Interview – Sir Francis Tombs

FT: Yes but you are referring to Weir and T&N, which were quite different cases. The strategy that has resulted in Rolls-Royce’s successful return to the private sector was begun by my predecessors. For example, over the past six years our workforce has been reduced by a third. Our efficiency and productivity has increased to the point where we compete successfully internationally despite dollar fluctuations as has been shown by the massive orders we have won recently from US airlines.

MT: Do you feel that your many engineering qualifications have been a key factor in this process or do you feel that the principles applied with these companies could be applied across the board?

FT: You cannot head a high technology business unless you are qualified and able to make judgments on business cases for products and long-term company strategy but I am sure that many others could have proposed and pushed through similar measures to those Rolls-Royce has had to adopt over the last six years.

MT: As regards Rolls-Royce, I believe that one criteria you insisted upon before taking on the job as Chairman was that RollsRoyce be given a firm timetable for privatisation. You obviously felt that this was paramount to your task?

FT: Absolutely. You cannot compete in an international business like ours if your hands are tied and you have to have your business decisions approved by Government. The procedures are far too lengthy and Governments are ill-equipped to deal with business problems and timescales. Our two major competitors did not have this handicap in the private sector. We, too, had to be in a position where we could make decisions unfettered and without delay. Our discipline is that now we have to account to our shareholders, the City and the markets

place.

MT: Has privatisation had a dramatic effect on your ability to raise working capital and to effect quicker changes of direction when required?

FT: As I have said, we are free to go our own way. We can now use the capital markets and only last May we launched an issue of £150 million Euro-Sterling Bonds.

MT: How many of your employees have participated in the share sale and were they offered preferential conditions or any special restrictions?

FT: 96% of our workforce are shareholders. We had various employee schemes, including one that allowed the purchase of up to £2,000 of shares at a 10% discount. We also launched a share-save scheme where employees save regular monthly amounts and have the option to buy shares at special fixed prices after five years or seven years. Over 45% of our employees have joined this scheme.

MT: I expect that this employee ownership and participation has had a good effect on productivity and morale. What would your comments be on this aspect?

FT: Our productivity, which is already good, is continuing to improve. Morale is high because our employees can see from the spate of orders we have announced that the measures for improvements that we have had to take over the past few years are paying off. However, I must add that I am delighted that such a high majority of our workforce showed their support for privatisation by becoming shareholders.

MT: How is your shareholding made up?

FT: We have nearly a million shareholders of whom over 90% have 400 shares or less each. Banks, nominee companies, institutions and pension funds hold over 70% of the shares.

MT: Your register is limited to 15% foreign ownership. Do you think this is a necessary restriction or do you think the percentage should be higher if so, how high?

FT: Because of Rolls-Royce’s position as a defence supplier, I can understand the Government’s action to restrict foreign ownership. The 15% limit was imposed by the Government and can only be revised by them. It does not, of course, affect the running of the company.

MT: I note that you do not have a trade union participation in the shareholding, did they support the move to privatisation?

FT: Throughout the Government’s privatisation programme of various UK companies, the trade union movement voiced their opposition to the programme on principle. Rolls-Royce was no exception, though the view of our trade unions was not shared by our work force.

MT: Yes, your workers seem to have embraced the privatisation with open arms. Were the unions’ fears justified as regards job losses, early retirements and structural changes etc, or have any . changes been seen as positive by the workers?

FT: As I stressed earlier, we reduced our workforce by a third over a six year period under State ownership. This was achieved, with the agreement of the uriions, in various ways, including voluntary severance and early retirement. This slim down was absolutely essential if Rolls-Royce was to stand on its own two feet and be competitive. Since privatisation our numbers have remained about the same though we have publicly stated we expect to achieve a further small reduction of about 1-2,000
again by voluntary means in the coming
year.

MT: Your share price has dropped like all others with the October 1987 crash. Has this had an effect on the workers attitude or are they taking the longer term view?

FT: Naturally, we were all disappointed, but the share price has now strengthened somewhat. As regards our employees’ attitude, we launched a second share-save scheme last May. The first was subscribed to by nearly 50% of the workforce. The second was over subscribed and we had to reduce the number of shares that each employee had applied for. I think it is clear they are taking a long-term view.

MT: Privatisation has obviously worked for Rolls-Royce, and indeed a plethora of other British state-run enterprises. Do you think it would be a positive move if Qantas and Australian Airlines were privatised?

FT: I cannot comment for Qantas or Australian Airlines but we are a better company all round now that we are back in the private sector. That view is shared by Lord King regarding British Airways. Just look how that airline is succeeding.

MT: On to technical matters. Airbus and your company recently signed an MoU to get the most powerful version of your RB211, the 524L, aboard their A330 big twin. Why has it taken Rolls more than two decades to get involved with Airbus, something that in the interim has given an enormous sales lead to General Electric?

FT: It’s really a question of having the right engine at the right time. We were too late for the A300 and A310. However, we have been directly involved with Airbus lndustrie through the V2500, which will power the new A320 airliner. The MoU we have just signed allows Airbus lndustrie to offer the RB211-524L, our newest and most powerful engine, on the A330 twinjet. This time we have the right engine at the right time.

MT: The Soviets are experimenting with flying a Tu-154 using an engine modified to burn hydrogen. Do you see any future viability in this for a new breed of 21st century civil jet engines and what happens when eventually avtur begins to become critically scarce?

FT: Actually, the Russians are quite a long way behind. We did a study in the early ’80s at the time of the fuel crisis. Hydrogen is a very good fuel, gives a cleaner burn and considerable improvement in range. It is also not difficult to modify existing gas turbines to run on it. However, there are some major impracticalities. For instance, aircraft would have to be completely redesigned as liquid hydrogen would have to be stored in cylindrical pressure tanks inside the fuselage – not in wing tanks. Because of the nature of liquid hydrogen, airports would have to have special storage facilities and new handling systems. As you can imagine, the costs involved would be enormous.