Comment: Great past may not keep Tyneside steaming on

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The Independent Online
A glorious past has not proved enough to guarantee the future of Parsons, even under the protective umbrella of Rolls-Royce. The company may have invented the steam turbine and its founder Sir Charles Parsons, may have revolutionised electricity generation and naval warfare but history might not be enough to save it.

Parsons serves as an ideal paradigm of Britain's wider industrial decline: a company that was once a world leader overtaken by more efficient producers in the Far East and a failure to recognise quickly enough that survival depended on size.

But it also serves as a salutary and very expensive lesson to Rolls that so-called business sysnergies are rarely all they are cracked up to be.

Having splashed out pounds 300m in 1989 for Northern Engineering Industries, Parsons parent company, it is now facing a charge of pounds 248m to withdraw from the large turbine generator end of the business on top of the losses racked up over the years. Parsons Power Generation Systems and International Combustion, the two businesses put up for sale yesterday, made losses last year of pounds 30m on sales of pounds 280m.

The theory, at the time, was impeccable. Rolls would marry its own expertise in aero-engine propulsion and light industrial power with NEI's large steam power generating businesses to form an unbeatable combination.

Unfortunately, it underestimated the rapid consolidation that the industry was undergoing and the extent of the collapse in its home market. In truth, NEI had been tottering on the edge of losses for several years because, in its very nature, the business of building power stations also entails carrying large and specialised overheads. That, in turn, requires a constant level of high quality turnover.

NEI had some good and profitable switchgear businesses but Parsons was simply not big enough to hold its own - certainly not aganst the likes of its merged rivals, ABB and GEC-Alsthom, Siemens or Mitsubishi.

As the more mature markets of Europe dried up, Parsons was forced further afield in search of customers. Unfortunately, NEI was priced out of the biggest emerging market in the world, China, forcing it into the more risky Indian market. Even here, it has only managed to sign one contract for a pounds 100m gas turbine station.

The irony is that Rolls has very successfully managed to claw itself out of a similar hole in its mainstream aero-engine business through a combination of bold technological development and astute risk-sharing.

The development of the big Trent aero-engine could have been the programme that broke Rolls' back. But Rolls brought in sufficient risk and reward- sharing partners to keep its head above water and is now enjoying the fruits of that with a share of the market on the big twin-engined jets approaching one third.

Indeed the spin off from the Trent - an industrial version of the engine - is making its debut and will be the focus for Rolls as it switches from large steam turbine generation to smaller gas turbine applications.

Rolls is optimistic that a buyer or majority partner can be found, perhaps in a developing country and points to the pounds 56m Babcock made from selling its boiler business to Mitsui.

But who will be interested in a company without much of an order book competing in a market which in any case suffers chronic overcapacity? Rolls waited until Sir Terry Harrison, the man who created NEI, had safely retired from the board before announcing its withdrawal. For the 2,500 workers on Tyneside and Derby whose jobs are now on the line, that may be the most ominous portent.

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