Europe
Rolls-Royce’s CEO Tufan Erginbilgic’s Success and Risks
• Rolls-Royce, a specialist in engines for larger “widebody” jets, has seen a 700% rise in shares since taking the top job in early 2023.
• The company’s revenue is near 18 billion pounds, with 2024 large engine flying hours exceeding 2019 levels.
• Erginbilgic has been renegotiating contracts, cutting procurement costs, and aiming to reduce the need for maintenance shop visits.
• Civil aerospace only accounts for around half of Rolls’ sales, with other units like defence and power systems benefiting from Europe’s need to rearm as U.S. support wavers.
• Rolls raised its anticipated medium-term power systems operating margin on Thursday, along with civil aero, the latter now expected at between 18% and 20%.
• Risks include overexcitement by the “narrowbody” market for short-haul planes and the risk of Erginbilgic going it alone.
• Despite these risks, investors seem comfortable with Rolls’ direction, with the group trading on over 16 times the operating profit implied by its new 2028 target.
• Rolls-Royce’s stock has outpaced other civil aero players since Erginbilgic became CEO.
