Rolls’s demise is a national tragedy
Presumably this is what passes for “a proven leader”, to borrow a snippet from the glowing welcome that Rolls-royce bestowed on its new boss when his appointment was unveiled last summer.
Yet staff may be wondering if the board was talking about someone else after Tufan Erginbilgic delivered an utterly scathing assessment of the company’s current form and direction.
Erginbilgic, a Turkish-british national who took over the running of the 117-year-old engineering group at the start of January, has warned employees that investors are losing patience because “we underperform every key competitor out there”.
Erginbilgic also went on to say that “every investment we make, we destroy value”. He concluded by telling everyone that Rolls was a “burning platform” that needs to change, he said. It doesn’t sound like there will be much room for snowflakes under the new regime. And maybe that’s no bad thing, because Erginbilgic is essentially right: if there is one blue-chip British company in need of a dramatic shake-up it is poor Rolls-royce. The Derby-based manufacturing titan has been reduced to a pathetic shadow of its once mighty self, through a steady succession of mishaps and neglect, before Covid almost dealt the final blow.
There is, of course, a risk that hindsight is unduly harsh on the Warren East era, at the expense of letting others off too lightly.
Erginbilgic’s predecessor certainly inherited a basket case. Unfortunately that was how he left it too, despite seven years of toil. East’s tenure was almost one-long battle for survival.
The seemingly cursed Trent 1000 engine was a never-ending source of problems; he was forced to issue a thumping profit warning virtually on day one – the fourth of five over a catastrophic 20-month period; before delivering an eye-watering £4.6bn loss in only his second year in charge.
When the pandemic struck, the company went from £1bn of positive cash flow to a full-blown liquidity crunch almost overnight. Catastrophe was averted by the mother of all rescue acts: a £7bn emergency cash call, combined with a rescue refinancing, a fire sale of assets, and 9,000 job cuts designed to save £1.3bn of costs.
Rolls has never confronted the existential crisis at its heart. The company’s fortunes remain inextricably and disproportionately tied to those of the old economy: an airline industry in desperate need of a shake-out; and the energy sector, whose own fate swings in tandem with the global oil price.
The demise of Rolls-royce is one of the great national tragedies of our time – but the blame cannot be pinned squarely on East. It is a scandal that shames the entire establishment, starting with a historically supine board. Before East there was John Rishton, who was allowed to hang around too long. His predecessor Sir John Rose walked on water. And Anita Frew succeeded Sir Ian Davis, who lacked presence. Today, the board has too few engineers. Investors, too, are now expressing concern more vocally, but for years they should have been asking tougher questions – there has been no shortage of opportunities.
The intervention of Causeway Capital, with 9pc of the shares, 18 months ago with its request for a “refresh” at the top was along the right lines, but too vague to have a real impact. There was certainly no sense that it, or other major shareholders, were pushing for any great changes, or indeed had come up with some radical plan to transform Rolls’s prospects.
Nor can the Government escape culpability. A company whose Merlin engines helped British Spitfires and Hurricanes defeat the German air force in the Battle of Britain, and in which the state still maintains a golden share, should have been nurtured as a vital strategic asset, but it has been allowed to wither by Westminster.
The obvious place to start would be its hugely promising but fledgling modular nuclear reactor operation, which offers huge export potential of the sort that Brexit Britain/global Britain was supposed to represent.
The Government has provided £210m of grants but only for the research and development phase – a pittance if it is serious about building a multibillion-pound industry from scratch. The big question is what Erginbilgic plans to do about it all.
One hopes Rolls isn’t about to face another round of cost cuts and job losses. Yet talk of a “transformation programme” sounds ominously familiar. As the Prime Minister and his Chancellor face criticism for having no growth plan, the predicament of a national champion like Rolls-royce should act as a stark warning.
There is an urgent need for a credible industrial strategy to help the country back on its feet.
‘The big question is what new boss Erginbilgic plans to do about it all’