Why is Rolls-Royce in such a mess?

Britain's leading engineer is having a turbulent time after a string of bad management decisions.

by Andrew Saunders
Last Updated: 08 Feb 2016

Formative years

Founded by the Hon Charles Rolls and Henry Royce in 1906, Rolls-Royce began by making eye-wateringly expensive 'horseless carriages' for the upper crust. By the 1940s its Merlin aircraft engines were powering WWII flying legends like the Spitfire and Lancaster.

Despite such high-altitude successes, the firm has also made a few financial crash landings. Most ignominiously back in 1971, when, crippled by the costs of a new engine, it had to be bailed out by the Heath government. (At which point it also parted company with cars – Rolls-Royce Motor Cars is now owned by BMW.) But by the noughties RR had recovered to become the world's second largest maker of aircraft engines.

Recent history

Knowledge of that illustrious (if turbulent) past is scant comfort today however - neither to shareholders who have had to endure five profit warnings in 20 months, nor employees, thousands of whom have already lost their jobs with more redundancies probably still to come.

RR's engineering capability remains great but its leadership has been found wanting - any firm that can launch a £1bn share buyback plan (paying up to £10 a pop for shares that now trade at just over half that) and then cancel it halfway through only six months later has got decisiveness issues. It also backed the wrong strategic horses, getting out of narrow-bodied jets, and falling foul of the oil price collapse in its troubled marine business. Its woes are mounting - star investor Neil Woodford has sold out, US activist ValueAct wants a seat on the board and even the government has been considering a potential takeover by BAE Systems.

Who's in charge?

New(ish) broom Warren East (formerly boss of chip designer ARM) took over as CEO last July. He announced a £200m cost-cutting and delayering programme. He's unlikely to have time for his hobby of playing the organ though.

Don't mention

Hubris. Past bosses fell in to the trap of believing that RR's technical virtuosity made it invulnerable, so that it didn't matter how badly decisions were made.


Sales: £13.5bn*
Profits: £1.3bn*
Employees: 54,000**

*Consensus of analysts’ estimates for FY 2015/16. **Annual report FY 2014/15

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