Emirates tells Rolls-Royce: Go back to basics...

[BlankBox]

The head of Dubai's Emirates has urged Rolls-Royce (RR.L) (https://www.reuters.com/markets/companies/RR.L) to go "back to basics" and focus on the performance of its engines, a day after the British firm laid out plans to quadruple profits.

https://www.reuters.com/business/aerospace-defense/emirates-tells-rolls-royce-go-back-basics-get-engines-right-2023-11-29/

[WHBM]

Good comment by Tim Clark. Ergenbilic seems to be in cloud cuckoo-land, going on as if investors are the only important participants in this, saying they are going to hike purchase prices, hike power-by-the-hour fees, yeah, all the while that there is some issue to be addressed with elements of the engines (fan blades and possibly others). These are never mentioned, in some classic head-in-the-sand approach.

Apparently shares rose on his statement, but that's only some market maker figures by a know-nothing only listening to the investors statement. Others will not be so silly.

For the avoidance of doubt, the value of such a business is in the quality and marketability of their products. Not in some airhead statement to "investors". Yes, I'm sure there are some unnecessary costs to be taken out of the business. There are also some serious costs to fix issues with the product.

I give Ergenbilic just a few months more before Rolls chairman Anita Frew has to say that the game is up, and they need someone who knows what to do.

[tdracer]

From the linked article:Clark's message to the wider industry was straightforward.

"You're all fixated on buybacks, rates of return ... I promise you, build us the airplanes that we want and all this will fall into place".

I've been saying this for decades - all this focus on doing things to maximize profits and shareholder value miss the bigger issues:
Build a better product than the competition - making sure it's something that the market desires
Price it competitively
Produce it for less than it sells for
Invest as necessary to insure you keep doing the first three in the future

Do those four things, and profits and shareholder value will take care of themselves.

[Tango and Cash]

From the linked article:

I've been saying this for decades - all this focus on doing things to maximize profits and shareholder value miss the bigger issues:
Build a better product than the competition - making sure it's something that the market desires
Price it competitively
Produce it for less than it sells for
Invest as necessary to insure you keep doing the first three in the future

Do those four things, and profits and shareholder value will take care of themselves.

Where's the "like" button when I need it?

[Lonewolf_50]

From the linked article:

I've been saying this for decades - all this focus on doing things to maximize profits and shareholder value miss the bigger issues:
Build a better product than the competition - making sure it's something that the market desires
Price it competitively
Produce it for less than it sells for
Invest as necessary to insure you keep doing the first three in the future

Do those four things, and profits and shareholder value will take care of themselves. Amen, tdracer. :ok:
I hope Boeing takes your advice to heart as well ... soon.



[Winemaker]

From the linked article:

I've been saying this for decades - all this focus on doing things to maximize profits and shareholder value miss the bigger issues:
Build a better product than the competition - making sure it's something that the market desires
Price it competitively
Produce it for less than it sells for
Invest as necessary to insure you keep doing the first three in the future

Do those four things, and profits and shareholder value will take care of themselves.
Unfortunately this same advise would, if it had been followed, have been of great use to Boeing some years ago.

[tdracer]

Unfortunately this same advise would, if it had been followed, have been of great use to Boeing some years ago.
That's when I first started saying it - when P. Condit kept harping about "shareholder value". It was obvious even then that Boeing's new plan for making everything a 'profit center' was alienating the customer airlines and would end up biting them. Before Condit, Boeing customer service was top notch, and the airlines knew and valued that. Condit destroyed that top notch customer service and Boeing started paying the price.
UPS confirmed that not long afterwards when - after placing a big order for A300 Freighters - Boeing issued a presser saying that Airbus had given them away to keep the A300 line open.
UPS responded with a presser that basically said 'Yes, we got a good price, but our recent Boeing experiences are such that we would have bought Airbus even if they cost more...
Boeing management didn't get the message and doubled down on all the things that were pushing customers to Airbus. :ugh:

I hope Rolls Royce doesn't follow that same path, but what I've seen the last 10 years doesn't make me optimistic.

[Less Hair]

It must have been the Boeing owners back then who wanted Boeing to move financing from banks to stock.

[Thrust Augmentation]

I've been saying this for decades - all this focus on doing things to maximize profits and shareholder value miss the bigger issues

Seems to be the way of it these days in so many sectors, focus on shortish term profit & worry about the future at some point in the future....

[Uplinker]

There is another thread about CEOs which is relevant here. CEOs are no longer interested in making a good product or an innovative product. They are only interested in making money.

There seems to be a disease going round that makes CEOs abandon the USP of a company and what it does well, and instead do all they can just to make money. Boeing caught this disease some years ago, and now it looks as if Rolls Royce has caught it as well.

These CEOs don't care if their expert workers leave. They don't care about trashing and asset stripping long established companies. They don't care if the quality of the product drops. They only care about maximising profits.

Of course Rolls Royce can hold their airline customers to ransom by hiking up spares and maintenance costs for the engines on their wings.

[Less Hair]

This disease is called year-end bonus. They monitor the stock not the long term success of the company. Some avoid expensive research and future investments to please the short-term shareholders.

[SOPS]

This disease is called year-end bonus. They monitor the stock not the long term success of the company. Some avoid expensive research and future investments to please the short-term shareholders.

Alan Joyce and Qantas being a case in point. Spent 15 years destroying the airline …getting paid millions to do it. He is now in “hiding” in Ireland. With his millions.

[DType]

As an apprentice at RR Derby back in 1957, we were asked what RR's objectives were.
The acceptable answer was, "To make money, end of."
And many years later my boss in another engineering branch complained that it would be better for the company to put its cash into a building society than into product development.
How true that was, but someone somewhere has to do the product development.

[GrahamO]

Good comment by Tim Clark. Ergenbilic seems to be in cloud cuckoo-land, going on as if investors are the only important participants in this, saying they are going to hike purchase prices, hike power-by-the-hour fees, yeah, all the while that there is some issue to be addressed with elements of the engines (fan blades and possibly others). These are never mentioned, in some classic head-in-the-sand approach.

Apparently shares rose on his statement, but that's only some market maker figures by a know-nothing only listening to the investors statement. Others will not be so silly.

For the avoidance of doubt, the value of such a business is in the quality and marketability of their products. Not in some airhead statement to "investors". Yes, I'm sure there are some unnecessary costs to be taken out of the business. There are also some serious costs to fix issues with the product.

I give Ergenbilic just a few months more before Rolls chairman Anita Frew has to say that the game is up, and they need someone who knows what to do.

I couldnt agree less.

RR is massively bloated and inefficient. Spread around the Uk with bits made here there and everywhere and all assembled in a couple of places - legacy decisions coming home to roost. But nobody in RR wanted to shut down all the tiny tin-pot units all over the UK and consolidate. Then theres the staffing levcels and refusal to monetise their digital offerings (sales staff give everything away even if as valuable in the long term as efficient engines). RR would be far better off closing Derbny and moving the manufacturing to Seletar. Difficult, but worth it in the longe term.

As to 'Sir Tim' This is the guy who asks the impossible and then whines when he doesnt get it. The guy who expects and I means expects, a company to redesign the A380 engines (and Airbus the airframes as a result) but refuses to order enough to make it remotely viable.. He's turned Emirates into a customer not worth having as neither engine manufacturer wants the sh*t from him anymore. He;s made promises to thr Sheikh and now cant deliver so is getting all ratty. Chicken have come home mate.

He wants the A350's, but so far RR are not playing ball with his nonsense demands - and about time too. The XWB sells very well, and along with the A350 is the only game in town. But at long last RR are telling him that they can sell as many as they want at a certain price and eprformance point to other people, and if he doesnt like it they can go swivel 'cos GE aint playing at all on the A350. Well done RR putting him back in his box.

As to the others sugestions of ;

Build a better product than the competition - making sure it's something that the market desires
Price it competitively
Produce it for less than it sells for
Invest as necessary to insure you keep doing the first three in the future

then none of those requires you to kill your company working for Emirates with stupid performance demands, silly expectations on pricing, riduculous demands on manufacture obligations and ignore other custom ers when Emirates want yout o modify your product to suit one airline.

Clark is a problem no longer worth having. He's created the mess he is trying tgo get others to dig him out of and he's kicked people so many times, nobody will give him the time of day anymore.

[GrahamO]

There is another thread about CEOs which is relevant here. CEOs are no longer interested in making a good product or an innovative product. They are only interested in making money.

There seems to be a disease going round that makes CEOs abandon the USP of a company and what it does well, and instead do all they can just to make money. Boeing caught this disease some years ago, and now it looks as if Rolls Royce has caught it as well.

These CEOs don't care if their expert workers leave. They don't care about trashing and asset stripping long established companies. They don't care if the quality of the product drops. They only care about maximising profits.

Of course Rolls Royce can hold their airline customers to ransom by hiking up spares and maintenance costs for the engines on their wings.

Just about every assumption you make about RR is wrong.

Firstly, the profit isnt in aircraft engines - its a money pit and always has been. It MASSIVELY uncompetitive. Nothing it does makes money. its subsidises everyting off foreign power and foreign defence. The UK is a money pit and Singapore and the US - the future lies there and not in Derny where the 'experts' are decades out of date and like civil servants when it comes to performance.

[Uplinker]

I would be delighted if I am wrong. Having lost my job twice owing to incompetent airline CEOs, and having had to start again to get another airline job twice in as many years, at a mature stage of life, (and sell my house and downsize because I could not pay the mortgage after the second airline went bust), I have seen and suffered CEO incompetence at first hand, twice - in fact three times if you include the BBC, my first employer - so I am therefore somewhat distrusting of some CEOs and their alleged 'competence' and enormous pay packets.

If what you say about RR is correct and if RR production is as bad and as inefficient as you say, then it sounds that RR have also had bad CEOs, so perhaps I was right ?

You also say that "Derny", Derby perhaps? are decades out of date, but I was under the impression that RR were still innovators - single crystal turbine blades etc. ?

[pax britanica]

Try reading 'The Smartest Guys in the Room' the Enron story of how a small American natural gas pipeline operator became one of the biggest companies on Wall Steet.
They moved from a business model of shipping gas around in pipelines to 'trading' gas . The latter was very profitable and more and more effort went into that and Zillions paid to the C_Suite and traders.

Only problem is that after a few years they were almost in the position of trading with themselves as they exceeded over 50% of all trades.
Cooked the books to cover up all the dodgy trades the point where the entire enterprise was a fraud and the mantra of shareholder value was trotted out time and time again.

Why do we need a CEo from Turkey or wherever to run a Company that was a symbol of the UK ? Look up the CEOs of UKs ten biggest companies , two are what might be described as havign clealry british names , both ladies and I think one s a Canadian.

[GlobalNav]

From the linked article:

I've been saying this for decades - all this focus on doing things to maximize profits and shareholder value miss the bigger issues:
Build a better product than the competition - making sure it's something that the market desires
Price it competitively
Produce it for less than it sells for
Invest as necessary to insure you keep doing the first three in the future

Do those four things, and profits and shareholder value will take care of themselves.


Oh, I dunno....it worked for Boeing.

[olster]

Crikey, all this from Tim Clark demonstrating even by modern standards a spectacular level of lack of self awareness. I doubt whether sir Tim has even the slightest knowledge of how a jet engine actually works but if ever there was a company driven by money regardless of consequences then it would be Emirates.

[Octane]

Oh, I dunno....it worked for Boeing.
Oh no it didn't, in a terrible way. 737-Max..

[Winemaker]

Oh no it didn't, in a terrible way. 737-Max..
Not to mention the 787 approach to manufacturing..... Have everyone else make the parts then just put it together.

[SMT Member]

Or the 777X; 10 years to slap on a new set of feathers and motors, and they’re still not there yet. But the stock price was on a mighty fine trajectory for a while ...

[GrahamO]

If what you say about RR is correct and if RR production is as bad and as inefficient as you say, then it sounds that RR have also had bad CEOs, so perhaps I was right ?

You also say that "Derny", Derby perhaps? are decades out of date, but I was under the impression that RR were still innovators - single crystal turbine blades etc. ?

having spent a fair amount of time with the modernisation team (and quite a few board members) , the amount of 'not done here' within the company is massive. It still consist of tiny fiefdoms. Doing to most simple things takes months, if not years. the CEO can only do so much and you just have to look at the defence and power businesses to see how profitable and well run they are. they cant even provide the most basic of finance functions as everything is tuned to produce engines, but nobody can actually work out how much an actual engine costs in practice. Warren had a huge pile of Post-Its of major issus to eb solved and having a funcioning finance system was not even close to the top of the issues.

The civil aerospace business is completely different. Its massively bloated and full of people who are largely unemployable outside of RR - and getting rid of anyone takes far too long. There is huge duplication. They rely upon multiple UK locations for components - each with their own leadership, supply chain, transport etc etc . It all come together in Derby - which to be fair has had millions spent on it and is getting physically better - but should have consolidated its entire Uk manufacturing chain. But if you take the digital business for example - its housed literally in an old rotten brick building, leaking gutters and utterly unsuitable for a 'digital' company it professes to be. I laughed the first time I visited, as it was so terrible.

RR are undoubtedly innovators - but Derby isnt the only place in town and who in their right mind sets up leading edge digital business in Derby ? they had a succession of leaders, none of whom would make it in silicon fen, let alone valley. Seletar looks, feels and operates like a modern company and cut its ties from Derby years ago - so Derby stayed in the 1970's while Seletar is what you wuld imagine RR to actually be like.

It was one of the previous RR Chairmen who said "RR is a small Derby engineering firm trying to do business internationally' and the mentality is well and truly stuck there.

[GrahamO]

Crikey, all this from Tim Clark demonstrating even by modern standards a spectacular level of lack of self awareness. I doubt whether sir Tim has even the slightest knowledge of how a jet engine actually works but if ever there was a company driven by money regardless of consequences then it would be Emirates.

To be fair to Sir Tim, he actually does have a very very good understanding of how engines work. Despite that, he still insists upon the impossible as thats the only way he can make Emirates work.

Its not lack of self-awareness but lack of caring a f*** about whether what he wants is actually possible. He knows that it would be stupid to sign up to Emirates performance demands but that wont stop him from asking. You would have thought that after Airbus gave him the finger over keeping the A380 live, given the V's by GE/Engine Alliance over the A380 engines and only being left with RR who would put up with them, he might have learned. He didnt and cannot as he is being watched by the COO who definitely wants his job and being Emirati, will get the job if Sir Tim doesnt play hardball 24/7 unreasonably.

I can just imagine all the wilting daisies crying in civil aerospace that the new CEO wont let them sign up to ridiculous terms and that the Emirates COO is having an apoplectic rage that he isnt getting what he wants (and has probably already promised to the Sheikh). This is the same COO who promised the Sheikh that Airbus would accept more A380 orders and RR would continue to make more Trent 900's.

That all said, I support RR 100% holding out against Emirates demands. Emirates cant go to anyone else for the A350 engines, so its time Sir Tim got a good kicking over his past history of unreasonable demands.