Rolls-Royce has wowed the City — can it charm airlines too?

Rolls-Royce Has Impressed Investors—But Can It Win Over Airlines?

Last Sunday, as temperatures in Delhi soared to nearly 40°C, the air-conditioned Taj Mahal hotel provided some respite—except for Sir Tim Clark, president of Emirates. Known for his candid and often sharp criticism of aircraft engine manufacturers, Clark expressed renewed frustration with Rolls-Royce. He has refused to accept delivery of a multibillion-pound Airbus order until what he describes as “defective” Rolls-Royce engines are rectified. When asked if it was frustrating to see Rolls-Royce’s share price reach record highs despite these issues, Clark responded with dry understatement: “Just a bit.” Matters were further complicated by Clark’s claim that Rolls-Royce chief executive Tufan Erginbilgic cancelled a planned lunch at the upcoming Paris Air Show, a claim the company has denied.

Clark’s dissatisfaction is echoed by other airline executives. British Airways and Virgin Atlantic have also been affected by persistent engine problems that have grounded aircraft and caused widespread cancellations. Across the Atlantic, Pratt & Whitney’s engine difficulties recently triggered a sharp decline in Wizz Air’s share price, forcing the budget carrier to issue a profit warning amid concerns over contaminated engine materials. These operational challenges highlight the ongoing tensions between engine manufacturers and their airline customers.

Financial Success Amid Technical Challenges

Despite these operational setbacks, Rolls-Royce’s performance in London’s financial markets tells a different story. Since Tufan Erginbilgic, a former BP executive, assumed leadership in January 2023, the company’s shares have surged by over 800%. Rolls-Royce has surpassed its five-year profit targets ahead of schedule, reinstated dividends, and announced a £1 billion share buyback. With a market valuation approaching £75 billion, the company now ranks among the top five firms in the FTSE 100.

This remarkable financial turnaround is largely driven by the civil aerospace division, which accounts for more than half of Rolls-Royce’s revenue and nearly two-thirds of its profits. The company’s flagship engines—the Trent XWB-84, XWB-97, 1000, and 7000—remain central to its success. However, as analyst Nick Cunningham of Agency Partners observes, the entire aero-engine industry is grappling with challenges related to the latest generation of engines. “Yes, everybody who has Trent 1000s has the right to be very cross,” Cunningham notes, underscoring the widespread nature of these technical difficulties.

Industry Headwinds and Future Challenges

Beyond technical issues, Rolls-Royce faces broader pressures from rising operational costs and worsening supply chain disruptions, as highlighted in recent industry reports. These factors are placing strain on both manufacturers and airlines. Additionally, uncertainty surrounding tariffs—particularly on parts manufactured in the European Union—threatens to complicate the aftermarket business, a critical source of profits for Rolls-Royce. These challenges are prompting airlines to reconsider their fleet strategies, potentially altering demand for new engines and maintenance contracts.

Having regained the confidence of investors, Rolls-Royce now confronts the more formidable task of restoring trust among its airline customers. As economic and operational pressures intensify, the company’s ability to deliver reliable engines and adapt to evolving market conditions will be crucial in determining whether it can truly win over the industry that sustains its business.