Rolls-Royce scans jet engine market to pull out of its downturn

Over the last few years, Rolls-Royce Ltd. has reduced its work force drastically. This British maker of jet engines knocked 5,900 people off its payroll last year - some 20,000 over the last three years - leaving about 42,000 .

If American stock market analysts are right, the nationalized Rolls-Royce will need to be slim and trim to face the competition ahead. (Rolls-Royce engine business was bought by the government in 1971 when it was failing, leaving the luxury car business in private hands.)

Because Rolls does not have the most advanced engines in some areas, it will not be able to raise its share of the world market for engines for commercial jet transports, maintains Alan Benasuli, of Drexel Burnham Lambert in New York. He likens the company to Chrysler in the auto market (''but without the recovery of Chrysler''). In this analogy to the United States auto industry, Pratt & Whitney (of United Technologies) compares to General Motors, and General Electric's aircraft engine division to Ford.

Another American analyst who keeps track of the commercial aircraft engine market, who would not be identified, held that that Rolls-Royce is ''kind of weak.''

Company officials, as might be expected, disagree. Dr. David S. Mitchell, assistant commercial manager, notes that Rolls has improved its labor force productivity dramatically, to within 1 or 2 percent of that of its two chief American competitors. Moreover, he adds, the market for jet engines shows signs of ''upward movement'' after several years of poor sales.

Mr. Benasuli agrees: ''The market is definitely coming back.'' For example, the Wall Street Journal reported last week that Saudi Arabia plans to buy 10 Boeing 747s. These would use Roll engines.

But the problem remains that three commercial jet engine makers are, in the eyes of some in the industry, one too many. The competition for sales is fierce. ''There is a danger of cutting one another's throat,'' warns Dr. Mitchell. The cost of developing and building a new jet engine is huge - around $1.5 billion.

Mitchell says Rolls-Royce now has some 20 percent of the world engine market for large aircraft and 50 to 60 percent of the market for engines for executive jets. ''Our aim is to increase our share of the market,'' he declares.

He adds: ''The way things are going, we certainly intend to be profitable within the next year or two. It is within sight.''

Last year the company lost $154 million on sales of $1.74 billion, down 16 percent from the year before.

Mr. Benasuli figures Rolls has 15 percent of the commercial jet market at most and could lose market share. ''They don't have the product,'' he says, maintaining that more modern Pratt & Whitney engines will take away business.

To survive the competition better, Rolls-Royce has been joining consortia with other enginemakers.

Earlier this year, Rolls and General Electric (US) agreed to share the risks and revenues involved in each other's most efficient engines. As a result, Rolls will take an initial share of 15 percent in GE's CF6-80C2 engine for large wide-body airliners (such as the Boeing 747 and 767 and the Airbus A300 and A310 ), and GE took a similar share in the Rolls-Royce 535E4 engine used in the new Boeing 757 aircraft, which is selling well. Both engines are derivative from other engines.

From the Rolls-Royce standpoint, the deal gives it a share in an engine in the 56,000- to 60,000-pound thrust, a class of thrust higher than the most powerful of its current engines and used in such planes as the Boeing 747. And GE gets an interest in an engine with 40,000- to 50,000-pound thrust, where the American maker has no contender.

In this latter class, Pratt & Whitney expects to make its first delivery of a brand-new engine this fall, the PW 2037, for Delta Airlines planes. So far Pratt & Whitney has 168 firm orders and 20 options for these $3.5 million to $4 million engines. It promises a 15 percent saving in fuel over other engines.

In the case of the larger engine, Pratt & Whitney also has a new engine in the works, the PW 4000. It is scheduled to be ready for service in 1987 and is expected to offer a fuel saving of 7 percent and involve 54 percent fewer parts, important in reducing maintenance costs. The market for such engines is estimated at $30 billion to the end of the century.

Moving down the thrust scale, Rolls last year joined in a five-nation agreement to develop a new jet engine for future 150-seat airliners. Here Pratt & Whitney is a partner, rather than a competitor. Both the Connecticut company and Rolls own 30 percent of a new joint company, International Aero Engines Ltd. , which will be responsible for the design, development, manufacture, marketing, and in-service support of the engine.

The other partners in the 20,000- to 30,000-pound-thrust engine, dubbed the VK2500, are Japanese Aero Engines Corporation (23 percent), West Germany's Motoren-und-Turbinen Union (11 percent), and Italy's Fiat Aviazione (6 percent). The engine is not expected to be in service until 1988, but it should offer 14 percent better fuel efficiency than any engine in its class today, the consortium figures.

The competition in this case comes from the CFM56, under development by GE and France's SNECMA. It is a derivative engine.

Offering new-technology engines in all three classes, Pratt & Whitney expects , as a spokesman put it, ''to be a strong contender, and (we) hope we will win the lion's share of the market.''

''Our problem,'' Mitchell said, ''was how are we going to stay in the business.'' He figures the collaboration technique is the answer, and should be ''the form of doing business for three or four decades.'' It reduces the competition from three companies to two companies. And, he hopes, it could better match capacity to demand for engines.