Rolls-Royce will stop military production in Britain if profits cap imposed - CEO

A F-35 fighter jet © Lockheed Martin
Global engineering giant Rolls-Royce says it may stop providing military services in Britain and move operations elsewhere after a government cap was placed on its UK profits.

Roll-Royce, which made part of the F-35 fighter and services the UK’s famous Red Arrows, appeared to threaten to stop servicing the military altogether at the first whiff of state regulation.

The row developed after the UK’s military contract watchdog – the Single Source Regulations Office (SSRO) – ordered the firm to remove £1.27 million (US$1.68 million) worth of charges to service Hawk fighter jets.

The firm estimated in 2015 it would make between £1.325 billion and £1.475 billion for the year.

The decision follows an assessment by the SSRO which found, among other things, that Rolls Royce should not charge for so-called ‘marketing costs’ and would not be allowed to make up to 25 percent extra cash if the servicing of the jets proved to be more challenging than expected.

If we don’t make sufficient profit on doing defense work then we are not going to invest in the skills necessary to deliver a good solution, and ultimately we’ll end up withdrawing from it,” chief executive Warren East told the Manufacturer magazine on Wednesday.

From a national point of view, you’d have to question whether we want our defense industry to wither on the vine. That’s not a good idea,” East warned.

East appeared to suggest Rolls Royce would take its business elsewhere if it couldn’t maximize its profits.

If there are governments elsewhere that are able to help us get a better result, then we have to pay some attention to that,” he said.

This is despite substantial state subsidies. It is estimated that for every £17 invested by Rolls Royce, Britain provides £1.

We understand the enormous contribution that Rolls Royce and the wider defense industry make to Britain’s economy,” SSRO chair Clive Tucker said in response.

However, as a regulator we are required by Parliament to get the best deal we can for the taxpayer and a fair and reasonable return for industry,” he added.