Rolls-royce lends to its own suppliers to keep them afloat

ROLLS-ROYCE yesterday launched a blistering attack on the banks – revealing it has been forced to lend money to its own suppliers to keep them afloat.

Despite boasting more than £60billion in orders for its world-renowned engines, the engineering giant revealed many of the small companies which supply it with vital parts and services are being starved of credit by their banks.

Rolls-Royce finance chief Mark Morris said the blue-chip company was increasingly being forced to lend money to its own suppliers to help them make ends meet – a situation described as ‘lunacy’ by campaigners yesterday.

Addressing top bankers at the British Bankers’ Association annual conference, Mr Morris said: ‘You are the oil in our engine – the dipstick is running low.

‘Why is it we have a full order book but our suppliers are struggling because they can’t get access to finance? We are in the bizarre situation where we are having to provide finance to our suppliers – because banks won’t. The system is broken.’

Britain’s biggest lenders have come under fire for failing to extend vital finance to small companies in the wake of the financial crisis, forcing many to the brink of bankruptcy. More than 1,000 small firms with 50 or fewer employees have been going bust on average every month, according to credit reference agency Experian. It has led to increasingly radical initiatives from the Government and the Bank of England to force their hand, including the £80billion ‘funding for lending’ scheme which provides banks with cheap loans if they lend more to both households and firms.

Rolls-Royce is one of Britain’s success stories, with more than 40,000 employees around the world, including 21,000 in the UK. Its engines power more than 5.5million commercial flights a year, making it Europe’s largest aircraft engine maker.

But Mr Morris said that its success is heavily dependent on a ‘food chain’ involving 8,000 suppliers – 2,300 of which are based in the UK.

This supply chain supports more than a 100,000 jobs – or one in 300 of the British workforce. More than half of its suppliers are the small and medium-sized companies which find it most difficult to get credit from traditional lenders.

Mr Morris said: ‘Since the crisis we have seen a consistent contraction of bank lending to the real economy. We have a full order book but we rely on suppliers so we can provide our goods to customers. Our suppliers rely on banks to supply credit.’

The broadside from one of Britain’s most revered and successful businesses carries considerable weight, and prompted outrage at the banks from campaigners and politicians last night.

Phil McCabe, from lobby group the Forum of Private Business, said: ‘This is the lunacy at the heart of bank lending restrictions at present. Banks simply have to change the criteria on which they lend.

‘Strong order books are surely a sign that a business is geared for success. How can banks turn a blind eye to this?’

Labour Treasury spokesman Chris Leslie added: ‘This shows that even large companies are crying out for help.

‘If the Government is serious about economic recovery it needs to do more to ensure banks are lending. We have had a succession of lending schemes yet still we hear stories of banks focusing on rebuilding their own balance sheets rather than helping small businesses to grow.’