Rolls-Royce to buy full control of Spanish component venture

Rolls-Royce Holdings will buy full control of Spanish venture Industria de Turbo Propulsores for €720mn ($795mn) to strengthen its position in the service market for its largest engines that power Airbus and Boeing airliners.
The UK manufacturer will buy the 53.1% stake in Bilbao-based ITP that it doesn’t already own from partner Sener Grupo de Ingenieria, which exercised a put option, Rolls-Royce said in a statement yesterday. The business, which employs more than 3,000 people, generated revenue of €710mn last year. It will contribute to earnings from the beginning of 2017, Rolls-Royce chief executive officer Warren East said at a Farnborough Air Show press conference outside London.
“We see this as a great opportunity to capture that greater proportion of the high value in those modern Trent engines going forwards,” East said. “Not just in the engines delivered out the door, but high value in the after-market, the service revenue that we take from maintaining those engines.”
East, who took his post a year ago, has been leading a restructuring of Rolls-Royce’s maintenance and repair division, which produces the bulk of group profit. The CEO has eased restrictions on contracts to help lure customers to its wide-body turbines, allowing airlines more flexibility in overhauling their own engines and using second-hand parts from older aircraft.
The takeover of ITP, which makes components, boosts Rolls’s share of revenue on its new Trent engines by about 5%, East said. It will also lift earnings on future models that make use of next-generation Ultrafan and Advance technology. The deal will take about six months to complete and will be financed over the next two years, the CEO said, adding that he has “sufficient confidence in our balance sheet” to make the purchase. Rolls-Royce raised $1.5bn in a US bond sale in November.
Rolls-Royce fell 1.6% to 723 pence as of 2:06pm in London. That pared the stock’s gain this year to 27%, valuing the manufacturer at £13.3bn ($17.2bn). The ITP purchase is the company’s first large asset deal since East took charge.
The UK’s referendum last month to leave the European Union shouldn’t have an impact on ITP’s purchase or operations, East said. A large portion of the venture’s production capacity is based in mainland Europe.
“About three-quarters of our future business for the next 10 years or so is targeted to come from outside of the EU,” East said.
“With or without Brexit, that has to happen, and now it’s going to happen with some additional capacity, which quite a lot of it happens to be in the EU.”