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00:00 While Rolls-Royce Holdings' shares peaked at £1,292 in 2014, they're now trading at around £150. But how did it lose more than 85% of its value in less than 10 years?
00:16 Rolls-Royce is a British group that used to build luxury cars (today produced by BMW) and now makes engines for aviation for almost half its sales, and on the margin turbines for the Navy.
00:26 Prior to 2013, Rolls-Royce posted solid growth. The RB211 jet engines, followed by the Trent range of turbojet engines, were real successes, adopted by Lockheed Martin, Airbus and Boeing for a large proportion of their commercial aircraft.
00:41 Then came the time for strategic errors. In the 2000s, Rolls-Royce decided to focus on wide-body jets, gradually withdrawing from the single-aisle market.
00:50 In 2011, it even left the alliance it had formed with American manufacturer Pratt & Whitney, since 1983, a decision that went against the direction of the market.
01:00 Indeed, four-engine wide-body jets slowly lost their appeal. Too energy-hungry, not very agile, and harder to fill, they're not very profitable.
01:08 Instead, airlines increasingly prefer single-aisle aircraft, especially since, thanks to technological advances, they are now capable of long-haul transatlantic or transcontinental flights, previously handled only by wide-body aircraft, and all for 15% less kerosene.
01:24 The share of narrow-body aircraft in the world fleet is increasing, and this trend is set to continue. The consequences? Rolls-Royce's results are falling.
01:33 In 2014, for the first time in 10 years, its sales volume stopped growing. From that point on, the group remained in trouble, with profit warnings, losses, and waves of redundancies.
01:43 In 2016, the pound depreciated sharply following the Brexit vote. This was a hard blow for the group, which incurred record half-year losses of 2.3 billion euros.
01:53 In the aftermath, corrosion defects on Trent 1000 engines grounded several dozen Boeing aircraft, turbines were sent back to the workshop, and compensation to airlines ran into the tens of millions.
02:04 2019, the pound dropped again, and so did the group. And then, on top of it, Airbus announced that it will stop production of the A382 years later.
02:13 Some £245 million were lost, to which must be added the monstrous losses linked to the Trent problems, close to a billion pounds, between surplus stock and financial compensation.
02:25 In 2020, COVID finished the job. As a reminder, Rolls-Royce makes money on aircraft flying hours, and at overhaul time. Air traffic, especially wide-body traffic, came to a standstill. It's a debacle.
02:37 It's worth noting that COVID also accelerated the withdrawal of a large number of four-engined aircraft from service, and the closure of production lines for the 747 and A380.
02:48 Is it possible to turn the situation around? Yes, but it's complex. The aircraft ranges are already powered, so we have to wait for Boeing or Airbus to launch new models.
02:57 Designing an engine takes several years and costs billions. So you need to position yourself on programs that are going to be successful, and therefore have a hell of a flare if you hope to achieve profitability.
03:06 Airlines sometimes opt for engine manufacturers able to equip and maintain all the models in their fleets, whether wide or narrow-body.
03:14 Finally, Rolls says it wants to form a partnership to return to this segment, but it still needs to find one and get past persistent supply problems.
03:21 What avenues can be explored to restore growth without single-aisle aircraft?
03:25 The group can capitalize on the Ultrafan, its latest generation engine designed for wide-body jets, but which could later be adapted to single-aisle aircraft.
03:33 It can capitalize on the success of its test flights using 100% SAF, the sustainable fuel the industry needs to achieve net zero by 2050.
03:42 The group can also count on growth in the Asian aviation market, especially in China, where demand for large aircraft is still strong.
03:49 Rolls-Royce could also benefit from the ambitions of Comac, the Chinese aircraft manufacturer.
03:54 Finally, Airbus says it wants to revive its position in the wide-body segment to compete with Boeing, the leader in this segment.
04:00 This is a godsend for Rolls-Royce, as there are fewer supply problems in this segment.
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