Rolls-Royce Group Plc’s future chief John Rishton may find his biggest challenge will be to keep his engineers busy beyond 2013, when Airbus SAS and Boeing Co. take a respite from new jetliner projects.
Rishton, 52, takes over as chief executive officer at Rolls in March, succeeding John Rose, who tapped a slew of new plane designs to build a record order book and turn the London-based company into the world’s second-biggest aircraft engine maker.
Meeting a target of doubling the company’s sales by 2020 should be possible thanks to contracts won during Rose’s 14-year tenure. The tougher task will come during a lull in programs between introduction of Airbus’s A350 widebody in 2013 and work from a new range of single-aisle planes toward the decade’s end.
“You look forward a few years and Rishton’s challenge may be to find other things to do with the company’s engineering capability, because there aren’t that many new aircraft programs coming through,” said Sandy Morris, an analyst at Royal Bank of Scotland Plc with a “buy” recommendation on Rolls-Royce stock.
Rolls closed down 1.3 percent at 595.5 pence in London, following a 1.4 percent decline yesterday after the management shuffle was announced. The stock has gained 25 percent this year for a market value of 11 billion pounds ($17 billion).
Rishton joins from Dutch retailer Royal Ahold NV, where he has been CEO for almost three years. Appointed as a non- executive director at Rolls in February 2007, he can also draw on his 12 years at British Airways Plc, one of the engine manufacturer’s biggest customers.
The new chief will inherit a target of doubling sales from last year’s 10.4 billion pounds by the end of the decade, set in February 2009.
Aiding his chances is an order book that stood at 58.4 billion pounds as of June 30, with many of those contracts for the Trent 1000 engine powering Boeing’s 787 Dreamliner, which commences deliveries next year, and the Trent XWB, the only available turbine on the competing Airbus A350.
Airbus says a replacement for its A320 single-aisle planes probably won’t fly until the middle of next decade, while Boeing doesn’t plan to make a successor to the 737 until at least 2020.
With fewer products undergoing development and a surfeit of engineers on its books, Rishton may need to build up other units to avoid losing skilled labor.
“Rolls isn’t going to make redundant workers it struggled to find in the past and will have to redeploy them,” Morris said. “So Rishton’s challenge probably lies outside civil aerospace, which is where Rose has been spending most of his time of late. It’s probably going to be quite different.”
Growth areas under the incoming CEO are likely to include marine and defense engines, energy turbines and work in the nuclear power industry, Morris said. Calls to a Rolls-Royce spokesman weren’t returned.
Last year, 44 percent of Rolls’s revenue came from civil aerospace, 26 percent from the marine business, 20 percent from military engines and 10 percent from energy turbines.
Airbus and Boeing may also offer re-engined versions of their short-haul models in the nearer term. While Rolls has a share of the existing market through its International Aero Engines venture with Pratt & Whitney, it isn’t participating in the U.S. company’s geared-fan project for an updated A320.
When the planemakers do eventually commit to all-new models, open-rotor technology like that being developed by Rolls is likely to be favored. Still, the U.K. company has no guarantee of success, as market leader General Electric Co. will be competing in the same category.
In following Rose, 57, and Ralph Robins, CEO in 1991-92 and chairman for the next decade, Rishton must propagate contacts with carriers that ordered Rolls engines to propel the U.K. business past United Technologies Corp.’s Pratt to No. 2 in the market, said Howard Wheeldon, senior strategist at BGC Partners.
“Rose and Robbins brought in airlines that wouldn’t necessarily have previously bought Rolls engines, but which did so because of the service-based relationship and price-based relationship,” Wheeldon said. “On manufacturing efficiency, there is no-one else to fly the flag but Rose.”
At Ahold, Rishton embarked on a cost-cutting plan and refurbished stores in the U.S. to reignite sales growth and boost profit. In March he pledged to use part of a 2.7 billion- euro ($3.4 billion) cash pile to increase the dividend and buy back 500 million euros of stock.
“We know him as a guy who is very good at squeezing costs out of the business,” said Richard Withagen, an analyst at SNS Securities, who has a “buy” recommendation on Ahold. “When a company needs someone who needs to look after the costs and operations, he is the right guy.”
‘Stability and Discipline’
Rishton’s career at British Airways included four years as chief financial officer between 2001 and 2006, a time when passenger traffic was hurt in the wake of the Sept. 11 attacks.
“He brought a lot of stability and discipline during the uncertainties and downturn after the invasion of Iraq,” said Tony Cocklin, a spokesman for aviation consultant Nyras, who was manager of the chairman’s office at BA when Rishton was CFO.
Rose’s pre-Rolls career was in banking, with the First National Bank of Chicago and Security Pacific. He joined the engine maker in 1984 in the treasury department, became a director in 1992 and from 1993 led the U.S. division, before being promoted to the top job in 1996.
Rishton will start on similar employment terms to Rose, with an 850,000-pound salary. He will also receive shares worth 2.8 million pounds as part of a “special grant” to match incentives forfeited on leaving Ahold.
To contact the editors responsible for this story: Colin Keatinge at email@example.com