March 26, 2009 Flights of Efficiency

Volume 12 | Issue 2

Rolls-Royce first came to Brazil as a far-flung affiliate of the British provider of aircraft power systems. Its original mission was to ser

In 1959, Rolls-Royce arrived in Brazil and set up its first Latin American unit. Already a world leader in the manufacture and maintenance of complex motor systems for ships, aircraft, and, most famously, land vehicles, the British giant signed a large and lucrative contract with the Brazilian Air Force to service its motors. In order to do so with maximum efficiency, it opened a service center in São Paulo. Although initially, the Air Force was its exclusive client, when the word that Rolls-Royce was on the continent got around, customers from the civil sector sought the company out, demanding that it perform repairs and overhauls on their motors as well. As a result, Rolls-Royce gradually expanded into the civil aircraft sector, first in Brazil, and then throughout Latin America. Over the next four decades, it grew into a very successful regional unit. Then, a little over a decade ago, everything changed.

GLOBAL PLAYER
“The year 1996 was a watershed year for us,” recalls Mauro Gama, president of Rolls-Royce Brazil. “That was when we began servicing turbines for the Fokker 100. Up until last year, these planes were used by TAM (one of Brazil’s major airlines). The technology involved was extremely sophisticated and the fleet was very large. Taking on this contract demanded a major investment, but the pay-offs were big and, as a result, we grew enormously.”

Word of Rolls-Royce Brazil’s prowess spread quickly, not only throughout Brazil and Latin America, but throughout the global market as well. As aircraft companies in North America, Europe, and Asia began to take note of the Brazilian affiliate, Rolls Royce Brazil began to imagine expanding its reach beyond its traditional regional borders. With globalization’s shrinking of distances, Brazil’s combination of low labor costs and high standards of quality and efficiency began to look very attractive. Rolls-Royce Brazil’s courtship of export markets paid off handsomely in 2005 when the company started to receive engines from the USA, a milestone moment that elevated Rolls-Royce Brazil to the ranks of a global player.

That American airlines would opt to use a company based in Brazil to service their motors was a testament of Rolls-Royce Brazil’s dedication to efficiency. For Mauro Gama, it is this commitment to efficiency that sets the company apart from its competitors and has been responsible for its stunning growth over the last decade. “Ten years ago, our annual revenue was between $50 and $60 million. In 2008, it was close to $120 million,” declares Gama. “If we hadn’t been so efficient, the American market never would have come here. It would have been economically unviable. We had to prove that it was worthwhile for them – despite the time and distance involved – to send their motors to us for servicing. We had to offer better costs, logistics, and services that cancel out the fact that we are located in South America. We’ve even had to be more efficient than other Rolls-Royce units. As proof, in 2009, Rolls closed down a unit in Scotland after deciding it made more sense to send motors here.”

Rolls-Royce Brazil’s successful performance accounts for the fact that exports currently represent 75 percent of all business. Of this 75 percent, 80 percent of contracts are with U.S. customers – primarily due to the lucrative Embraer contract, which constitutes Rolls-Royce’s largest source of revenues – while the remaining 20 percent are divided between European and Asian interests. The company is particularly optimistic with regards to potential expansion into the Asian market due to the fact that it has just been approved by China, which happens to have an enormous fleet of Embraer planes. In the meantime, despite the end of its contract with TAM, the company continues to service Fokker 100s for Synergie, which owns Brazil’s Ocean Air and Colombia’s Avianca, as well as for Air France and small airlines in Eastern Europe.

ON THE HOME FRONT
Despite its shift of focus towards overseas markets, Rolls-Royce has no intention of abandoning the home front. Today, in spite of the current economic crisis, the aircraft market in Brazil (which, to date, has weathered the crisis better than most) remains stable. Says Gama: “The crisis has affected the purchase of planes, and repair and overhaul of motors has become more important. However, we must think of the future. As such, we’re working on new projects. In particular, we’re hoping to be able to offer service of Airbus A319s and A320s. There are 100 of these planes in Brazil, which translates into 250 turbines. It’s a big fleet. Right now, the maintenance for these motors is done outside of Brazil. But we’re analyzing the necessary investments with the aim of taking over these contracts from our competitors. We expect to be ready to do so in the next three or four years. If we succeed, this will double the size of our company.”

The company certainly has room to grow. Its main São Paulo unit, home to 400 employees, consists of 161,460 square feet of buildings. Currently, it services 200 airplane turbines a year. Aside from its continuing relationship with the Brazilian Air Force, the company also services helicopter motors (over 150 a year). More recently, it moved into new territory when it signed a deal with Petrobras, to service the energy generating motors on the Brazilian oil giant’s offshore platforms (the company’s marine and energy divisions are located in Rio de Janeiro). Says Gama: “Turbines used to generate energy are very similar to airplane turbines. The only difference is that the application is stationary. Since many of the turbines Petrobras uses are made by Rolls, they asked us to provide maintenance as well.”

TOTAL CARE
Getting in on the ground floor at the beginning, when a company first purchases new equipment, constitutes one of the company’s guiding strategies. “The aviation market is defined by cycles,” explains Gama. “There are moments when companies have to invest in new planes. A cycle usually lasts around eight years. Right now, for instance, it’s the beginning of a new cycle. A lot of companies are changing their fleets. The A380, a giant plane with 500 seats, is very popular. So is the Boeing 787, both powered by Rolls-Royce engines.”

When the companies purchase new planes, they also have to decide which turbines they’ll buy and who will service them. In terms of the latter, they have two choices: they can opt for a Total Care contract, by which they pay a fee based on flown hours (like an insurance premium) in return for ongoing maintenance, or they can pay for repairs when they are needed (generally four to five years after a new plane is purchased). To date, 70 percent of Rolls-Royce Brazil’s global contracts are Total Care. However, if Rolls-Royce has its way, all clients would opt for the Total Care option. “The ideal is to sell the Total Care contracts along with Rolls-Royce turbines (manufactured in Europe and the U.S.),” declares Gama. “To have the client with you 100 percent right from the outset. This bundling together of sales and service is our principal goal right now.”

In terms of the future, Rolls-Royce Brazil has an edge over its competitors, by virtue of its very history. Due to stringent regulations imposed by the FAA and the EASA, all are obliged to maintain the same high standards. However, Rolls-Royce distinguishes itself with its reputation, acquired over the last 100 years, for being a consistent and dependable manufacturer of motors and other equipment. Due to Rolls’ enormous investments – on its own and via partnerships – in R&D, the company has always had cutting-edge technology whose virtue is that it lasts, often for decades.” Gama points to the fact that many Rolls turbines currently in use were created 10 or 15 years ago and are still considered to be extremely high tech.

Meanwhile, there are planes that use Rolls motors invented 50 years ago that are still operating perfectly. Says Gama: “Our products don’t need to be modified, which makes them economically viable. Cost of maintenance, which translates into cost of ownership, is less. Moreover, their stability and maturity inspires client confidence. Customers don’t always have faith in new projects, but in terms of our products there is a lot of trust. Maintaining this trust, through a commitment to excellence in all its aspects, really defines our internal mentality. It’s the motor that drives this company.”

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