Rolls-Royce: Tailwind Tufan takes on an icon at the right time

Luck and timing play an important role in career success. The tenure of outgoing Rolls-Royce boss Warren East was repeatedly blown off course. His successor, Tufan Erginbilgic, has a good chance of catching an uplift from the pandemic recovery of aviation.

Erginbilgic, a low-profile oilman turned buyout guy, is joining the FTSE 100 engineering group at a favourable point in the investment cycle. Rolls-Royce has invested heavily in new engines over the past decade. The need for R&D spending is now falling. The relatively young engine fleet has much time ahead in the air. That matters because Rolls-Royce’s jet engine business makes money from maintaining engines while they are being used, not from selling them.

To be sure, Rolls-Royce is still a long way off cruising altitude. Making engines that power widebody aircraft plying international routes meant that the pandemic hurt it badly. But passenger numbers on those routes should recover to pre-pandemic levels by 2024. There are early signs of a recovery in demand for new large aircraft.

Rolls-Royce could be highly cash generative, depending on how much of the recent cuts — covering more than a third of operating costs — are reversed.

Plenty of thorny strategic issues sit in Erginbilgic’s inbox. One is whether to return to the market for smaller engines for single-aisle aircraft. Sustainability is another. Decarbonisation poses an existential threat to the business.

Erginbilgic is a partner at private equity firm Global Infrastructure Partners. One fear is that he may take a leaf from private equity’s reputedly short-termist playbook.

That view stereotypes a diverse industry as asset flippers. GIP focuses on large-scale investments in energy and transport where the energy transition is a key concern. The same holds at BP, where he worked for 20 years. There he invested in biofuels and set up electric vehicle-charging partnerships.

Erginbilgic’s goal, as specified by chair Anita Frew, is to make Rolls-Royce a profitable icon of British industry — no oxymoron intended. Long investment cycles mean the company is on a course set by previous leaders. The aviation recovery should help Rolls-Royce, provided a looming downturn is mild. A pilot can only hope for a couple of decent tailwinds in one flight.