Rolls-Royce has won a share of an order from Qantas subsidiary, Jetstar Airways, for V2500 engines to power up to 90 Airbus A320 family aircraft.
The V2500 is produced by the International Aero Engines consortium, in which Rolls-Royce is partnered by Pratt & Whitney, Japanese Aero Engines Corporation and MTU Aero Engines. Jetstar, a wholly-owned subsidiary of Qantas Airways, has selected the engine for a new fleet of 50 additional aircraft, with options and purchase rights on up to 40 more. The aircraft will be distributed amongst the Jetstar Group fleet that includes investments by Qantas in low cost carriers Jetstar Asia and Valuair of Singapore and Jetstar Pacific, Vietnam’s second largest domestic carrier.
The contract, worth up to $1.2bn to Rolls-Royce if all options are exercised, includes a long-term engine service agreement for these aircraft — as well as engines installed on 40 aircraft already operated by the three Jetstar Group airline brand businesses. The 22,000-33,000lb thrust V2500 powers the Airbus A319, A320 and A321 family of aircraft, as well as the Airbus Corporate Jetliner. More than 5,500 V2500 engines are in service or on firm order worldwide.
The news comes in a week that financial services firm, UBS, raised its price target for the company while maintaining its ‘sell’s stance — noting that Rolls-Royce already trades at a significant premium when compared with its civil aerospace sector peers. UBS is expecting the company to “guide to a weak cash flow outlook for 2010 when it reports its results on 11 February,” which could seriously knock the share price. “On the positive front, it is possible that the benefit from aftermarket growth and £/US$ currency benefit could come through quicker than expected,” said UBS.
The broker is raising its earnings per share (EPS) estimates for Rolls-Royce to take into account a healthier outlook for the industry. The 2009 EPS estimate has been ramped up by 15%, while 2010 and 2011 see their EPS forecasts increased by 135% and 11% respectively. “For a company that in our view faces a weak cash flow outlook for both 2010 and 2011, brings a degree of risk due to more aggressive accounting policies and has earnings expectations which we believe are too high, we believe a premium rating can not be justified — hence our Sell rating,” said UBS analyst, Avi Hoddes.
