No, it is a piece of titanium so sensuous and beautifully crafted that it could be a Henry Moore sculpture — until I ask for its title.

‘It’s a swept fan blade from a Trent engine,’ explains a matter-of-fact Simon Morris, operations manager for the Trent 700, the jet engine which has helped to make this company a world-beater.

Inside, it is hollow yet reinforced by a series of titanium ‘Toblerones’ which make it light but virtually indestructible. And the process, for which Rolls-Royce has more than 60 patents, is so inexplicably complicated that no one on earth has begun to replicate it.

And there will be dozens of these in every jet engine.

Simon flicks a switch and a window suddenly clears to offer a sweeping view of the Trent 700 production line below.

Out on the shop floor, there is no need for ear-defenders. There is not so much as a radio blaring out above the occasional soft burble of boffins discussing one of the 20,000 widgets which will go into every unit.

Each engine bears the name of its buyer — Hawaiian Airlines, Turkish Airlines etc. Each will cost several million pounds and will take just 20 days to build.

We walk outside to one of the test beds, each the size of a small factory with a square funnel at one end to steer the jet-propelled air upwards and out. Every engine will be run at full speed for hours while teams of analysts and banks of computers check every part.

We enter Test Bed 54 where a Trent 900, the largest engine of the lot — for the new A380 double-decker monster airliner — is going through its paces.

What is striking, again, is the absence of noise in the control room. I’m just a few feet from the thing. If this was an airport, I would be deaf. (In fact, standing this close to a six-ton jet engine thundering at full pelt, I would be dead.) But there is only a deep rumble rather like the sound on the lower decks of a cross-Channel ferry.

Today’s Rolls-Royce order book is ten times the size that it was in 1992. The company will soon be shifting 600 engines like this a year. More facilities and more staff will be required.

On a neighbouring part of the complex, builders are completing a new campus for what is, effectively, Rolls-Royce’s university. Chi-chi Californian internet outfits such as Google are not the only ones doing this sort of thing, you know.

Rolls-Royce’s new Apprenticeship Academy will open this autumn, lifting the total intake of apprentices from 200 to 400 per year.

And herein lies another clue to Rolls-Royce’s current success. It spends tens of millions each year attracting the best available talent at both graduate and apprentice level. And these apprentices are not just being trained to be good with a spanner.

Simon Morris was an apprentice. Now, at just 28, he is in charge of a division of 350 people.

The existing academy is impressive enough, a hangar-sized workshop teaching engineering basics to an intake who range in age from 16 to 46. One in ten is now a woman.

I find Emma Howe, 23, learning how to dismantle an oil cooler. Until recently, she was training to be an engineering officer in the RAF, before a medical condition scuppered her Forces career.

‘My grandad was a Royal Marine,’ she says, ‘and he always said that the two best places to work are the Forces and Rolls-Royce. And now I’ve done both. But I have learned more about engineering in here.’

Being a woman, she says, was no hindrance in the RAF, and nor is it here at Rolls-Royce.

Matt Williams, 20, from Scarborough, is dissecting an air valve. He had been contemplating a degree in aero-engineering at university but then decided to apply to Rolls-Royce. ‘Most of my friends are at university, but I have the same training, none of the debt, and I get paid.’

These apprentices don’t just learn about planes. Nearly half of what Rolls-Royce does is in the field of civil aviation, but the rest is in defence (from powering Typhoon fighters to nuclear submarines), shipping and the energy sector. Yet the expertise is much the same.

The U.S. Navy is developing a new high-speed patrol ship called an MT30, which cruises along at more than 40 mph with a Rolls-Royce jet engine.

‘If you look at the Trent engine in a ship, 80 per cent of it will be the same as the Trent engine in a plane,’ says 57-year-old Robert Nuttall, a Rolls-Royce lifer and head of strategic marketing. ‘We have a saying round here, “Invent once, use many times” — and we do.’

I am trying to pinpoint what it is which makes Rolls-Royce such a pre-eminent global success when so much of British industry has gone in the other direction.

Like many of our once-great businesses, it was a wreck by the 1970s and had to be rescued from bankruptcy by Edward Heath’s Tory government. It was privatised again in 1987 and has been growing in stature ever since.

At the same time, so many other British industries — from cars to shipping to chocolate — have vanished or been absorbed into international empires.

Just a mile away from Rolls-Royce’s Derby plant is the UK headquarters of Britain’s last train-maker, Canadian-owned Bombardier. It’s a well-run, focused modern company but it is suffering — not least because its foreign rivals enjoy a degree of preferential treatment from their governments which British ministers are not prepared to give to our own engineering companies.

Scandalously, and at a cost of 1,400 jobs in Derby, the Government decided last year to award a huge contract for new Thameslink trains to a German company rather than Bombardier.
Scandal: Train manufacturing company Bombardier in Derby, where more than 1,400 jobs were lost following the Government's decision to award a lucrative carriage order for the Thameslink route to Siemens

Scandal: Train manufacturing company Bombardier in Derby, where more than 1,400 jobs were lost following the Government's decision to award a lucrative carriage order for the Thameslink route to Siemens

Not so with Rolls-Royce. The Government regards the company as so valuable that it retains a ‘golden share’ to prevent a foreign takeover.

Rolls-Royce has one other advantage over its foreign rivals: its knowledge base.

‘If you wanted to make jet engines,’ says Nuttall, ‘you could take one of our engines apart and try to copy it, but you wouldn’t have the necessary 40 years of data. Nor would you have the skills of our people.

‘It’s not what you build that matters. It’s how you build it to withstand a 10lb goose flying into it when you’re travelling at 400 mph which matters.’

He points to a pivotal decision in the late Eighties. Plane-maker Airbus was looking for an engine to power its new A330 wide-bodied airliner. The world’s three main engine producers stepped forward.

The other two, General Electric and Pratt & Whitney (both American), proposed tweaking their existing models. Rolls-Royce went back to the drawing board and created a whole new beast, the Trent 700.

It was such a success that the Trent ‘family’ of engines now has six different models, one for each of the world’s most popular aircraft.

And, as Nuttall explains, each Rolls-Royce engine is worth five times its weight in silver. Extend the calculation to a family car, and the car is worth its weight in hamburgers.

But how do you maintain this sort of pre-eminence when we keep hearing that our finest graduates are abandoning engineering for hedge funding?

Rolls-Royce promises security and opportunity. It is never going to pay City salaries, but its success means that Derby is the UK’s highest-earning city outside the South-East, with salaries two-and-a-half times the national average.

It’s a similar story around the other Rolls-Royce complexes across Britain. And there are university-style tiers of Rolls-Royce Fellows and Associate Fellows who will be given months off just to ponder mad ideas for the engine of the future.

Most of the components in each engine are produced by a network of trusted suppliers. But the key technology is always kept in-house.

I am taken to a new building which makes another range of pioneering blades — for turbines rather than fans. These are small components — no bigger than my hand — built for the heart of a jet engine.

But they are such crucial super-widgets, each constructed from a single alloy crystal, that they are fundamental to Rolls-Royce’s success. Each one has to be capable of rotating the weight of a double-decker bus 200 times a second at 1,600 degrees (half the temperature of the sun).

‘It does the most difficult job in the whole engine,’ says Keith Maris from Chesterfield. At the age of 40, this former textile engineer has more than 300 engineers beneath him and a widget operation which, if it stood alone, would qualify as a FTSE 200 company.

And what of the bonus culture? Across the company, in a good year, everyone qualifies for a ‘thank-you’ which amounts to about a fortnight’s pay. At board level, it is more in line with industry norms. But last year, even the chief executive earned no more than a mid-range banker (£864,000 in salary plus a £843,000 bonus).

Yet I would suggest that Britain can learn far more about long-term financial prosperity on a Derby production line than on all the trading floors of Canary Wharf. If Rolls-Royce never sold another gadget, it still has enough firm orders to keep this company working at full capacity until 2018.

But these boffins are a modest bunch. ‘We don’t really think about the City very much,’ says Robert Nuttall, pointing out that his colleagues are more concerned with their own Holy Grail — shaving 20 per cent from the fuel consumption of the next-stage jet engine.

If they can pull that off, the order book will be safely over the hundred billion mark in no time. Perhaps, at that point, Rolls-Royce may even think about treating itself to its very own Rolls-Royce.

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