Rolls-Royce wins pounds 290m Russian engine order

Rolls-Royce has signed its first order to fit jet engines into Russian- built aircraft in a deal which could be worth $450m (pounds 290m), sending the aerospace group's order book to record levels.

The order, which the company said was the culmination of years of development work, is to supply an initial 26 RB211 engines to power 13 Tupolev Tu- 204 passenger jets, similar in size to the Boeing 757, for $195m. In addition, there is an option to supply a further 17 planes, although Rolls-Royce said the total could run to 200 aircraft.

The engines are being purchased by the Kato Group, a private Egyptian industrial concern, which will lease the completed aircraft to airlines in the former Soviet Union. Two of the RB211 engines were delivered to the Russian manufacturing operation, Aviastar, last month.

It means Rolls-Royce has secured potential orders worth pounds 750m since June, on top of pounds 7.8bn worth of contracts or agreements in the pipeline.

The news came as the company revealed losses of pounds 169m in the first half of the year after making bigger-than-expected provisions of pounds 263m to cover the cost of closing or selling its large steam turbine businesses, which include the historic Parsons plant on Tyneside. Excluding these costs, operating profits surged by 50 per cent, rising from pounds 64m to pounds 96m.

However, an overtime ban by unions at Derby and Bristol, which lasted almost a year, knocked pounds 15m off earnings, while Rolls lost another pounds 5m from the collapse of Fokker, the Dutch aircraft builder which went bankrupt in the spring.

John Rose, the chief executive, insisted he remained hopeful that Parsons would find a buyer. "I'm optimistic there will be a sale. There's been more than enough interest to confirm that view," he explained.

The brighter mood was also detected by Parsons unions, who met with Rolls- Royce board members in London yesterday. Barney McGill from the Confederation of Shipbuilding and Engineering Unions said: "For the first time Rolls were saying that there is genuine interest in Parsons and the other turbine plant in Derby. They seemed positive that prospective buyers are in the wings."

Yet Parsons continued to act as a drain on cash, helping to add a further pounds 15m to the pounds 248m write-offs disclosed at the time of the sell-off announcement last month. The increase in the scale of the provisions to pounds 263m surprised some analysts.

Mr Rose said the aerospace market was "clearly recovering" after years of recession, as airlines replaced outdated fleets. But the City was less impressed with Rolls-Royce's aerospace profits, which were heavily boosted by a strong performance from Allison, the US military engine supplier bought for pounds 320m in March 1995. "The underlying position on aerospace profits was weak," said Chris Avery, an analyst from the French banking group Paribas.

Headline operating profits for the aerospace division jumped by two-thirds to pounds 77m. However, Allison contributed pounds 31m of this in the first half of 1996, compared with just pounds 12m in the first six months of 1995. Stripping away Allison's contribution, the costs of the overtime ban and the losses incurred in the Fokker collapse, aerospace earnings fell by pounds 6m, to pounds 94m. Rolls-Royce shares fell 5.5p to 225.5p.

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