Reference no: EM131839882

Problem: Rolls-Royce Corporation

Although the name Rolls-Royce is inextricably linked with its ultra-luxurious automobiles, the modern RollsRoyce operates in an entirely different competitive environment. A leading manufacturer of power systems for aerospace, marine, and power companies, Rolls's market is focused on developing jet engines for a variety of uses, both commercial and defense-related. In this market, the company has two principal competitors, General Electric and Pratt & Whitney (owned by United Technologies). There are a limited number of smaller, niche players in the jet engine market, but their impact from a technical and commercial perspective is minor. Rolls, GE, and Pratt & Whitney routinely engage in fierce competition for sales to defense contractors and the commercial aviation industry. The two main airframe manufacturers, Boeing and Airbus, make continual multimillion-dollar purchase decisions that are vital for the ongoing success of the engine makers. Airbus, a private consortium of several European partner companies, has drawn level with Boeing in sales in recent years. Because the cost of a single jet engine, including spare parts, can run to several million dollars, winning large orders from either defense or commercial aircraft builders represents an ongoing challenge for each of the "big three" jet engine manufacturers. Airlines in developing countries can often be a lucrative but risky market for these firms. Because the countries do not maintain high levels of foreign exchange, it is not unknown, for example, for Rolls (or its competitors) to take partial payment in cash with assorted commodities to pay the balance. Hence, a contract with Turkey's national airline may lead to some monetary payment for Rolls, along with several tons of pistachios or other trade goods! To maintain their sales and service targets, these jet engine makers routinely resort to creative financing, long-term contracts, or asset-based trading deals. Overall, however, the market for jet engines is projected to continue to expand at huge rates. Rolls-Royce projects a 20-year window with a potential market demand of 70,000 engines, valued at over $400 billion in civil aerospace alone. When defense contracts are factored in as well, the revenue projections for jet engine sales are likely to be enormous. As Rolls sees the future, the single biggest market growth opportunity is in the larger, greater thrust engines, designed to be paired with larger jet aircraft. Rolls-Royce is currently engaged in a strategic decision that offers the potential for huge payoffs or significant losses as it couples its latest engine technology, the "Trent series," with Airbus's decision to develop an ultra-large commercial aircraft for long-distance travel. The new Airbus design, the 380 model, seats more than 550 people, flying long-distance routes (up to 8,000 miles). The Trent 900, with an engine rating of 70,000 pounds thrust per engine, has been created at great expense to see service in the large jet market. The project reflects a strategic vision shared by both Airbus and Rolls-Royce that the commercial passenger market will triple in the next 20 years. As a result, future opportunities will involve larger, more economically viable aircraft. Since 2007, Airbus has delivered a total of 40 A380s to its customers, with 17 in 2010. Their total order book currently sits at 234 aircraft ordered. Collectively, Airbus and Rolls-Royce have taken a large financial gamble that their strategic vision of the future is the correct one.

Questions: 1. Who are Rolls's principal project management stakeholders? How would you design stakeholder management strategies to address their concerns?

2. Given the financial risks inherent in developing a jet engine, make an argument, either pro or con, for Rolls to develop strategic partnerships with other jet engine manufacturers in a manner similar to Airbus's consortium arrangement. What are the benefits and drawbacks in such an arrangement?