Rolls-Royce Ltd. (Hansard, 3 April 1979)

§ Mr. Kaufman

The Government have completed a detailed review of Rolls-Royce's engine development programmes and financing requirements in the light of their previous support for the RB211, 623W the decision to launch the RB211–535, the further development of the RB211–524, and forecasts of the effects of the heavy development expenditure on the company's financial position.

As far as existing programmes are concerned, the Government have decided to increase their support for the RB211–22 aeroengine by £14 million to help to meet the higher than previously estimated costs of warranty liabilities on the first 555 engines, production of which was fully funded by Her Majesty's Government; and to increase by £26 million their previously announced participation in the financing of the development of the 524 version for the Lockheed L1011 and Boeing 747 aircraft, in recognition of additional work which has been required.

The announcement last August of approval for the development of the RB211–535 engine, and the decision by Boeing to launch its new aircraft, the Boeing 757, with this engine, marked a very important further development of this family of engines. Additionally, with the upturn in the civil aircraft market. further developments of the existing RB211–524, which will further expand Rolls-Royce's sales prospects, have also been approved by the NEB and endorsed by the Government. These developments should establish the long-term future of Rolls-Royce as a civil aeroengine manufacturer, and over the life of the engine generate the cash to invest in further projects.

The Government recognise, however, that the development costs concentrated in the next few years cannot be financed from the company's internal resources, and have accepted that they should contribute towards the costs of these further developments of the RB211 programme. They have, therefore, decided to provide a total of £192 million at 1978 survey prices over the next five years. This contribution has been fixed for the five-year period so as to provide a stability for the company's planning over the period. in return, Her Majesty's Government will receive a levy on engine sales.

With launch of the RB211–535 and further versions of the RB211–524, the Government have been able to consider establishing a financial duty for Rolls- 624W Royce. In the light of these decisions and the circumstances of the aerospace industry, and in particular the long payback period of investments, the Government have decided to set a financial duty to the National Enterprise Board in respect of Rolls-Royce of a 10 per cent. return on capital employed by 1981, and a progressive increase thereafter. In the years prior to 1981, the Board is to maintain progress towards the 10 per cent. objective.