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Moral Victory. There were signs at week's end that the worst may yet be averted. The British government announced that it will put up money to keep RB-211 work going for at least four weeks while it tries to renegotiate the Lockheed contract. Lockheed executives dropped hints that they would discuss a higher price for the engines and might forget about charging Rolls penalties for late delivery. In Britain, union members worried about the loss of jobs, and some Laborites, who had pushed Rolls to sign the Lockheed contract, were putting heavy pressure on the government to keep making the engines. Their most telling point: if Rolls defaults on the Lockheed contract, no foreign customer will trust a British bid on a high-technology product again. Anthony Wedgwood Benn, who as minister of technology had hailed the RB-211 contract as an export coup, noted last week that Rolls is also building engines for the British-French Concorde supersonic transport. What reception, he asked, will the world's airlines accord to salesmen who say, "We have a marvelous supersonic aircraft with a Rolls-Royce engine"?
On the other hand, Prime Minister Heath last week managed to make the Rolls bankruptcy and the prospective default on the engine contract sound almost like a moral victory. "For too long, our apparent prosperity has been based on illusions," he said in a speech to young Tories. "Management must rid itself of the illusion that it can go on indefinitely running a business in conditions that do not pay and governments must rid themselves of the illusion that prosperity can be found by pouring out taxpayers' money in perpetual subsidies for uneconomic ventures."
Heath may have been plucking virtue from necessity, but he put his finger on the primary cause of the destruction of a great company. The Rolls-Royce collapse is a tale of illusions on every side —illusions of technological omnicompetence by Rolls-Royce, of export grandeur by the British government, and of driving a hard bargain by Lockheed.
Rolls-Royce was founded in 1906 by F. Henry Royce, a miner's son who started building cars in his home workshop when he became fed up with repairing a French-made auto that he had II bought, and C. Stewart Rolls, an aristocratic auto buff and pioneer salesman who gave King George V his first ride in a car. The company soon diversified into airplane engines and scored an enviable series of firsts: Rolls engines powered the first transatlantic flight in 1919 and the Spitfires and Hurricanes that helped to defeat the Luftwaffe in World War II. It seemed fitting enough that the Spirit of Ecstasy, a statue that is the company's symbol, should be reproduced in miniature and affixed to the hood of every Rolls-Royce auto.
Even without the Lockheed contract, however, Rolls was heading for trouble; for years it had been committing itself to too many costly development projects simultaneously. At the time of the collapse, it was developing engines not only for the Lockheed TriStar and the Concorde, but for a proposed British-West German-Italian combat aircraft. Some 30,000 of its 80,000 employees were working on engines that were not yet profitable.