Rolls Royce continues to grow its installed base of aircraft engines, driven by increasing production of widebody aircraft at Boeing and Airbus. While full year 2013 results are not yet available, we expect that earnings per share will increase about 20% (including the impact of the Tognum acquisition and IAE divestiture). At June 30, the last time Rolls reported results, the civil aerospace order book was up 11% from the beginning of the year— and equal to nine years of revenue — with the rate of engine deliveries over the next decade largely tied to production of Boeing 787 and Airbus A350 and A380 aircraft. Most engines are delivered at breakeven prices with profits coming in later years from TotalCare—15 year aftermarket maintenance contracts sold as part of the OEM sale. The long-term prospects for the commercial aerospace industry are strong as emerging world airlines build up their fleets and developed world airlines leap to next generation products that promise better fuel efficiency. Management continues to focus Rolls on areas where the company stands to improve, including cash generation, cost structure and customer service.
Source: Sequoia Fund's 2013 Annual Report - Management's Discussion of Fund Performance
