In the first of a series of profiles of business leaders in the MRO sector, Rolls-Royce president of services Miles Cowdry explains why the engine giant intends to continue as an aftermarket innovator
Back in the 1990s, making better engines that broke down less was almost the undoing of Rolls-Royce. Investing tens of millions in breakthrough original equipment technology may have boosted the UK engine maker's market share, but it did little for the profitability of an aftermarket business that depended largely on selling spare parts and distress repairs. This was especially the case as a new breed of independent PMA (parts manufacturer approved) distributors and repair shops were undercutting the original equipment manufacturers' price sheets.
Miles Cowdry was one of the brains within R-R that came up with TotalCare, the pioneering power-by-the-hour long-term product support package for airlines, that has grown from covering just 2% of the company's installed fleet at the turn of the decade to just over half today. A flurry of contract announcements at and since last month's Paris air show is likely to see that figure rise further, the most recent being Nakash Group's lifetime agreement for the Trent 1000 engines on two Boeing 787s for Israeli airline Arkia, due in service in 2012.
Now R-R's president of services, Cowdry believes changing the relationship with airlines from OEM and end user to one where "our interest has become aligned with the customer" has driven enormous efficiencies in the engine-support sector. "We've helped to create a much more efficient supply chain to minimise MRO capacity and spares inventory," he says.
"It's been all about becoming much more collaborative. We were an early developer of real-time health monitoring. If we can support the engine on the wing and avoid an engine removal, it is good for us and our customer. Long-term service agreements give us a model with which to sustain our relationship."
Cowdry has been at the cutting edge ofR-R's service business since he joined the Derby, UK-based company in 1990 to help set up an engine leasing operation at a time when most of the industry was sceptical about the potential of that market. He later moved into a strategic role at head office. After a spell in the USA heading R-R's predictive maintenance software joint venture with SAIC, Data Systems & Solutions, he returned to Derby three years ago to take charge of a service business he had a decade earlier helped to create.
Responsibile for running R-R's maintenance and overhaul network and spearheading the development of its service strategy, his empire stretches across 16 sites on four continents. Large engine overhaul is handled at Derby and four joint ventures in Erfurt in Germany, Dallas, Hong Kong and Singapore (with Lufthansa Technik, American Airlines, HAECO and SIA Engineering). The company's own repair and maintenance locations for smaller engines include Brazil, California, Canada, Mexico, the Philippines, Scotland and Spain.
Service activities account for 53% of R-R turnover, with the defence sector forming an ever-important part of the mix. Under the umbrella of Mission Ready Management Solutions (MRMS), R-R has long-term service agreements in place on many of the UK military's key fleets, including a contract to support the RB199 engines on its Panavia Tornados, and with all branches of the US military.
Whole life costs
The five-year £185 million ($370 million) Tornado agreement, signed in 2005, followed a pilot project in which R-R claims to have cut repairs by 34% despite longer flying hours, and is the sort of deal R-R is keen to replicate across other UK defence programmes.
"This emphasis on managing whole life costs was implicit in the DIS [UK's Defence Industrial Strategy - published last year]," he says. "It's about affordably managing risk and is the reason why we believe we are uniquely positioned. We understand the physics of the machine so we are in the best position to deliver the right cost over the product cycle. We are positioning Rolls-Royce as the taker of a contract and the service manager."
The next evolution of this strategy has been whole platform offerings, such as the AirTanker consortium for the Royal Air Force, in which R-R is teamed with partners including EADS, Cobham and Thales to provide refuelling capability to the RAF over 27 years under a Private Finance Initiative (PFI), using 14 Trent 700-powered A330-200 tankers. The aircraft, due to enter service from 2011, will be owned and supported by AirTanker, but the RAF will have full operational control. "It's about offering a capability staircase, through the delivery of discreet MRO and other services, packaged up into long-term service agreements," he says.
The emergence of TotalCare has given R-R the "confidence to build our network of large fan shops," says Cowdry. Beginning with its HAESL joint venture in Hong Kong in 1997 to service Trent and RB211 engines, the engine maker was one of the first to anticipate the growth of the Asian market. That operation is now undergoing an $11 million expansion to increase capacity by a quarter. "We moved east quite early in the game," he says.
"Now we are looking at extending our global footprint further, but also at the scope of service. Rolls-Royce has a history of being at the leading edge since we were an innovator of engine leasing 17 years ago. Ultimately, we want to listen to the customer on what extended range of services makes sense."