Epidemic storm, companies shaking

In the first few months of 2020, the new coronavirus spread from Wuhan, and the global aviation industry instantly became cold. Flights were grounded, the airport was deserted like a ghost town, and airlines were suffering heavy losses. Rolls-Royce mainly makes money by wide-body passenger aircraft engines, such as the Trent series. The more aircraft fly, the more stable the maintenance income will be.

But as soon as the epidemic came, all the planes fell into slump and their income was cut in half. Data shows that in the first half of that year, the company lost as much as 5.4 billion pounds, setting a record for the worst. Both local factories and overseas branches in the UK were hit, supply chains were in chaos, and the cost of purchasing parts increased by more than 10% due to Brexit.

The company's management cannot sit idly by and announced the restructuring plan on May 20, 9,000 jobs were cut out of the 52,000 employees worldwide, accounting for almost 17%. Mainly targeting the civil aviation department, the UK Derby headquarters has the most movement.

Earlier, the Trent 1000 engine had a durability problem. Since 2017, the high-pressure turbine blades have worn out quickly, resulting in airlines being grounded multiple times and losing money. The company has invested hundreds of millions of pounds to repair it, and upgrade packages were launched in 2018 and 2019, but the problem has not been completely eradicated. With the epidemic combined with these old problems, the wide-body aircraft market has shrunk sharply, and orders for Airbus A350 and Boeing 787 fell to the bottom from the peak in 2019.

The capital chain is extremely tight, so the company has to look for money everywhere. Issuing bonds, selling assets, and applying for loan guarantees from the British government. The interim financial report on August 27 came out, with cash burning 4 billion pounds, and the stock price fell from 7 pounds at the beginning of the year to below 2 pounds. This is true for the entire industry, with Boeing laid off tens of thousands of people and Airbus also cutting production.

But Rolls-Royce, as the symbol of the British industry, has been under greater pressure. The union negotiates compensation plans, employee transfer training, etc., has been struggling for several months. In 2021, aviation is slowly recovering, but demand for wide-body aircraft is still lagging behind, and maintenance revenue is recovering slowly. The company continues to optimize its structure, put robots on production lines, and streamline non-core businesses.

After all, the epidemic is just a fuse, and structural problems have long been buried. After Brexit, logistics was delayed and the supply chain was converted from the EU to localize, which cost a lot of money. The flight hours of wide-body aircraft have dropped sharply by 80%, and the overcapacity is obvious. The company emphasized cost control and lost 4 billion pounds in the whole year at the end of 2020, setting a new record.

Employees adjust their positions, train digital tools, and the idle production line is closed. Entering 2021, the vaccine has been promoted and the flights have improved a bit, but the company monitors market dynamics and China recovers quickly, becoming a growth point. But by then, their choice had already been set.

Reject olive branch and insist on protecting technology

In 2020, China expressed its willingness to cooperate, including capital injection and business expansion, targeting the engine field. Rolls-Royce suffered huge losses on the books, his funds were tight, and he was worried about a sharp drop in orders. This plan sounded quite an urgent problem. However, after the company's senior management review, it resolutely rejected in-depth cooperation involving core technologies. The reason is simple. Key intellectual property rights such as three-axis design are the lifeblood. The threshold for aircraft engines is high. Once they are outflowed, the competitive advantage will be lost.

The international environment is complex, and the Sino-US trade friction has caused a dilemma for European companies since 2018. The US market is important to companies, and Boeing's orders account for a large proportion. If the cooperation is too deep, it may be subject to scrutiny or even sanctions.

The company's consultant analyzed the risks and pointed out that technology transfer will trigger a chain reaction. The internal memorandum of the board of directors emphasized the interests of preferred shareholders and technical barriers. The media rumor was heard, and senior management avoided details and only said that they would recover independently. After the rejection, the stock price fluctuated in the short term, and the March 2021 financial report reiterated this position.

The company turned to self-rescue and issued 2 billion pounds of bonds in December to divest Norwegian business. The implementation of layoffs has accelerated, and the factory has dismantled equipment and transported warehouses. Under geopolitical pressure, the United States strengthened its entity list in 2019, and company suppliers were affected. The board of directors weighs that maintaining technology is equal to maintaining the advantages of the value chain. The aviation R&D cycle is long, and the investment is 10 billion yuan, so the risk of sharing is too great.

At the same time, China's business was not completely cut off. Continue to supply existing products and participate in the CR929 wide-body machine bidding. Since entering the finals in 2018, he has competed with General Electric. In February 2019, it proposed to build an assembly plant in China, but it is limited to non-core components. Renew the maintenance contract in 2021 to serve Asia-Pacific customers. CR929 proposals are integrated into efficient design and exchange plans at the negotiation table. Localized production discussions, but core design remains in the UK.

Rejection stems from multiple considerations, technical moat plus geopolitical game. The company would rather take bankruptcy risk than guarantee its trump card. In mid-2021, cash flow improved slowly, and the quarterly report adjusted the budget. This decision is regarded as a strategy to protect intellectual property rights. In the competition, China's CJ-1000 engine was ignited in 2019, and its thrust index was close to international standards. Company intelligence gathers and analyzes threats. But with a century of accumulation, the network's advantages are still there.

At the end of 2021, signs of stability were obvious, and vaccine promotion flights recovered. Orders increased slightly, and rejection became a fait accompli. The company balances multiple parties, the EU market is stable, and the US orders are deeply rooted. Washington meeting discusses compliance and avoids sanctions such as Huawei incidents that affect supply chains. shallow business maintenance, technicians are repairing the engine. Overall, refusal is self-protection, but also misses opportunities. China Airlines has upgraded quickly, and this incident has made companies reflect on the boundaries of cooperation.

Market changes, a new way to cooperate

The company did not go bankrupt and stabilized its foothold through restructuring. Aircraft recovery in 2021, demand for wide-body aircraft rebounded. Delivery of Trent XWB and restart the production line. In September 2022, a joint venture agreement was signed with China International Airlines and Beijing Aviation Engine Service Co., Ltd. was established. Invest tens of millions of pounds and focus on Trent XWB repairs.

In 2023, the facilities in Daxing District, Beijing broke ground and recruited local employees. Training center operation simulator. Construction will accelerate in 2024, steel structures will be built and test benches will be installed. The completion is approaching May 2025 and is planned to operate by the end of the year to serve the Asia-Pacific. Renew the ship power contract and install equipment in coastal factories.

The Chinese market has a foundation since the supply of Spey engines in the 1960s. It is regarded as a growth point and the scale of aviation is large. C919 project advancement, CJ-1000A ground test in 2025, thrust 78,000 pounds. AEF3500 is an alternative to CR929 and is under material verification. Companies regard competition, but have strong experience and network.

China's aviation industry is self-improvement, and domestic substitution is gradually becoming more and more popular. Rolls-Royce balances protection and pioneering, and the joint venture strengthens its existence. Competition intensifies, but the network's advantages last. Rejecting that matter, now it seems that geopolitical factors account for the majority. China provides opportunities, and their later construction of factories also shows the market's attractiveness. The globalization of the aviation industry, cooperation is the long way to go. Enterprises must recognize the general trend and respond actively to it in order to stand firm in the changing situation. China's independence is fast pace and the international landscape is about to be reshuffled, and no parties dare to take it lightly.

This matter has been in trouble for a long time, and Rolls-Royce has kept his skills, but it also paid a price. After the epidemic, China's aviation has recovered rapidly and domestic engines have made significant progress. Refusing to aid is tough on the surface, but actually being subject to external pressure. Our Chinese companies have worked hard over the years, C919 is promoted and CR929 has proved that self-reliance is the kingdom.

The door to international cooperation is open, but the core needs to be mastered by oneself. Luo Luo later built a factory, which shows that no one can avoid the Chinese market. In the future, aviation competition will be more intense, and technology sharing may become a trend, but the premise is mutual benefit and win-win situation. It is difficult for enterprises to survive, and geopolitical games are more complicated. The key is how to balance.