‘We can’t wait for hydrogen’: Rolls-Royce – Warren East on the engine maker’s future – The Guardian.
Outgoing CEO looks back on his seven years at helm and how sustainable aviation fuel can power the journey to net zero.
Warren East says it has been a “privilege” to lead Rolls-Royce for seven years, as he prepares to retire on New Year’s Eve. But it has also involved considerable pain.
East’s battles have ranged from a £671m settlement for a giant bribery and corruption scandal from before his time, to the discovery of costly cracks in its jet engines. Then Covid-19 struck, grounding the aeroplanes whose engines Rolls-Royce builds and services.
The crisis was existential for arguably the UK’s most illustrious industrial company. East set about finding more than £7bn from investors and lenders, and cut 7,000 jobs.
Now, he says, “the tools are there” for his successor, the former BP executive Tufan Erginbilgic, to improve its financial performance – and perhaps even emerge from the state of constant crisis. Erginbilgic, two years older than 61-year-old East, will take over on 1 January.
Warren East, sitting in Rolls-Royce’s London office.
I certainly hope he has an easier time in terms of issues.
East, an Oxford-educated engineer, joined Rolls-Royce’s board in 2014, but was hurriedly installed as chief executive after the abrupt exit of predecessor John Rishton. It was something of a surprise second act: East had, in 2013, announced his “retirement” as chief executive of Arm, the Cambridge-based chip designer that he built into the UK’s most successful tech company (before it was later snapped up by Japan’s Softbank).
Rolls-Royce is a very different business, with 44,000 employees across 14 countries. Based in Derby, it sells jet engines at a loss and makes profits on maintenance later – so when during the pandemic the hours flown plunged to only about 10% of 2019 levels it was a disaster. After generating just under £1bn in cash in 2019 it burned through £4.2bn in 2020, even with help from the UK government’s furlough scheme to pay wages.
However, East says the company, which was nationalised in 1971 after falling into receivership because of the ballooning development costs of the RB211 engine, “never asked the government” for direct support this time around (although a £2bn loan facility was backed by a government agency). The luxury cars business of the same name was split from the core jet engines at the point of nationalisation.
“I think the world’s in a different place to the 1970s,” he says. “I’m not sure state rescue would have been practical from a political point of view.”
Engine flying hours are back above 70% of pre-pandemic levels, but even if its recovery continues, the pandemic scare has added weight to longer-term investor concerns.
Even so, there are reasons for optimism for East’s successor. In China, where widebody planes with two aisles and Rolls-Royce engines are often used for short-haul routes, the zero-Covid policy pursued by China’s Xi Jinping has meant that flying hours are still about 30%. But China’s decision to reopen its airspace and cease quarantine rules for inbound travellers, made after the interview, will turbocharge the aviation industry.
Does Rolls-Royce have the financial heft to go it alone? East is dismissive when asked about long-awaited consolidation in the sector, such as a takeover by the US’s Pratt & Whitney. “Yeah, I mean, there are always these trends,” he sighs.
He argues the company is “absolutely fine”. It has scale from its divisions building engines for boats and big land vehicles and its defence business making nuclear submarine reactors, and he also points to its 50% share of engines for large planes with two aisles.
However, if Rolls-Royce wants to win new work – and particularly if it wants to move into the faster-growing market for single-aisle planes – it will have to wait for aircraft makers Airbus and Boeing to commit to a new plane. That could take years. Boeing is still trying to recover from the 737 Max disasters, while Airbus has the luxury of waiting and making easy profits.
East says Rolls-Royce is “absolutely certain that there will be another widebody plane” with two aisles. Throughout the pandemic cuts he continued to invest in a new engine capable of propelling 200-tonne aircraft while using a fifth less fuel.
Richard Aboulafia, a consultant at Aerodynamic Advisory, said it was impressive that Rolls-Royce had “stayed intact” through the pandemic and also continued to invest in the new engine, known as UltraFan, “despite the lack of a clear application and despite serious pressure on the company’s engineering budget”.
East said Rolls-Royce may end up recouping the UltraFan investment before it ever builds an engine because of progress in things such as materials and cooling techniques that it can apply to older engines.
