Rolls Royce counts the cost on Dreamliner Engines

During its annual results calls yesterday, Rolls Royce admitted that the cost so far was some £530 million – $729 million US.

Despite questions it wasn’t exactly straightforward on how those costs were broken down.

Costs are divided into new equipment to replace faulty units, labour costs – the programme has required intensive use of internal resources to solve the problem and implement change to the finished product.

Most however is likely to have come from compensation payouts to airlines wet leasing replacement aircraft and discount on maintenance contracts.

Much of the discount isn’t applied as cash but as off-invoice goodwill extensions.

For example airline-X May have purchased 40 engines with a 5 year maintenance contract – Rolls Royce will probably add another year to that for free to the airline – but it still costs Rolls Royce in four years time when it has to pay for servicing.

In some ways airlines who leased engines have cost it even more – lessors expect fast service turn around and pay a premium to ensure operational availability.

Nobody is saying how Rolls Royce is precisely compensating Airlines for wet leases they’ve taken out or aircraft they’ve bought in – its unlikely they’re getting anything if they go as far as Virgin Atlantic have in leasing A332’s, but suffice to say the costs to Rolls Royce are far from over yet.

It’s total losses for the year were close to £1.3 billion.

The problem is a larger one in the Aero Engine industry as a whole. GE are investigating their 787 engines for possibly similar problems to RR, issues with new engines for Neo, Bombardier, and so on are symptomatic of a desire to get commercial acceptance before fully trialling the product.

That pressure comes from Boeing and Airbus, who make promises to customers based on theoretically possible engine performances.

Engine manufacturers push to meet deadlines and reach operational capability faster than ever – but clearly they’re cutting corners to get there.

The question is how soon before these corner cutting time savers – because they don’t save costs, lead to a major airliner failure?

I fear engine, aircraft manufacturers and airlines, have become a little complacent and the regulatory environment too lax, and too orientated to ‘self-certification’, for ongoing safety to be guaranteed.

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