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Sitting Duck. The downfall really began in 1966. The Labor government, desperate for export earnings as the pound staggered toward its 1967 devaluation, prodded Rolls to go all out to win an international competition for the engines for the Lockheed TriStar. Rolls responded enthusiastically, spending an estimated $1,000,000 on its sales campaign, including $192,000 on transatlantic air fares alone. In 1968 the company won an order to build 540 engines for $840,000 each. Lockheed executives crowed that it was "the best price deal we ever made." David Huddie, then head of Rolls' aero-engine division, was knighted for winning such a giant export contract. "The secret," he said, "is to be like a duck—smooth and unruffled on top but paddling like hell underneath."
Actually, the secret was that Rolls had been unrealistic enough to become a sitting duck. In its eagerness to underbid its U.S. competitors (General Electric and Pratt & Whitney), Rolls accepted a fixed price for an engine that demanded technological breakthroughs to produce—and this in an inflationary age. It also committed itself to deliver all the engines by November 1971 or pay stiff penalties. The penalty provisions have never been disclosed, but are believed to oblige Rolls to pay up to $300 million —more than 60% of its last reported net worth. Presumably, the penalties rise as deliveries become later.
Late and Broke. The development problems quickly escalated beyond Rolls' calculations. To keep the engine's weight down. Rolls engineers planned to make the RB-211's fan blades out of lightweight carbon fibers. But the fibers could not stand the crunch when hail or birds were sucked into the 7-ft. fans. Last April, Rolls managers decided to keep working on the fibers but to forge the fan blades for the first few engines from titanium; this meant that they had two expensive development programs going. As time to deliver the engines ran short, Rolls started cutting corners on production, putting parts into manufacture without giving itself time to modify faulty components.
By now, Rolls has solved most of the technical problems, but at the cost of financial exhaustion. Latest estimates are that each RB-211 will cost $1.1 million to produce, so that Rolls faces a loss of $260,000 on every engine. By last November, Rolls was appealing to the government for help. The government responded by promising to contribute $100 million but imposing a management reshuffle that installed Lord Cole, former chairman of Unilever, as chairman.
In board meetings on Jan. 18 and 26, the new managers got technical and financial reports. The technical report was that Rolls would be six months to a year late in delivering engines to Lockheed. The financial report was that the company was running out of money to meet its payroll. Two weeks ago, Rolls once more took its plight tp the government. This time, the Tory Cabinet declined to put up any more money. Instead, it decided to let Rolls-Royce declare bankruptcy, nationalize most of the remains and abandon the engine contract if it could not be renegotiated.