# Rolls-Royce: selling hours of flying instead of engines, and what that meant when the planes stopped

Source: https://sarang.pro/rolls-royce-power-by-the-hour/
Author: Sarang | Published: 18 October 2026

## The situation

On 11 March 2021 Rolls-Royce published the worst set of annual results in its modern history. Large civil engine flying hours in 2020 had averaged 43% of their 2019 level. Group underlying revenue had fallen from £15.45bn to £11.76bn, the group had swung from an underlying operating profit of £808m to a loss of £1.97bn, and £4.19bn of cash had left the business in a single year. Civil aerospace alone lost £2.57bn on revenue of £5.09bn.

The scale of the damage had a specific cause. For decades Rolls-Royce had sold its big civil engines on a model it called Power by the Hour. An airline paid a fixed amount for every hour an engine flew, and Rolls-Royce in return took on the cost of maintaining it. When the world's long-haul fleets were parked, the hours stopped and the money stopped with them. The company also had to rewrite its estimates of what those contracts would earn over their lives, and the accounting adjustments alone took £1.1bn off 2020 revenue.

The question facing the board and its chief executive, Warren East, was therefore larger than how to get through a bad year. It was whether a business model that had made Rolls-Royce one of the two leading makers of wide-body jet engines had also left it carrying too much risk, at prices that did not pay for that risk. The same question would shape the company's recovery under East's successor, Tufan Erginbilgic, from 2023.

## Background

### From cars to jet engines

Rolls-Royce Limited was registered in March 1906 to formalise the partnership between Charles Rolls and Henry Royce. It became known for cars, but aero engines soon became its main business. That business nearly killed it. The development of the RB211 turbofan for Lockheed's L-1011 TriStar ran far over budget, and on 4 February 1971 the company went into receivership. The government took the engine business into public ownership through the Rolls-Royce (Purchase) Act 1971. It stayed state owned for 16 years and was returned to private hands in 1987.

The RB211 lineage became the basis of the Trent family of large turbofans. The first, the Trent 700, entered service with Cathay Pacific on the Airbus A330 in 1995. Later versions included the Trent 800 for the Boeing 777, the Trent 1000 for the 787, the Trent XWB for the Airbus A350 and the Trent 7000 for the A330neo. By the late 2000s Rolls-Royce claimed the broadest civil engine range in the industry, with 11 engine types in service on aircraft from six airframe makers, according to its executives at the 2007 Paris Air Show.

### Where Power by the Hour came from

The model started small. In 1962 the Viper engine powered the de Havilland (later Hawker Siddeley) 125 business jet. Rolls-Royce's own account, published for the 50th anniversary in 2012, says operators were offered a complete engine and accessory replacement service for a fixed cost per flying hour. The point of the arrangement, as the company described it, was that the maker was paid only for engines that performed well. Rolls-Royce still holds Power by the Hour as a trademark.

The idea spread to airliners through TotalCare, Rolls-Royce's long-term service agreement for large engines, and to business aviation through CorporateCare, launched in 2002. Under TotalCare an airline pays a fixed dollar amount per flying hour and hands engine maintenance, and the risk attached to it, to Rolls-Royce. The company says the arrangement has stretched the time between overhauls by about 25% and lets more repairs be done with the engine still on the wing.

### How the money worked

An engine maker earns money in two ways. It sells the engine to the airframer or airline, and it earns from parts and repair work over a working life that runs for decades. Rolls-Royce's published figures show where the profit sits. In 2019 it delivered a record number of wide-body engines and its civil division barely broke even, while the 2024 margin gains came, in the company's words, from higher wide-body aftermarket profit.

TotalCare changed the timing and shape of the aftermarket income. Instead of billing for each shop visit, Rolls-Royce received a steady flow of cash per flying hour, in effect a prepayment for maintenance it would carry out years later. In its accounts this appears as a long-term service agreement (LTSA) liability: cash received ahead of the work. At the end of 2024 the civil aerospace LTSA balance stood at a liability of £10.18bn, up from £9.08bn a year earlier, according to the 2024 annual report. That balance is a measure of how much maintenance Rolls-Royce has been paid for and not yet done.

By the mid-2000s the services side had grown to the size of the original business. Aviation International News reported in June 2007 that TotalCare had grown by about 10% a year over the previous decade, reaching $3.9bn by the end of 2006, more than half of the civil engine business. At that point 109 TotalCare contracts with 75 airlines and four leasing companies covered 60% of Rolls-Royce's large and regional engines. More than 7,000 engines sent health data back to the company, and its services network employed more than 8,000 people. Miles Cowdry, then president of services, said the services business was worth more than the whole of Rolls-Royce had been in 1997. In 2011 the group's underlying revenue was £11.3bn, and more than half came from services.

## The industry

### Structure and size

Large commercial jet engines are made by very few firms. In the wide-body segment (engines of roughly 45,000 to 75,000lb of thrust) the contest has for years been between Rolls-Royce and GE, with Pratt & Whitney a smaller presence after losing out on the Boeing 787. Rolls-Royce's civil president Mike Terrett described the wide-body market in 2007 as a "dogfight" with GE. The single-aisle market is dominated by CFM International, the GE and Safran joint venture, and by Pratt & Whitney's geared turbofan. Rolls-Royce has had no engine on current single-aisle airliners for more than a decade. It shared the Airbus A320 market through the IAE consortium in 2007, when Terrett conceded the company did "not have a strong presence" in narrow-bodies.

The size gap between the two wide-body rivals is large. GE Aerospace reported 2024 revenue of $38.7bn. Its Commercial Engines and Services segment earned $26.9bn of revenue and $7.1bn of segment profit, a margin of 26.2%, and services made up 74% of that segment's revenue. GE puts its installed base at about 45,000 commercial and 25,000 military engines, a figure that includes the CFM56 and LEAP engines on single-aisle jets. Rolls-Royce's civil aerospace division reported 2024 underlying revenue of £9.04bn and a margin of 16.6%, with about 13,800 civil engines in service across large and business aviation. Rolls-Royce said its share of the installed wide-body fleet was 36% at the end of 2024, up from 32% at the end of 2022.

Exhibit 1: The two wide-body engine leaders compared, 2024

MeasureRolls-Royce Civil AerospaceGE Aerospace Commercial Engines and Services

Revenue£9.04bn (underlying)$26.9bn
Operating or segment margin16.6%26.2%
Services or aftermarket share of revenueabout 65% (£5.9bn of £9.0bn)74%
Engines in serviceabout 13,800 civil enginesabout 45,000 commercial engines
Position in wide-bodies36% of installed wide-body fleetnot disclosed as a share

Sources: Rolls-Royce Annual Report 2024 and 2024 full year results; GE Form 10-K for 2024. The two companies define segments differently, so the comparison is indicative.

### Forces at work

Seen through Porter's five forces, the industry looks like a classic tight oligopoly. Entry is close to impossible, because a new engine family costs billions to develop and must be certified to strict safety rules, and because airframers choose engines years before an aircraft enters service. Rivalry is intense at the point of sale, when makers compete for a slot on a new aircraft or for an airline's engine choice, and that is where heavy discounting on new engines happens. Once an engine is chosen, rivalry largely ends. On many aircraft there is only one engine option. The Boeing 777-300ER was powered only by GE, and Rolls-Royce planned a single engine type for every version of the A350.

Buyer power is split. Airframers such as Airbus and Boeing are powerful, and airlines negotiate hard on large orders. But after purchase an airline is tied to one maker's engine for decades, and the maker controls the design data, parts and repair approvals. That gives engine makers strong pricing power in the aftermarket. Airlines have contested this. In January 2026 IATA, the airline trade body, renewed a 2019 agreement with CFM under which CFM had adopted conduct policies to keep maintenance markets open. IATA said an industry study estimated that manufacturers' aftermarket practices added $5.7bn to airline engine leasing and maintenance costs in 2025. Its director general, Willie Walsh, said airlines had "long struggled with the aftermarket business practices of manufacturers" and that other makers "must take notice and step up". The independent repair shops that compete for maintenance work are the main substitute an airline has, and their reach is limited by access to parts and technical data.

Suppliers matter more than they used to. In 2007 Rolls-Royce said bought-in parts made up 70% of its purchases, and it had cut its supplier base for a new engine from 230 on the Trent 500 to 76 on the Trent 1000. Since the pandemic, shortages of castings, forgings and other parts have slowed engine production and repair across the industry. Rolls-Royce put the cash cost of supply chain disruption at £150m to £200m a year in 2024 and 2025 guidance.

### Technology and reliability risk

Engine technology raises a risk that usage contracts make sharper. If a design wears out faster than planned, the maker under a per-hour contract pays for the extra shop visits, and may also owe compensation to airlines whose aircraft are grounded. Two recent episodes show the cost. Rolls-Royce's Trent 1000 on the Boeing 787 suffered durability problems from 2016 onwards, and in November 2019 the company put the total in-service cash cost at about £2.4bn over 2017 to 2023, with a further exceptional charge of about £1.4bn in 2019. In September 2023 RTX, owner of Pratt & Whitney, took a $3bn pre-tax charge after a powder metal defect in its geared turbofan meant 600 to 700 more engines had to come off aircraft for inspection than planned through 2026.

## The decision

The choice Rolls-Royce faced was never a single moment. It was a series of calls on how far to tie the business to flying hours, at what price, and with what protection. By the time of the pandemic the main options, and the arguments around them, were well rehearsed.

### Option one: sell engines and bill for repairs

Under the traditional model, the maker sells an engine and charges for spare parts and shop visits as they come up. Revenue follows breakdowns, and the airline carries the risk of an engine that performs badly. The model is simple to account for and does not expose the maker to a fall in flying. Its weakness, from the maker's point of view, is that airlines can take maintenance to independent shops and that income arrives in lumps. It also gives the maker a perverse incentive, since a less durable engine earns more repair revenue.

### Option two: sell hours under long contracts

Under TotalCare, revenue follows flying. The airline gets a predictable cost per hour and hands off the risk of unplanned maintenance. The maker gets a long, locked-in relationship, steady cash and control over the repair work. Kim, Cohen and Netessine, writing in *Management Science* in 2007, modelled these availability-based contracts in aerospace and showed that, where both sides are risk neutral, linking pay to product uptime can produce the best outcome for both, while risk-averse parties need a mix of fixed payment, cost sharing and performance incentives. D. J. Smith's 2013 study of Rolls-Royce in *Technology Analysis & Strategic Management* argued that digital electronics and engine monitoring were what made the service strategy workable, because they gave the maker knowledge an independent repairer could not match.

The case against was about risk and pricing. A maker that sells hours carries the cost of any durability problem for the whole contract, as the Trent 1000 showed. It is exposed to the volume of flying, which in normal times grows steadily but can collapse. And a contract signed when an engine is new must price maintenance decades ahead, with little hard data on how the design will wear. Andy Neely's 2008 study of more than 10,000 manufacturers found that firms that had moved into services were larger but, in aggregate, earned lower profits as a share of sales, and that a higher proportion of them had gone bankrupt. He called this a "hidden risk" of servitization.

### Option three: keep the model but change the terms

A middle path was to keep TotalCare but price it differently: higher rates per hour, shorter terms, clauses that shared the risk of low flying or extreme wear, and tighter limits on concessions given to win engine orders. This option became the centre of the debate after 2020. The 2020 results showed that per-hour income could vanish for a year at a time. By 2023 the new chief executive was arguing that many of the contracts had been underpriced even before the pandemic. Pursuing this option meant reopening contracts with powerful airline and airframer customers, at a time when Rolls-Royce needed their goodwill.

### The accounting question

One further factor shaped how the model looked to investors. Under the IFRS 15 revenue standard, which it prepared investors for in 2016, Rolls-Royce had to recognise aftermarket revenue as it did the work rather than when it signed contracts. In November 2016 the company estimated, using 2015 figures, that the change would cut shareholder reserves by about £3.5bn before tax and reduce civil revenue for that year by roughly £0.7bn on new engines and £0.2bn in the aftermarket. The finance director said the change did not alter the lifetime profit of the contracts, only its timing.

## What they did

### Building the model, 1990s to 2019

Rolls-Royce made LTSAs the core of its civil business over two decades. In the early 1990s its services network covered only Canada, Brazil and the UK. By 2007 it employed more than 8,000 people and had built five large-fan repair facilities in ten years. It monitored engines in flight: by 2007 more than 7,000 engines were sending data home so that faults could be caught before an aircraft was stranded. It signed big airline deals. In January 2007, for instance, Singapore Airlines put the Trent 800 engines on its 58 Boeing 777s under TotalCare. In business jets, CorporateCare added engine health monitoring, loan engines during maintenance and a global network of authorised service centres, covering engines such as the BR725, BR710, Tay and AE 3007.

By 2019 the large engine fleet in service had grown 6% in a year to 5,029 engines, and invoiced flying hours had reached 15.3 million. Rolls-Royce delivered a record 510 wide-body engines that year. Yet civil aerospace earned an underlying operating profit of only £44m on revenue of £8.11bn, a margin of about 0.5% by simple division. The Trent 1000 problems had cost £578m in in-service cash that year, alongside a £1.36bn exceptional programme charge. The model was generating cash through the LTSA prepayments, but very little profit.

### The pandemic response, 2020 to 2022

When flying collapsed in 2020, Rolls-Royce's first job was liquidity. It raised £7.3bn during the year, including a £2bn rights issue and £5.3bn of new borrowing, ended the year with £9.0bn of cash and undrawn facilities, and cut about 7,000 roles, with at least 9,000 planned by the end of 2022, mostly in civil aerospace. The company also stopped using invoice discounting, which took £1.1bn out of working capital. It booked £1.3bn of one-off pandemic charges in civil aerospace, including the LTSA catch-ups, provisions for loss-making contracts and customer provisions. Its 2021 guidance assumed flying would recover to about 55% of 2019 in 2021 and about 80% in 2022. The recovery was slower than that: large engine flying hours were 65% of 2019 in 2022.

The 2020 accounts showed the model in reverse. Each LTSA is accounted for by estimating its total revenue and cost over its life. When forecasts of future flying were cut, revenue already recognised had to be reduced, producing the £1.1bn of catch-ups, and some contracts became loss-making and needed provisions.

### Repricing and durability, 2023 onwards

Erginbilgic took over at the start of 2023. In an address to staff that month, reported by the Financial Times, he called the company a "burning platform" and said its problems had "nothing to do with Covid". At a capital markets day on 28 November 2023 the company set a target to lift civil aerospace margins from 2.5% in 2022 to 15% to 17% in the medium term. It named six levers for wide-body LTSA margins: longer time on wing, lower shop visit costs, lower product costs, keeping engines earning, a value-driven pricing strategy, and tighter discipline on contract terms and conditions. In plain terms, Rolls-Royce would make the engines last longer between overhauls, spend less on each overhaul, and charge more for the hours it sold.

Renegotiation moved quickly. The 2023 results said all key civil original equipment and major airline contract renegotiations had been concluded or progressed. In its 2024 results the company said better commercial terms on large engine LTSAs had raised total contract margins for engines in production considerably over two years. The durability work ran in parallel. An improved high-pressure turbine blade was fitted to 20% of the Trent 7000 fleet by early 2024, roughly doubling time on wing. A new blade for the Trent 1000 TEN completed flight tests in January 2025. Rolls-Royce raised its target for time-on-wing improvement on modern engines from 40% to more than 80%, then in February 2026 to more than 100% across in-production Trent engines by the end of 2027.

The logic is direct. Rolls-Royce is paid per hour whatever happens, so every extra hour an engine stays on the wing is revenue with no maintenance cost attached. Under the old model a longer-lasting engine would have cut the maker's repair income.

Shop capacity was the bottleneck. Large engine shop visits rose by more than 50% over the three years to 2025, and Rolls-Royce planned a further 20% increase in maintenance capacity. It guided for 1,400 to 1,500 shop visits in 2025 and 1,480 to 1,550 in 2026.

## What happened

The recovery showed the model working in the other direction. As flying returned and contracts were repriced, civil profits rose faster than revenue. Large engine flying hours reached 88% of 2019 in 2023 and 103% in 2024. Civil aerospace revenue rose from £7.35bn in 2023 to £9.04bn in 2024, and the civil margin from 11.6% to 16.6%. Of the 2024 civil revenue, £3.1bn came from original equipment and £5.9bn from services, about two thirds of the total. In 2025 flying hours grew a further 8% and the civil margin reached 20.5%.

Exhibit 2: Rolls-Royce group and civil aerospace figures, 2019 to 2025

YearLarge engine flying hours (% of 2019)Group underlying revenue (£m)Group underlying operating profit (£m)Group free cash flow (£m)Civil underlying revenue (£m)Civil margin

201910015,4508088738,1070.5% (£44m profit)
20204311,763(1,972)(4,185)5,089loss of £2,574m
20226512,691652505not stated in source2.5%
20238815,4091,5901,2857,34811.6%
202410317,8482,4642,4259,04016.6%
2025about 111 (8% growth on 2024)20,0593,4623,270not stated in source20.5%

Sources: Rolls-Royce full year results for 2019, 2020, 2022, 2023, 2024 and 2025; Rolls-Royce Annual Report 2024. The 2019 civil margin is a simple division of profit by revenue. The 2025 flying hours figure is derived from the reported 8% growth and is approximate.

The group's balance sheet followed. Net debt of £1.95bn at the end of 2023 became net cash of £475m a year later and £1.9bn at the end of 2025. Rolls-Royce restored its dividend at 6p a share for 2024, paid 9.5p for 2025, completed a £1bn share buyback in 2025 and announced a £7bn to £9bn buyback programme for 2026 to 2028. In its first-half 2026 results civil aerospace reported a margin of 25.3% on revenue of £6.19bn, and the company said it had eliminated aircraft on the ground waiting for engines in civil aerospace for the first time in a decade.

Two features of these figures stand out. First, the civil margin rose about forty times over in six years on revenue that roughly doubled from its 2020 low, which is only possible in a business with high fixed costs and prepaid income. Second, the LTSA balance kept rising (by £0.7bn in 2024 and £0.6bn in 2025, net of risk and revenue sharing arrangements). Rolls-Royce was still being paid for future maintenance faster than it was doing the work, so the cash generated in these years includes money it will spend on shop visits later.

## Other views

### Airlines

Airline views of the model are mixed. Per-hour contracts give airlines predictable costs, and Rolls-Royce has long argued that customers value them for that reason. But airlines bear the consequences when engines wear out early, even if the maker pays for the repairs. Emirates' president Sir Tim Clark said at the Dubai Airshow in November 2023 that his airline would not order the Airbus A350-1000 until Rolls-Royce improved the durability of its Trent XWB-97 engines. He said the engine was managing only about a quarter of the expected time on wing between shop visits and called that performance "defective". Rolls-Royce's chief customer officer, Ewen McDonald, denied the engine was defective but accepted that "in sandy, hot conditions it is challenged, as all modern engines are". The company later introduced a new coating for the XWB-97 to improve its durability in harsh environments. Airlines, through IATA, also argue that engine makers use aftermarket control to raise prices, as the January 2026 IATA release showed.

### Investors and analysts

Investors saw the model's weakness before the pandemic exposed it. The FT's January 2023 report noted that Rolls-Royce had long run margins well below GE's. IFRS 15 also made it harder to compare Rolls-Royce's profits over time: an analyst cited by the FT in 2016 expected the change to leave civil aero engines loss-making through 2022. After the recovery, some fund managers warned about concentration. Ed Legget of Artemis told Trustnet in March 2024 that the civil business depended on a few programmes, chiefly the Trent XWB and Trent 700, and that if one developed a problem "there is not much diversification".

### Academics

Academic writing has treated Rolls-Royce as a standard example of servitization, the shift from selling products to selling services built around them. The research is less certain about whether servitization pays. Neely's 2008 study found lower average margins and a higher share of bankruptcies among servitized manufacturers, especially large ones. Kim, Cohen and Netessine showed that performance contracts work best when the supplier can manage the risk being transferred to it. Smith's 2013 study of Rolls-Royce put the company's advantage down to its technical knowledge of its own engines, which independent repairers lack. Read together, these studies point to a model that works when the maker can control the risks it accepts, such as wear and repair cost, and turns dangerous when it accepts risks it cannot control, such as a collapse in global flying.

### Rolls-Royce's own account

The company's account of the recovery puts most weight on its own actions: contract terms, time on wing, shop visit costs and pricing. It has not published a split between the profit gained from flying recovering and the profit gained from those actions. Flying hours in 2025 were only about 11% above 2019, yet the civil margin was 20.5% against 0.5%, which points to contract terms and durability doing much of the work. But the 2019 figure was depressed by Trent 1000 costs, so the comparison flatters the change.

## Reading it through a framework

### Porter's value chain

Michael Porter's value chain splits a firm's activities into primary ones (inbound logistics, operations, outbound logistics, marketing and sales, service) and support ones (procurement, technology development, human resources, firm infrastructure). In most manufacturers, service is the last and smallest link. Rolls-Royce turned it into the main source of profit. In 2024 the civil aftermarket brought in £5.9bn of revenue against £3.1bn from new engines, and, on the company's own explanation of its margin gains, most of the profit.

The model also links the chain backwards. Data from more than 7,000 monitored engines (by 2007) fed technology development and repair engineering. The durability programme after 2023 is a case in point: new turbine blades and coatings, designed in the technology development activity, raise margin in the service activity because Rolls-Royce is already being paid per hour. Marketing and sales, meanwhile, is where much of the value was given away before 2023. Discounts on new engines and soft LTSA terms, granted to win orders, set the price at which the service link would later earn.

The value chain view also shows where the risk sits. When most of the margin is downstream, results depend on how the customer uses the product. In 2020 Rolls-Royce's factories could still produce, but flying fell to 43% of normal and downstream income fell with it. In 2024, with hours at 103% and better terms, the same link produced a civil margin of 16.6%, and in 2025 20.5%. The structure magnifies both bad years and good ones.

### Jobs to be done

The jobs-to-be-done idea, associated with Clayton Christensen, asks what a customer is trying to achieve when it buys a product. An airline does not want an engine for its own sake. It wants an aircraft that flies on schedule, with costs it can plan. Power by the Hour was designed around that job from the start: the 1962 Viper deal sold a working engine for each hour flown, and TotalCare does the same for airliners.

The framework helps explain both the model's appeal and its friction. Engine health monitoring and the 25% longer gap between overhauls serve the airline's job directly, because they reduce the chance of an aircraft sitting on the ground. Emirates' complaint about the XWB-97 is the job not being done: even when Rolls-Royce pays for the extra shop visits, the airline loses the use of its aircraft. The framework also points to the limit of the model. An airline hires an engine maker to keep its aircraft flying, not to insure it against a pandemic. When nobody flew, the job vanished, and so did the payment for it.

## Since then

By 2026 the model looked very different from its 2020 low. Rolls-Royce reported 2025 underlying operating profit of £3.46bn and set 2028 targets of £4.9bn to £5.2bn in operating profit and an 18% to 20% margin. In July 2026 it raised its guidance for 2026 operating profit to £4.7bn to £4.9bn, from £4.0bn to £4.2bn, and its free cash flow guidance to £3.8bn to £4.0bn. It guided for large engine flying hours of 115% to 120% of 2019 in 2026.

Several open questions remained. The first is aftermarket competition. IATA's campaign against manufacturers' aftermarket practices, and its renewed agreement with CFM in January 2026, put pressure on all engine makers to give airlines more choice of repairer and parts. Higher LTSA prices may meet more resistance if airlines can point to alternatives. The second is durability. Rolls-Royce's margin depends on delivering the promised gains in time on wing across the Trent fleet, including the Trent 900 upgrade, which the company expected to give up to 30% more time on wing. The third is the narrow-body market. At its 2023 capital markets day Rolls-Royce said it would re-enter only through a partnership, with its UltraFan demonstrator as a step towards that. In July 2026 Erginbilgic said most of the order cancellations driven by fuel costs had been in narrow-bodies, a market Rolls-Royce is absent from.

The final question is the LTSA liability, £10.18bn at the end of 2024: work Rolls-Royce has been paid for and must still do. If that work costs more than expected, through supply chain inflation or durability setbacks, today's profits will prove to have been booked too early. The company's accounts rest on its own best estimates of those costs.

## What to take from it

- Selling the outcome a customer wants, such as hours of flying, can align buyer and maker, because the maker profits from a product that lasts rather than from one that breaks.

- A pay-per-use model moves volume risk onto the seller, so it needs pricing and a balance sheet that can survive a year like 2020, when usage fell to 43% of normal and £4.2bn of cash left the business.

- Long service contracts are only as good as their terms, and Rolls-Royce's civil margin rose from 2.5% in 2022 to 20.5% in 2025 mainly through repricing and durability work, alongside the return of flying.

- Data from products in use is part of the service offer, because it lets the seller prevent the failures it would otherwise pay for and gives it an edge over independent repairers.

- Prepaid service income looks like cash today but is a promise of work tomorrow, so a growing service liability should be read as a debt to customers as well as a sign of strength.

## Questions to think about

- In 2019 Rolls-Royce delivered a record 510 wide-body engines and its civil division earned £44m on £8.1bn of revenue. What does this tell you about the pricing of engines and LTSAs at the time, and who was capturing the value?

- Civil margin went from 0.5% in 2019 to 20.5% in 2025, while flying hours rose only about 11% above 2019. Using the figures in Exhibit 2, how would you split the improvement between volume, pricing and cost, and what extra data would you need to do it properly?

- Should a company selling usage-based contracts build in protection against extreme falls in usage, for example a minimum payment per aircraft? How would airlines react, and what would it do to the maker's competitive position?

- Rolls-Royce's LTSA liability was £10.18bn at the end of 2024. Explain what this balance represents and how you would judge whether it is a source of strength or a hidden risk.

- GE's commercial engines segment earned a 26.2% margin in 2024 against Rolls-Royce's 16.6%. Which structural differences between the two firms might explain the gap?

- Did the 2020 crisis show a flaw in the Power by the Hour model itself, or only in how Rolls-Royce had priced and financed it?

- Which other industries could sell an outcome per hour or per use instead of a product, and what conditions (data, durability, balance sheet, customer power) would they need for it to work?

## Concepts at work

Servitization, Jobs to be done, Value chain. Explore them in [Insights](/insights/).

## Further reading

Oxford University Press covers this story as a teaching case in *Cases in Marketing* on Oxford Business Trove. The sources below are the public record this page was written from.

*Written from the public sources listed below. Figures are as those sources report them.*