Exit from Aero Engines Alliance Boosts Rolls Royce Shares

October 13 00:00 2011

New York, October 13 (RainbowNewsLine.com) – Shares of Rolls-Royce Group Plc. surged as much as 9.4 percent, the most in 2 ½ years after it sold its share of a jet-engine venture to Pratt & Whitney for $1.5 billion. The exit of the world’s second largest aircraft engine maker from the International Aero Engines alliance will provide the company with a $220 million boost to its operating profits. Its shares traded up 7.9 percent at 675.5 pence as of 8:44 a.m.

Jason Adams, an analyst at Nomura International said, “It seems a fantastic deal for Rolls-Royce, I doubt the market was valuing the business at anywhere near that level.” Adams has a “buy” rating on the stock.
A new 50:50 partnership will be formed by Rolls-Royce with Pratt & Whitney, which is owned by United Technologies Corp. to tap the rapidly growing market for mid-sized plane engines.

In 2010, the partners in the International Aero engines Alliance had sued each other for patent infringement over a larger Pratt & Whitney engine and could not come to an agreement on marketing another model for the Airbus SAS A320 jets.

An additional undisclosed payment will be given to Rolls-Royce for 15 years for each hour flown by planes now equipped with V2500 engines made by IAE. According to Adams, the price tag of $1.5 billion represents less than one-half of the net present value of the transaction.