Rolls-Royce (RR.L) boss Tufan Erginbilgic wants to push Britain's biggest aerospace company to its limit. In a strategy plan unveiled on Tuesday he said operating margins at the 22 billion pound company's core civil aerospace business will rise from 2.5% in 2022 to 15%-17% by 2027, part of a plan to shake up the company he once dubbed a “burning platform”. Investors have rejoiced, sending Rolls-Royce shares up 6% and adding to a 160% rally this year.
On the face of it, Erginbilgic's targets are not overly ambitious. Analysts were already forecasting a group operating margin of 11% in 2025 on the back of an air traffic recovery, according to LSEG data, not far below Erginbilgic's goal of 13%-15%. Yet this is the same margin range of Rolls-Royce's rivals Safran (SAF.PA) and General Electric (GE.N) which make engines for short-haul flights. Rolls-Royce's engines are instead used to power so-called widebody aircraft like Airbus's A330neo, used for transatlantic flights. That's a less profitable market as manufacturing volumes are much lower. It is also more vulnerable to geopolitical or economic shocks. Erginbilgic is hedging by also saying he may re-enter the narrowbody market, but that will take time. For now, his financial targets will require careful flying. (By Pamela Barbaglia)
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