Pratt & Whitney is boosting its investment in jet engines for commercial planes, spending $1.5 billion to buy out Rolls-Royce from a joint venture that makes engines for the Airbus A320.
At the same time, the move by Rolls essentially has the British engine-maker sitting out the current generation of smaller commercial planes and biding its time until later in this decade when the new generation comes along.
The joint venture that Rolls-Royce is leaving, called International Aero Engines AG, makes one of the two engines offered for the A320. The venture has sold about 4,500 of its V2500 engines and has another 2,000 on order.
Those engines average seven years old and are on the verge of needing more spare parts — which will make it a lucrative business for Pratt & Whitney, said Nicholas Heymann, an analyst at Sterne Agee.
He said Pratt had less than 20 percent of the orders for commercial jet engines at the beginning of this decade. By the time the decade ends it could be over 50 percent.
"They looked like they were out of the race," Heymann said. "They've come back."
Even though Rolls-Royce is leaving the current joint venture with Pratt & Whitney, Rolls will continue to make portions of the A320 engines and will get money for every hour flown by the current engines in service for the next 15 years. Rolls-Royce didn't disclose the size of those payments.
Besides Pratt increasing its stake in current jet engines, it's also a noteworthy move by Pratt's corporate parent, United Technologies Corp. Three weeks ago United Technologies, which is based in Hartford, Connecticut, said it will spend $16.4 billion to buy Goodrich Corp., which makes jet components such as landing wheels and brakes.
Boeing Co.'s 737 and the Airbus A320 are the two best-selling planes in the world, but airlines have been eager for improvements that will boost fuel efficiency. Boeing and Airbus have both decided that, for now, they will both put new engines on those two planes rather than design all-new planes.
The new joint venture between Pratt and Rolls will focus on engines for the new planes, once they're designed, that will eventually replace the 737 and A320.
The old IAE joint venture also includes MTU Aero Engines AG and Japanese Aero Engines Corp. Pratt and Rolls both said they hope to work those two companies in the new joint venture, too.
Mark King, the president of Rolls-Royce's civil aerospace unit, said the new arrangement was a good way for it to keep working with Pratt & Whitney and the other partners without investing any more in the new-engine version of the A320.