Rolls-Royce CEO Warren East could surely never have dreamed back in 2015 when he joined that within months of his arrival and despite his predecessor having announced various profit warnings that the company would be gripped by a series of individual crises, each one of which had the power to destroy the UK’s single most important champion in the global civil aerospace industry bringing to an end 116 years of quite amazing engineering and industrial history. Thankfully, under Warren East’s leadership and determination to succeed, Rolls-Royce today has moved through what has clearly been a long and difficult process of change and it is the better for what he and his team have achieved.
As an entry remark to this commentary, I should say that Rolls-Royce has always played a very important part in my professional life and I hope that it always will. FYI, I have included my personal perspective and history in this regard towards the end of this commentary.
As he departs from Rolls-Royce after seven and a half years Warren East can be proud that Rolls-Royce survived not only because the company continued to receive support of its banks and lenders but also because of the speed that he put a survival plan in place.
For Rolls-Royce the necessity of quickly adapting to what was a previously unimaginable and high-risk situation would challenge the company and there was no guarantee of success. He can also be proud that he achieved a cultural change inside the company that few had ever thought possible. And although the process of investment and change had started under the earlier leadership of Sir John Rose, it was East who finished it off. It was also Warren East who succeeded in making the company more efficient and competitive and that despite the constant need to achieve a positive free cash flow, he never lost sight of the need to continue investing in future civil aero engine design and technology, the wider forms of power technology such as nuclear, in research and development and all aspect that will impact on the company’s future. It was also Warren East who completed a well thought through disposal strategy, one that I sincerely hope is now complete.
I suspect that Warren East would not have been human had he not thought that Covid could well be a challenge too far for Rolls-Royce. But for all that, East in my view is both a realist and an optimist and his belief that Covid would not be around for ever and that at some point, the aviation industry would recover and thus, business for Rolls-Royce would also return proved to be right – albeit not necessarily at the optimal desired speed.
Warren East is undoubtedly good at crisis management and let no one take that away. Thrown in at the deep end from the outset with the company having already been forced to issue profit warnings, East would quickly find out that that he would be forced to solve a range of material and engineering durability issues in the larger Trent family of engines and that would require compensating the airline customers.
East’s strategy to resolve the Trent 1000 issues would take several years to fully engineer and implement and the cost to the company was over £2 billion in cash. This together with the catastrophe that was the COVID-19 pandemic required more than an act of faith by Rolls-Royce investment banks and shareholders. But with a mentality that is perhaps in the best traditions of the engineering and capital goods industries, challenges and finding solutions is what Rolls-Royce is certainly good at. Without the combination of strong and decisive actions taken by East in order to cut costs and the actions of both he and his then Finance Director, Stephen Daintith, to effectively refinance the company and strengthen the balance sheet, I doubt that Rolls-Royce would have survived.
To survive the severe and extremely fast impact of the C-19 pandemic which had stopped airlines flying and decimated the process of fly-by-the hour maintenance support as the number of hours flown by each aircraft plummeted, East cut a further 9,000 jobs across the company – these on top of thousands that had already been cut in th drive for efficiency and competitiveness – and made other significant radical changes including formulation of a plan for certain subsidiary disposals.
The company raised over £2 billion from shareholders through a heavily discounted rights issue, raised a further £1bn through the issue of new bonds and secured an additional £1bn of loans. Today Rolls-Royce is once again financially sound and looking forward to even greater success.
In writing this I should not ignore the faith that Warren East has maintained not only in future aero engine technologies and that includes the longer-term potential for electric and hydrogen powered flight, all of which are evolving as we speak. Defence and which often gets little mention but remains a very important element of Rolls-Royce business the company has been consistent throughout in doing well and its B-52 re-engining in the US is one of the most remarkable that it has ever won during my decades of following the company. Neither should we forget that each and every engine fitted to the venerable but still extremely modern Lockheed Martin C-130 Hercules ever built has a Rolls-Royce Alison engine.
Last but not least is to mention the other legacy he hands to his successor Tufan Erginlilgic – that of Small Modular Reactor and which I venture to suggest will play a major part in the future growth of Rolls-Royce when the government finally gets its act together.
I wish Warren East well and it has been a pleasure for me to know and support him. As the reader will see from what I have written below, I have known most if not all members of the senior management team at this great UK based international company and most that I have known I have both respected for what they have achieved and taught me. Warren East now becomes a member of what is a small club of those who I maintain contact with and that include Sir Ralph Robins and Sir John Rose.
I will leave the last remark to John East and who said of his much-respected predecessors in an interview to the Times published last week “my predecessors went for market share to secure its future. If they hadn’t, we wouldn’t be having this conversation because there wouldn’t be a Rolls-Royce”.
A Personal Perspective
Suffice to say, that even walking alongside the company during what was surely its worst ever period and when, on the 4th February 1971, the company collapsed due in no small part to the heavy burden of completing development of the RB (Rolls Barnoldswick) 211 and the political indifference played to this crucial UK development by members of the Harold Wilson Labour Government in the years that led up to the collapse, my strong affection for this great company has never changed.
Rolls-Royce would fortunately be saved by Edward Heath’s correct decision to nationalise the company and what remerged was Rolls-Royce 1971 Ltd. Rolls-Royce Cars which included Bentley Cars had by then been sold off to Vickers.
For my part, I should say that my then family business in Birmingham had since 1968 been responsible for thousands of individual RB-211 calculations which in those days, were done manually by around twenty comptometer operators. The work was moved on a daily basis between Birmingham and Derby. Of all my memories in respect of Rolls-Royce, I will never forget the day that the company collapsed or that of a couple of weeks later after the company had been placed into receivership, driving up to the Nightingale Road plant in Derby in what would be the very last time quite determined to hand back all the final completed A5 size batches of RB-211 calculations and other work for which, even if we as a business would most likely forgo payment, I felt was the right thing to do. A couple of brief words with ‘Taffy’ at reception and ten minutes later from the back of the factory emerged three member of Rolls-Royce who were all known to me, walking up to the public house that I had parked in – Messrs Lyon, Bull and Fox – wheeling large laundry trolleys onto which we unloaded the work. Rolls-Royce was by the way our largest client by far but despite everything somehow, as a business we also survived. I also recall attending the creditors meeting in London later in the spring of 1971 but that is another story altogether.
Fourteen years later and having changed career and subsequently qualified as a Stockbroker in order to be an equity analyst, something I would do for the next 28 years until 2012, my work following engineering, defence and aerospace sectors meant that I would observe the fortunes of what by now was a privatised Rolls-Royce plc, the company having been floated on the London Stock Exchange in 1987. This was a period that without going into too much detail and primarily because Rolls-Royce is and can only ever be considered as a long-term business meaning that because commercial engine and other technology development in which the company involves requires a similar level of long-term investment thinking – something which I am afraid the large UK institutional investment community hates with a passion – little did I know that I would become one of the few who through thick and thin would support Rolls-Royce through some very difficult periods when it found it had few friends.
I am proud of that and of what I did. I also had the pleasure to know the late Francis (later Lord) Tombs who had following three years on the board become chairman of Rolls-Royce in 1985, Sir Ralph Robins, who joined the company in 1955 and was appointed CEO by Francis Tombs and who was subsequently to become Tombs successor as chairman until 2003, Sir Terence Harrison who on Francis Tombs acquisition of Northern Engineering Industries (NEI) had become CEO of Rolls-Royce and who wanted me to join the company, and also Sir John Rose who was CEO between 1996 and 2011 and who would also take the company through some very difficult times but who also invested significantly in plant and development in order to make the company more competitive. Finally, after a gap, I have also had the great pleasure of knowing the outgoing CEO, Warren East through the past six turbulent years.
CHW (London – 20th December 2022)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785