London investment bank Investec has called for a thorough strategy review at Rolls-Royce. The company’s directors may not take up the suggestion but, if they do, they may well conclude that their strategy is just fine as it is. But to propose other options is to raise serious questions for R-R and the aerospace industry.
Those other options include splitting R-R into two publicly listed companies along its current Aerospace and Land & Sea divisional divide, or selling off non-aerospace businesses. Either way, the civil and military engines business would become a “pure play” aerospace company, which might be very attractive to investors, who tend to like aviation’s growth prospects more than more challenged marine, diesel and nuclear industries.
The best way for R-R to convince investors that the company should be kept together is to show that each business benefits from others’ technologies – and from concepts such as customer service relationships. That is, R-R needs to convince investors – and customers –that the whole is more than the sum of its parts.
R-R has been going through a financial rough patch as marine and nuclear businesses struggle, so it is natural for investors to look at it more critically than they would during boom times. But with defence budgets shrinking and global economies showing signs of weakness, now is a good time for others in aerospace to review their strategies – and explain them with conviction.
Source: Flight International
