Rolls-Royce Sees Profit Increase for 2012

May 4, 2012

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British aero engine maker Rolls-Royce expects profits to rise again in 2012 as it continues to benefit from airlines' need for more fuel-efficient planes and the relentless demand for travel to and from Asia's burgeoning megacities.

Rolls, the world's second-largest maker of aircraft engines behind General Electric, said on Friday it had made a good start to the year and that its key civil aerospace unit, which accounts for half of group sales, would lead strong profit growth at the group this year.

"For the full year, the group continues to expect good growth in underlying revenue and underlying profit with cash flow around break even as we continue to invest in future growth," Rolls, which makes engines for Airbus and Boeing, said in a statement.

Global airlines will buy USD$3.5 trillion of aircraft over the next 20 years to meet demand for travel to and from emerging markets - especially in Asia - and renew fleets in the West, according to the world's big two plane makers.

The predictions underscore soaring demand for narrow-body or single-aisle jets such as the Boeing 737 and Airbus A320, the backbone of many airlines. Analysts forecast that 20,000 narrow-body planes will be produced in the next 20 years.

Rolls, which reported a 21 percent rise in 2011 profit, has more than 5,000 engines - worth about GBP£52 billion (USD$84 billion) - on order. As well as airlines' switch towards more fuel-efficient aircraft, growth last year was boosted by the acquisition of German engine maker Tognum and the sale of its stake in International Aero Engines.

A new joint venture between Rolls and US rival Pratt & Whitney to develop the next generation of engines for the mid-sized aircraft market is expected to be officially formed this year.

Airlines are investing in new lightweight planes to lower fuel costs, which are rising. European carriers Air France-KLM and Lufthansa this week reported results battered by high fuel costs.

Industry body IATA expects the global airline industry to suffer in 2012 because of a toxic mix of high fuel prices and the eurozone debt crisis.

"Things move slowly in aerospace... but for Rolls-Royce, a super tanker with positive momentum, that is just fine," said Investec analyst Andrew Gollan. "The stock is at an all-time high... we continue to see upside over time."

The company, whose website says a Rolls-Royce powered aircraft takes off or lands every 2.5 seconds, said its new Trent XWB engine took to the skies on board an Airbus A380 flying test bed during the first quarter.