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29 March 2024

Rolls to fix A380 engine fault, take profit hit

Published
By Reuters

Rolls-Royce said fixing an engine fault that forced a Qantas A380 superjumbo to make an emergency landing would lead to only slightly slower profit growth, lifting its shares.

With one analyst saying the cost of the fix seemed to be "relatively modest", Rolls-Royce's shares rose 3.4 percent to be the top gainer on the blue-chip FTSE 100 on Friday.

"The failure was confined to a specific component in the turbine area of the engine. This caused an oil fire which led to the release of the intermediate pressure turbine disc," the British enginemaker said.

"Our process of inspection will continue and will be supplemented by the replacement of the relevant module according to an agreed programme."

Chief executive John Rose said the engine upgrade would be undertaken in collaboration with EADS-owned planemaker Airbus, Trent 900 customers, and regulators.

"This will enable our customers progressively to bring the whole (A380) fleet back into service," said Rose. "We regret the disruption we have caused."

Rolls-Royce shares hit a record high at 661.5 pence on Oct. 1, two days before the engine failure. The fallout from that incident saw the stock lose up to 14 percent of its value to a 563 pence low on Monday. At 1050 GMT, it stood at 605 pence.

The world's second-largest maker of aircraft engines said underlying profit growth for 2010 would now be slightly lower than a previously guided 4-5 percent growth because of costs associated with the blowout.

"Overall, it is pleasing the Trent 900 issue has been narrowed down and can be fixed for what appears to be a relatively modest cost. But the short-term disappointment is lowered guidance," said Investec analyst Andrew Gollan who cut Rolls-Royce's 2010 earnings guidance by 3 percent.

Prior to Friday's update the company had been expected to post 968 million pounds pretax profit for 2010, according to a Thomson Reuters I/B/E/S poll.

Separately, Airbus parent EADS said investigations into the Rolls-Royce engine blowout could delay A380 deliveries in 2011 as it focused on maintaining the existing fleet, when posting stronger-than-expected third-quarter profit.

"The customer has priority, and the priority is to keep the 39 aircraft flying or back in the air as quickly as possible and I would not rule out some impact on the delivery schedule," chief executive Tom Enders said.

Also, Boeing said recent problems with its 787 Dreamliner were not related to the Rolls-Royce-made Trent 1000 engine, allaying investor fears that there were problems with Rolls-Royce's wider family of Trent engines.

Qantas's six Airbus A380s have been grounded since last Thursday when a Trent 900 engine partly disintegrated mid-flight, forcing a fully-laden A380 to make an emergency landing in the biggest incident to date for the world's largest passenger jet.

Rolls-Royce said the bulk of the costs associated with the Trent 900 incident would be expensed this year and would be partly mitigated by a strong performance at its marine and defence businesses during the third quarter.

It said growth at its civil aerospace business would be underpinned longer term by the entry into service of Boeing's 787, Airbus's A350 and the Gulfstream G650, all of which use its engines.