Red Ink at Rolls-Royce

In the fierce competition for supremacy in the market for giant jets, even the largest players have taken jumbo losses. Boeing Co. suffered severely when engines for its 747s were delivered late. Pan Am has had to scrub some 747 flights because of persistent bugs in the engines. Financially shaky Lockheed has sunk hundreds of millions into developing its TriStar jumbo jet, which is scheduled to make its first flight this week. Lockheed has 178 orders for the TriStar, far fewer than it needs to break even.

Last week the steeply rising price of staying in the competition was underscored by a British government rescue operation to save Rolls-Royce, the company famed for its costly cars ($22,000 and up in the U.S.) and superb aircraft engines. Rolls-Royce is building the engines for Lockheed's TriStar and has already received $113 million in British government aid toward the power plant. That amount did not match the engineering costs, which are running twice as high as estimates made two years ago. Amid gasps of shock in the House of Commons last week, the Tory government announced that it would have to put up another $101 million.

Rolls-Royce, which reported a trading loss of $7.4 million for this year's first half, also is writing off another $108 million in losses it expects to take once the engine goes into production. The company cannot pass the increased costs on to Lockheed because, to win the Tri-Star contract, Rolls-Royce agreed to a price ceiling for the first 600 engines. Thus, on top of development expenses, Rolls-Royce will lose money on each of the first 600 engines manufactured. If the government refused to give more aid, Rolls-Royce could disappear as a major aircraft enginemaker, resulting in drastic layoffs among its 80,000-man work force.

The price of the Rolls-Royce rescue was paid by Sir Denning Pearson, 62, an engineer who has headed the company since 1957. He stepped down as chairman and was replaced by Lord Cole, 64, the cost-conscious former chief of the Unilever soap and food empire.

Beware of the Birds. Rolls-Royce's troubles are those of a cash-short player trying to keep up with the international competition. Its financial troubles have been compounded by technological problems encountered in developing the TriStar's engine. Rolls-Royce's pioneering use of "Hyfil"carbon fibers laminated with resinfor fan blades produced an engine that was lighter and more economical on fuel. But the Hyfil blades were vulnerable to damage by birds drawn into an engine during takeoff or flight. A 4-lb. bird makes an impact equivalent to two tons on a spinning turbine. Engineers are working to strengthen Hyfil, but Rolls-Royce has switched to titanium blades like those used in American engines.

Rolls-Royce is not the only aerospace company that Britain's taxpayers may have to bail out. British Aircraft Corp., which is developing a medium-range 300-passenger jet airbus, is asking the government for $240 million in subsidies. A consortium of French, West German and Dutch manufacturers is building a rival airbus, a project that Britain's previous Labor government had abandoned. The Continentals have invited the British government to scrap the B.A.C. airbus and rejoin them, at a cost to Britain of less than $100 million. The Cabinet may announce its decision this week. Either way, Rolls-Royce stands to benefit. If the British do build an airbus, it will naturally be powered by Rolls-Royce engines. But if the British abandon their ship and decide to join an all-Europe airbus project, Rolls-Royce will not only certainly get the engine contract, but the Europeans may sweeten the deal by giving financial aid toward developing the power plant.

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