Economic predictions

So, I said that Rolls Royce might be a beneficiary of Brexit.

This is what makes Rolls Royce so attractive as a hedge or speculation upon Brexit. If the worst – or for people like me politically, the best – happens and Britain leaves with no deal and settles for WTO terms. Rolls Royce carries none of the costs, as other exporters will have to. But has all of the gains of the falling currency. And do note that aviation is priced in US dollars, the entire market is. So this doesn’t just apply to sales of engines, but also to the decades long service and maintenance contracts the company has with all those foreign airlines.

A fall in sterling from a messy Brexit would be great for Rolls Royce.

Of course, sterling has risen just recently……sigh.

16 thoughts on “Economic predictions”

  1. On a related topic Tim:
    Do you regard the recent Airbus thing as:
    1. a classic corporate smoocher paying a £3bn bribe to be exempted from the law…..or
    2. organised crime doing a shakedown of £3bn on a defenceless victim?

  2. It’s even more cunning than that, Mr Balspune, you pay RR per thrust-minute. So 15 minutes in the cruise costs less than 15 minutes of full power at take-off. And if you do a derated take-off – on a long runway or with a lighter load – you pay a bit less than full power. As the linked article says, you can still buy an engine if you wish, but 80% of sales are leased.

  3. Rolls-Royce also have a huge hedge book which I guess would make a difference how much the benefit would be?

  4. IBM famously leased their mainframes leading one analyst to remark that they were a finance house that made computers on the side.

  5. The article was concerned with (commercial) aviation, specifically priced in USD, I don’t think UK military or non-aviation falls into that category. The point is that RR don’t have a main income from dollar priced sales, or service and maintenance agreements, because that is not their primary business model.

  6. And apparently RR do offer the same model to armed forces

    Sounds a bit risky for RR, after all, isn’t the whole point of Armed Forces that they go around breaking stuff?
    Preferably, breaking the other side’s stuff faster than their own, but still. If all the stuff hasn’t been paid for, do the winners get a bill from the loser’s vendor?

  7. @Tim the Coder
    It all works by RR continuously monitoring how hard the engines are being run. I guess there’s provision in the contract for being disabled by .50 calibre fire.

  8. @Runcie Balspune February 3, 2020 at 10:58 pm

    Not same model. RR not renting the engines to USMC, they’re providing propulsion system support. In Afghan it was pairs of XXXL tights, hoses & water

    As TtC, says Military specialise in destroying assets

    @Wonko

    In Blair era BGas almost went bust by signing a gas purchase contract and not hedging, despite having a hedging dept

    BA, BAe, RR etc have been hedging for decades

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