Rolls-Royce to ramp up profits with major $1.5bn deal

13th Oct 2011 10:23

Global power systems firm Rolls-Royce was the high riser on Thursday morning after it revealed two major initiatives which are expected to significantly raise its operating profits in the future.By 10:31, shares were up 6.5% to 666.5p after investors digested a late statement last night, revealing that the company is to sell its 32.5% stake in the business which produces the V2500 engine for the A320 Airbus.Rolls will dispose of its interest in International Aero Engines (IAE) - a joint venture between Pratt & Whitney (a United Technologies Corp company), MTU Aero Engines (MTU) and Japanese Aero Engine Corporation (JAEC) - to Pratt & Whitney for $1.5bn, in addition to further payments for every hour IAE engines are flown over the next 15 years.Furthermore, the company unveiled a new partnership with Pratt & Whitney to develop engines to power future mid-size aircraft which hold between 120 and 230 passengers. "The new collaboration brings together complementary technological resources and is designed to offer the best, most competitive response to customer demand for the next generation powerplant in the mid-size segment," Rolls said.While the transactions won't have an effect on this year's finances, the firm said that the $1.5bn in cash will be retained for general corporate purposes, while the flight-hour payments will add more than £140m to operating profits at the Civil Aerospace division.Evolution Securities analyst Guy Brown estimates that this is 28% higher than the broker's divisional forecast and 12% higher than predictions for group profits."Today's announcement charts a clear course for the future of Rolls-Royce in the important mid-size aircraft segment," said Mark King, the president of the Civil Aerospace division. "We are building on many years of successful collaboration with Pratt & Whitney in this segment to develop advanced aero engines, which we are confident will set new standards in aviation technology, performance and fuel efficiency."BC