If technical skill were the only criteria, Rolls would lead the aero engine pack.
In a spectacular display of engineering capability, Rolls-Royce tested one of its new Trent engines in January at a thrust of 106,087lb, setting a new record for the world's most powerful jet engine and surpassing anything achieved by its two American rivals, General Electric and Pratt and Whitney. At a time when some in the City question whether the country's most famous industrial name can remain independent or whether, like Rover, it will find itself forced into foreign ownership, the smooth progress of the test programme for the Trent, an engine so powerful that just two of them would power a 747, is a considerable boost.
Since the development problems of the RB211, the Trent's predecessor, forced Rolls into bankruptcy 23 years ago, the debate about the company's future has never gone away. The crux of it is simple. When it comes to funding engine development programmes and financing sales, Rolls is competing against the much deeper purses of the American duo even though it can match them every bit of the way on technical excellence.
It is a debate where pride rules as much as pounds, shillings and pence. A few years ago when the late Lord Duncan, an ex-ICI man, became chairman, money rather than pride ruled, and Rolls entered into a partnership with GE. It was a coup for GE, which already had France's Snecma, the only other European engine maker of any consequence, locked into a firm alliance.
But Rolls's managers feared the company would gradually be squeezed out of the front rank of development and after Duncan's death, much to GE's fury, pride reasserted itself and the deal was scrapped. For a time Rolls prospered. But nothing changes in the engine business. Just as manufacturers start to claw back the development costs of one engine, the next generation has to be funded. And with big engines this always costs more. Aircraft are getting bigger and within 20 years Rolls predicts that half or more of the aircraft market will be powered by engines with thrust greater than 60,000lb. To stay in this game Rolls had to develop the Trent.
Developing engines gobbles up money. The new test cell at Derby with a floor area the size of a football pitch cost £20 million. P and W, GE and Rolls are estimated to have spent $5 billion on this new class of engine. The ability to utilise much of the RB211's basic design philosophy may have saved Rolls some cash. GE went for new composite materials technology with its GE90 engine and on some estimates is reckoned to have spent twice as much as Rolls.
The first version of the Trent, the 700, made a successful flight-test debut on an Airbus A340 in January. The as yet to fly Boeing 777 needs the more powerful Trent 800. Though the Seattle-based aircraft maker says up to 84,000lb of thrust is enough for the present, bigger and heavier 777s are on the cards.
Sceptics queried Rolls's ability to produce a sufficiently powerful engine to keep pace with development without spending even more money. By taking the world record away from GE, Rolls has quashed these doubts and demonstrated that it can power heavier 777s as well as the even-mightier 600-seat jumbo that Boeing and Airbus are researching.
If technical skill were the only qualification, Rolls would be leading the pack. However, the financial pressures are still intense. This airline recession is the worst ever and in the first half of last year Rolls only scraped a profit of £5 million on aero engine sales of just over £1 billion. Sir Ralph Robins, the chairman, cannot see much in the way of recovery before 1995 or 1996. In such a tight market, profit margins can only remain slender.
Rolls has taken a textbook approach to reducing costs, closing plants and cutting jobs. And while overheads are down, its market share is increasing. The Trent 700 has taken 39% of A340 orders and the Trent 800 has 22% of the Boeing 777 market. Since 1987, Rolls's share of the civil engine market has gone from under 10% to over 20%.
This progress may count for very little if the dearth of orders continues. In the end the price of independence may simply become too high. GE would doubtless still love to hogtie Rolls but it is hard to see it volunteering. More likely is a link with P and W. In the 1970s the two came close to co-operating on a big engine and now work together on the V2500 which powers the 150-seat A320.
Any Rolls-P and W link - and reports say the two have had talks - would certainly be contested by GE. The other obstacle is the shape of any pact, now that Rolls and P and W both have runners in the 100,000lb stakes. And the stakes are higher than ever before. In a recent study of Rolls, BZW Research estimated that so far the contenders have committed about half anticipated engines sales revenues on R and D development and that Rolls would not start to get a payback until 2008. It implies a scale of risk that would turn most industrialists white. For spectators it makes exciting watching but only the very brave would want to be a player.
Roger Eglin is associate business editor of the Sunday Times.