Rolls-Royce increased its profits fivefold in the first half of this year after its new chief executive, Tufan Erginbilgic, raised prices for servicing jet engines.
The FTSE 100 engineering company made an underlying operating profit of £673m between January and June, up from £125m in the same period last year, it said in a statement to the stock market on Thursday.
Rolls-Royce had already surprised investors last week by upgrading its profit expectations, prompting a share price surge. Erginbilgic said the company had “a lot more to do” in a turnaround plan he launched upon joining in January, although he said the rate of improvements would slow from this point.
“You make obvious interventions, but I am not saying easy interventions,” he said. “If they were easy someone else would have done it.”
The main measure so far in the improvement in Rolls-Royce’s civil aerospace business, which builds and maintains jet engines for larger planes, was raising prices. Erginbilgic said the company had separated billing for materials and time, and had therefore increased prices by 12%.
He said the company started his programme of improvements almost from “day one” of his tenure, and there was “no doubt” they were improving the company’s performance.
The company’s share price dropped by 1.8% on Thursday, but it is still up more than 80% over the year so far in a sign that investors are welcoming the renewed focus on investor returns.
The new chief executive has in some ways been lucky with timing, as the start of his tenure came as the end of Chinese coronavirus restrictions prompted a further recovery in flight numbers. That helped underlying revenues to rise 31% year-on-year to nearly £7bn for the six months.
Yet Erginbilgic insisted that his actions had driven much of the improvement in performance, and highlighted that more room remains for recovery ahead.
“This is achieved when flying hours is 83%, and in an environment of supply chain issues,” he said. “We are really expanding the earnings and cash potential of the business.”
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The recovery in aviation demand has prompted a large number of orders for new aircraft. Rolls-Royce reported 240 orders for engines for those planes in the first half of 2023, more than double the 96 in the same period in 2022. That included a record order from Air India for 68 engines to power the large Airbus A350 jet.
Rolls-Royce achieved the results despite a £98m provision after it lost a legal battle over a contractual dispute in London’s high court with Goodrich Corporation, an engine parts company ultimately controlled by US manufacturer RTX.
RTX, recently rebranded from Raytheon Technologies, owns Rolls-Royce’s rival engine manufacturer Pratt & Whitney.
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