Rolls-Royce: Aftermarket Pricing & Contract Margins

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Yes, how are they increasing margins, particularly on the pricing side rather than the cost side?

How Rolls-Royce accounts for costs versus contract terms is crucial for overall margin and profitability. Some contract assumptions may no longer be valid, and removing these can improve margins. Generally, we've seen better margins in renegotiated contracts, with long-term benefits for Rolls-Royce through escalations in pricing, whether by selling more spare engines or services.

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Yes, how are they increasing margins, particularly on the pricing side rather than the cost side?

For newer contracts, it's about resetting market pricing. Rolls-Royce and GE have recognized the significant increase in costs and the inherent risks with newer engines. Pricing needs to reflect this risk profile. For example, the XWB engine performs exceptionally well, offering valuable time on wing, performance, and efficiency compared to competitors. This justifies a higher market rate for the A350 XWB.

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Yes, how are they increasing margins, particularly on the pricing side rather than the cost side?

Historically, pricing approaches were basic, often bundling services without recognizing their full value. For instance, giving away LLPs for free was a significant revenue opportunity missed. Now, there's a focus on valuing services like transportation, electronic services, and spare engine support independently.

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