Product details

The case discusses how UK-based aero engine manufacturer Rolls-Royce plc (Rolls-Royce) transformed itself from a product/technology company into a company offering aftermarket services. Rolls-Royce pioneered power-by-hour support in the aviation market. Under this concept, the customers paid a fixed maintenance fee for each aircraft flight hour (only for the time during which the aero engine was running). The company also offered different service packages for different customers. The after-sales services provided by Roll-Royce helped its customers reduce maintenance costs and downtime. They also enabled the company to improve its aero engine designs and build a good relationship with customers. Moreover, the company gained a steady long-term revenue stream from the maintenance contracts. Analysts felt that the service strategy adopted by the company strengthened its position considerably in the highly volatile aerospace industry. For the year 2017, Rolls-Royce's services revenues of GBP4.2 billion accounted for 53 percent of its total revenues. While Rolls-Royce made more money out of its aftermarket services, it started facing problems in 2016 when prominent customers like All Nippon Airways (ANA) complained that the turbine blades inside the engines installed by Rolls-Royce were corroding faster than expected. Other airlines such as Virgin Atlantic, British Airways, Norwegian Air, and Air New Zealand reported similar woes with the Trent 1000 engines. This resulted in the airlines grounding the planes and cancelling hundreds of flights as the affected aircraft had to be taken out of service for repairs. In addition to costing the airlines a huge sum of money, it also attracted scrutiny from regulators. Analysts believed that repairing around 380 engines around the world would not be an overnight fix for Rolls-Royce. Rolls-Royce stated that the engine repair would cost GBP370 million in 2018 and GBP270 million in 2019. The challenge before the company was to fix its engine problems and ensure that it continued to earn a major portion of its revenues in the future from its aftermarket services.