Story ID: 734iaeParis13_is.doc
Rolls Divestiture Breathes New Life into IAE
By: Gregory Polek
Caption: 
Word Count: 687
Airbus’s choice of the Pratt & Whitney Geared Turbofan on the A320neo and Rolls-Royce’s subsequent divesture in engine joint-venture IAE might have signaled to some the beginning of the end of the V2500 turbofan. But roughly a year after Pratt & Whitney announced it would take Rolls-Royce’s stake in IAE and 30 years after the consortium’s establishment, V2500 production shows no sign of abating, as deliveries of the legacy A320s it powers carry on at an all-time peak rate of 42 per month.

After breaking a production record last year by building 470 engines, IAE expects to break another record this year by delivering 530, followed by more than 550 next year and in 2015. A 20-year contract with Embraer to build 20 V2500s a year for the new KC-135 military tanker/transport means a steady, if not extraordinary, volume of work for the assembly line after production of the A320ceo (current engine option) ceases in around 2018. 

Still, an agreement between current IAE partners Pratt & Whitney, Germany’s MTU and Japan’s JAEC to extend their collaboration until 2045 would suggest leadership sees far more long-term value in the consortium than a casual observer might imagine.

Now counting an installed base of some 5,000 engines, IAE holds a backlog for roughly another 2,000 and foresees a still untapped market for another 1,000. If one projects a 25-year lifespan for the A320ceo, the V2500 will need support until sometime around the time the contract expires. “There’s no magic in that [the contract] ends in 2045,” IAE chief executive Jon Beatty told AIN. “We just needed to move the goal posts out to a place we all felt comfortable with.”

IAE’s fleet-hour aftermarket arrangement, called V-Services, now supports 60 percent of the V2500s in service and will support 80 percent of the engines under contract. Beatty stressed the value of the company’s support business because, as he noted, the aftermarket accounts for virtually all its profits.

“All engine companies pretty much sell at a loss,” Beatty said. “Phrased the right way, our business model is that we don’t make money at the point of sale and that we make money in the aftermarket, which is why it’s so important to truly control it.”

Aside from increasing its share in the aftermarket business associated with the V2500, Pratt’s purchase of Rolls-Royce’s share in IAE has resulted in a single point of contact for customers for the V2500-powered A320ceo and PW1100G-powered A320neo. With Rolls-Royce out of IAE, the two engine programs now share the same investors, giving the consortium what Beatty called “incredible leverage.”

“Really, when you think about it, one of the reasons United Technologies-Pratt bought Rolls’s shares is so we can have the same advantage that CFM always had on their existing programs,” explained Beatty. “CFM has always enjoyed an incumbency, in that when they show up, they’re on the 737; and now CFM is on both the neo and the ceo. So now by doing this we have the same leverage, the same incumbency, for ceos and neos.”

Beatty pointed out that of the first 12 PW1100G/A320neo customers, eight now operate V2500-powered A320-family jets, including New York-based JetBlue. “We just celebrated 13 years together and we’ve just sold them 40 A321neos,” he said. “So rather than have two people come in, you’re able to address any issues that they have on their existing Vs, and you’re able to wrap that into the A320neo deal and put it together with one common face.”

IAE customers around the world appreciate that attribute, said Beatty. So as Airbus continues to collect joint ceo/neo orders, IAE’s ability to package sales and aftermarket offerings not only means that the company will survive the eventual decline of V2500 production, but thrive.

“What’s interesting is everybody says, ‘Oh, IAE must be winding down,’” said Beatty. “It’s amazing how different it is than that.”