Rolls-Royce Said to Mull Short-Haul as Boeing Jet Opens Door

Rolls-Royce Holdings Plc is evaluating whether a trend toward bigger planes will provide an opening for it to re-enter the short-haul engine market, according to a person with direct knowledge of the company’s plans.

Boeing Co.’s work on a successor to the 757, the longest-ever narrow-body, may point to bigger replacements for its 737 and Airbus Group SE’s A320. That would render current engines redundant and let Rolls compete on equal terms, said the person, who asked not to be named because its studies are private.

Warren East, chief executive officer since July, will address plans for what Rolls calls middle-of-market aircraft -- bigger than regional jets but smaller than wide-body models -- on Nov. 24 when briefing investors on initial conclusions of an operational review, according to the person.

Stock recovered from losses earlier in the day to rise as much as 0.3 percent to 676.5 pence. The shares have fallen 20 percent this year, valuing the company at 12.4 billion pounds ($19 billion).

Rolls-Royce quit the single-aisle market with the sale of a 33 percent stake in the Pratt & Whitney-led International Aero Engines AG consortium in 2011. A return to the segment would pit it against both United Technologies Corp.’s Pratt and the CFM International alliance of General Electric Co. and Safran SA.

‘Opportunity’

Rolls-Royce spokesman Peter Morgan said the short-haul sector “may be an opportunity for the company, but not for some years to come.”

To be sure, Pratt & Whitney has used Airbus’s re-engined A320neo to introduce an all-new geared-turbofan design, though mostly to defend market share against CFM’s new Leap model rather than to attack a new market.

“Every new platform gives an engine or systems supplier an opportunity to reinvent themselves,” David Hess, IAE chairman and head of aerospace development at UTC, said in an interview. “We certainly did it with the Neo. If Airbus or Boeing or anybody else were to do a new airplane it would provide an opportunity for Pratt, GE or Rolls to conceivably develop a new engine.”

Rolls-Royce is reviewing its strategy as output of Trent wide-body engines is poised to reach record levels with accelerated deliveries of the XWB turbine that powers Airbus’s latest A350 model, propelling it to about 50 percent of the twin-aisle market.

Volume Market

Rolls sees a need for more than 11,000 planes of 110 to 250 seats in 2014-2023, versus 3,000 carrying 300 people or more. Demand has been spurred by low-cost carriers including Southwest Airlines Co., Ryanair Holdings Plc and AirAsia Bhd., which have hundreds of short-haul aircraft in service or on order.

While revamp decisions that led to the A320neo and 737 Max have left Rolls frozen out, prolonging decades-old blueprints means successor models may be radically different in terms of size, range, speed and a host of other parameters as designers seek to address the evolving air-travel market.

That may provide the opportunity Rolls-Royce needs, especially since Boeing’s focus on a 757 replacement could indicate a trend toward larger aircraft that leads short-haul airliners to morph into mini wide-bodies, the person said.

Trading Up

Discount carriers are already trading up, with EasyJet Plc switching to Airbus A320s from A319s and Wizz Air Holdings Plc to A321s. Larger jets also maximize seats-per-flight, easing pressure on crowded runways.

It’s not clear whether Rolls-Royce could re-enter the short-haul market alone or would seek another partnership. Alliances are not unusual among engine-makers, and Rolls explored a new 50:50 deal with Pratt & Whitney after the IAE restructuring, only to abandon the plan in 2013 amid antitrust concerns.

Service entry for all-new short-haul designs is at least a decade away. A replacement for the 757 -- which ceased production in 2004 -- is slated for the mid-2020s if it goes ahead, while Airbus has said an A320 successor could be pushed back to as late as 2030.

Even with a decade’s lead-in time, Rolls-Royce will still face a huge task in creating a competitive model. Pratt & Whitney’s geared-turbo fan could be delivering a 25 percent efficiency gain by then, Hess said last week at the Aerodays manufacturer’s conference in London.

- Original article can be found at:  http://www.bloomberg.com