New boss fires up the engines at Rolls-Royce

The Rolls-Royce boss has announced a sweeping shake-up to reverse years of underperformance.

Chief executive Tufan Erginbilgic described the FTSE 100 engine maker as a ‘burning platform’ shortly after the acquisition at the start of the year.

And yesterday he declared: ‘No company can continue like this and that is why we have to change.’

A strategic review to determine the company’s investment priorities will be reported in the second half of the year – and Erginbilgic said a plan to turn its fortunes was already underway “at a rapid pace”.

Shares rose 23.7 per cent, or 25.48 pence, to 133.1 pence – marking their highest level since November 2021 – while underlying operating profit rose 57 per cent to £652m.

Erginbilgic, a former BP executive, took over at Rolls-Royce in early January and made his presence felt quickly.

He hinted that the company has spread too thin, saying, “We’ve tried to keep too many options open.”

He added: “We have been underperforming financially for years. I think it is very important to be honest with our people to help them understand the realities we are facing and the need for change.”

The planned shakeup could send a chill through a company that has already lost thousands of jobs after the pandemic pushed it to the brink of collapse.

Now it is recovering, aided by the post-lockdown aviation boom. Flight hours in the large engines it sells to airlines were up 35 percent, but still a third below pre-pandemic levels.

The company expects profits to rise to as much as £1 billion by 2023 as the recovery continues.

But Erginbilgic said it wasn’t just Covid that was responsible for the company’s woes in recent years, indicating it underperformed rivals and shareholder returns were low, even excluding the 2020 crisis year.

He said that while the latest results showed improvement, it was from a “very low base.” Since joining, Erginbilgic has visited major sites in the UK, US and Germany and said they all have ‘great potential to create value for Rolls-Royce’.

He said his review was designed to simplify the company and address its “footprint” – by which he means the number of sites it has – but declined to confirm that Rolls would have to exit or downsize some of its businesses.

Erginbilgic indicated that Rolls’ core engine making business had a bright future ahead. But that fueled speculation about what could happen with other operations, such as making propulsion systems for electric flying taxis.

Erginbilgic expressed support for the company’s plans to build a fleet of mini-nuclear reactors in the UK, seen as an important part of the transition to net zero, but reiterated its predecessor Warren East’s concerns about the need to government support.

George Zhao, an analyst at private asset manager Bernstein, said it was notable that Erginbilgic talked about the merits of a number of companies, but not electric aircraft, and that could be an area where Rolls needs to make a decision on further investments.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The work to get the business into a more efficient shape is just beginning.”