HIGH COSTS OF MANUFACTURING JET ENGINES SHOOT DOWN PROJECT'S VIABILTIY

Rolls Royce backs out of investment

In a swift evasive manoeuvre, the British jet engine manufacturer Rolls Royce announced in early February it was backing out of a manufacturing deal in western Slovakia due to cost-overruns.
A letter of intent signed last year by Rolls Royce and Považské Strojárne Letecké Motory of western Slovakia's Považská Bystrica (PLSM engineering works) would have certified the Slovak manufacturer to produce the DV-2S air engine for the British conglomerate. But when the deadline for signing a deal between the firms expired December 20, 1999, PLSM was left without a British partner.
Contract negotiations had begun in October 1999, and both sides had hoped that a final agreement would be set this year. Instead, a technical evaluation by Rolls Royce proved to the company's brass that manufacturing certain components in Slovakia would have proven too costly.


The YAK/AEM-130 advanced fighter trainer, which uses the DV-2S engine produced by Rolls Royce.
photo: Courtesy of Rolls Royce

In a swift evasive manoeuvre, the British jet engine manufacturer Rolls Royce announced in early February it was backing out of a manufacturing deal in western Slovakia due to cost-overruns.

A letter of intent signed last year by Rolls Royce and Považské Strojárne Letecké Motory of western Slovakia's Považská Bystrica (PLSM engineering works) would have certified the Slovak manufacturer to produce the DV-2S air engine for the British conglomerate. But when the deadline for signing a deal between the firms expired December 20, 1999, PLSM was left without a British partner.

Contract negotiations had begun in October 1999, and both sides had hoped that a final agreement would be set this year. Instead, a technical evaluation by Rolls Royce proved to the company's brass that manufacturing certain components in Slovakia would have proven too costly.

Rolls Royce's Central European Director, Paul Kaye, said that the decision to pull out was based solely on the high costs entailed in developing certain components that had to be manufactured from scratch and then pass rigorous testing programs. The engines assembled in Slovakia were to have been used in the YAK/AEM-130 military training aircraft used by NATO countries.

Kaye said that there were no plans to restart the programme in any other country. "We thought very highly of the original design and the people involved in Slovakia - there are good engineers with good skills - so there was no problem in that area," Kaye said. "It's just the nature of this business. You can't assume anything until you go through all the testing and all the procedures. Only then do you find out if it's viable or not."

Rolls Royce's reasoning was accepted by PLSM chairman of the board, Michal Hiriak, who would not comment on the impact the cancellation had on the company.

"I think that this is a standard commercial affair," he said. "Our partner made the decision and we accepted it. Really, the problem is over for us, and we do not need to make any comment regarding their decision."

According to Kaye, the Slovak government was also given details of the decision. "I had a number of discussions with representatives of the Slovak government and I explained the reason why we are not going to continue with the programme. They were disappointed, but accepted it because we explained to them in great detail that it didn't make sense for us to continue," he said.

The decision was a bitter pill for the Slovak side. Had production continued as planned, what Kaye described as a substantial sum of income would have been generated from the project. Most of what was to be manufactured would have been for export. Neither Rolls Royce or PLSM would comment on the amount of the investment that had been considered.

"You have to expect any possibility, business is like that," said a terse Hiriak. "It's a standard situation, and we are accustomed to such ways of doing business."

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