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Outpouring of praise for Erginbilgiç‘s achievements may have obscured some deeper structural problems
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If pithy soundbites powered companies, the great Rolls-Royce revival might go on forever. Boss Tufan Erginbilgiç has notched up enough to fill an entire management textbook and he’s not even been there two years yet.
There was the incendiary speech he gave on taking charge where the industrial giant was compared to a “burning platform”, followed shortly by a warning to those at a power systems unit he was concerned was prioritising turnover over profit that “a hundred times nothing is still nothing”.
Meanwhile, investors were so taken with the pace at which the former BP executive sought to tackle the company’s long-standing problems that Erginbilgiç quickly acquired the nickname “Turbo Tufan” – a nod to its Turbofan range of jet engines.
So with the Rolls-Royce share price repeatedly hitting new all-time highs on the back of a deluge of hype that has bordered on the hysterical at times, it was surely inevitable that Erginbilgiç would be brought back down to earth with a bang at some point.
Is it premature to say that an escalating row with British Airways (BA) has the potential to bring the honeymoon to an end? Perhaps, but it certainly risks clipping his wings.
The company has made great strides in rebuilding a reputation ruined by repeated setbacks so it can ill-afford to get into a public spat with one of its most important and high-profile customers.
BA won’t have taken the decision to go public with its frustrations lightly. The fact that BA has chosen to air its concerns in the weekend press suggests its patience is close to running out – blue-chip corporates hate it when disputes break out into the open.
Nor is it the only airline with an axe to grind. With Virgin reportedly experiencing the same issues, it is a disagreement that could easily spiral into a full-blown crisis.
At the very least it raises questions about whether Erginbilgiç has really got to grips with Rolls’s more entrenched problems. His devoted fan club has clearly convinced itself he has – the company’s shares have leapt six-fold from 93p to 570p since he took charge in January 2023.
However, veteran Rolls-Royce watchers may be struck by an overwhelming sense of deja vu in the complaints pouring out of BA, with the row centred on fresh issues with Rolls-Royce’s doomed Trent 1000 engine.
That fact alone should be enough to give investors sleepless nights. The Trent 1000 has been plagued with problems stretching back a decade. The need for regular servicing has repeatedly left planes where the engine is used grounded for longer, creating a maintenance backlog that has damaged trust in a company once regarded as one of Britain’s most illustrious before it became a byword for unreliability.
The Trent 1000 is also one of the models most widely used for long-haul flights, meaning any serious issues with it have the potential to cause massive disruption, as BA and Virgin are quickly discovering.
With maintenance taking longer due to shortages of vital parts this time around, BA is blaming Rolls for a decision to ground hundreds of flights over the weekend. Virgin is expected to shortly follow suit.
The row has escalated partly because in the past airlines have been able to minimise the fallout by drafting in planes from other parts of their fleets. Yet because those aircraft have already racked up numerous additional hours in the sky, they too are now ready for servicing, making it increasingly difficult to offset the logjam.
Rolls-Royce insists it is taking decisive action, having embedded 50 of its employees within major suppliers as part of an internal Trent 1000 task force to speed up delivery of spare parts. Yet it is striking that BA appears to have little faith in the ability or the willingness of Rolls to bring an end to the saga anytime soon.
“We’re one of the biggest operators of the Trent 1000 engine in the world and we’re yet to see anything from them that gives us any confidence that they understand just how damaging this issue is for us,” a BA source was quoted as saying.
Meanwhile, a spokesman said: “We’ve taken this action because we do not believe the issue will be solved quickly.” Ouch.
It is hard not to have some sympathy with Rolls’s predicament. Given the bottlenecks are at least partly the result of spare parts shortages, management is entitled to feel somewhat aggrieved at being singled out, and so publicly too.
There is also no doubt that Erginbilgiç’s decisive action helped rescue a storied institution after a near-death experience during the pandemic, while his plain-talking has restored some desperately needed commercial focus to a company that had badly lost its way.
But the outpouring of praise for his achievements has been such that it may have obscured some deeper structural problems that existed long before Covid, and as a result, haven’t been properly addressed.
The engine maker remains an old-fashioned outfit in many ways – the last of a breed of traditional British industrial conglomerates that have failed to modernise how they operate.
Meanwhile, the nature of the business is both a strength and a weakness.
Near-monopoly status in its biggest markets guarantees billions of pounds of repeat turnover but it also acts as a constant barrier to innovation and change.
Shaking up a complacent culture will be the biggest test of Tufan’s turbo-charged turnaround.
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