BAe and Rolls win pounds 400m launch aid for new jets

The Government is granting Rolls-Royce and British Aerospace pounds 400m in launch aid to build engines and airframes for a new generation of Airbus and Boeing jets. Michael Harrison reports on the most ambitious public- private partnership yet between the Blair administration and industry.

Rolls-Royce last night announced that it was receiving pounds 200m in launch investment from the Department of Trade and Industry to develop three new versions of its Trent engine for a range of Boeing and Airbus jets.

This is the first launch aid the company has received since 1986 and will be repaid through a levy on sales of the aircraft, which Rolls-Royce expects to reach pounds 50bn over the next 20 years.

Separately, British Aerospace is expected to be told shortly that it will receive about pounds 200m to develop wings for a new stretched version of the Airbus A340 long-range jet. The A340-500/600 series will carry 375 passengers - enabling it to compete directly with some versions of the Boeing jumbo jet.

John Battle, the Minister for Science, Energy and Industry, described the investment in Rolls-Royce as a "partnership with industry and an investment in the future".

In effect the Government will become a risk and revenue sharing partner in the three new Trent programmes, taking a 20 per cent stake in return for a share in future profits. Rolls has already contracted 20 per cent of the Trent 700 and 800 programme to overseas companies.

The three new engines are the Trent 500, which will power the stretched Airbus, the Trent 8104, which will power a long-range version of the Boeing 777 and the Trent 600, which will power larger versions of the Boeing 747 and 767.

Sir Ralph Robins, Rolls' chairman, said the three new engines would take it into a whole new area of the aircraft market, enabling it to capture more than 40 per cent of potential sales. The alternative, he said, would have been to invite commercial risk and revenue sharing partners on to the Trent programme but this would have meant jobs and work going abroad.

Rolls received launch aid for the original RB211 engine, the Spey and the V2500 but significantly, the last government decided not to fund the launch of the Trent programme. Sales of the Trent 700 and 800 are now $7bn (pounds 4bn) and it has captured 38 per cent of the market to power the two wide-bodied jets, the 777 and the Airbus A330.

Rolls is repaying about pounds 30m of launch aid to the Government each year while total air repayments, including those made to BAe, are due to total pounds 500m over the next five years as aircraft like the Airbus A320 begin to pay their way.

The stretched A340 is costing BAe and its three Airbus partners about pounds 2bn to develop. BAe is limited to a maximum launch aid of 33 per cent on its share of the costs.

Both BAe and Rolls will also seek launch investment from the Government for the 600-seat double-decker super jumbo, the A3XX, which Airbus hopes to launch before the end of the century. The aircraft would cost at least $8bn to develop, with some estimates putting it as high as $20bn, and is unlikely to enter service until 2005 at the earliest.

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