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Rolls-Royce Targets Growth in Defence Aerospace

27 July 2000

      LONDON - Rolls-Royce, a global company providing power on land, sea and 
air, sees a potential defence aerospace market worth more than $425 billion 
over the next 10 years.

    Only around 15 per cent of this is likely to be through traditional engine
supply, while over 40 per cent will come from the supply of spares, parts and
repair activity.  The remaining business, more than 40 per cent, will be in
providing and supporting complete systems and platforms.

    In 1999, 25 percent of Rolls-Royce turnover came from its defence
aerospace business and the company sees this as a key area for future growth.

    Sue Lyons, Managing Director of Defence (Europe) for Rolls-Royce plc said:
"The defence industry is demanding changes be made to traditional ways of
doing business.  Rolls-Royce is responding in a variety of ways such as
offering long-term support deals and examining partnerships with other
companies to extend a range of support arrangements and complete managed fleet
solutions.

    "In addition, Rolls-Royce is participating in Ministry of Defence (MOD)
Integrated Project Teams and has adopted and applied the 'better, cheaper,
faster' principles that are the hallmark of Smart Procurement."

    An example of an innovative support approach was in the 1998 contract
signed with the U.S. Navy for Power by the Hour(R) support of the AE1107 on
the V-22.  The first defence agreement of its kind for Rolls-Royce, it offered
the customer a broad range of services at a fixed price - providing
significant cost savings -- and is the model for other Rolls-Royce engine
support contracts currently being considered.

    Similarly, a contract was recently signed with the MOD for support of its
Spey-powered Nimrod fleet.  This 12-year contract, worth $75 million , involves
total responsibility on the part of Rolls-Royce for all aspects of Spey
support.  This includes all maintenance and support tasks beyond operational
squadron level.

    Smart Procurement principles were applied last year when Rolls-Royce won a
contract to upgrade the UK Harrier fleet with the more powerful Pegasus 11-61
engines.  This agreement, worth up to $525 million, provides major cost,
performance and reliability improvements to the RAF and gives Rolls-Royce
continuity of production of Pegasus engines over the next decade.

    Rolls-Royce is also exploring how to respond to the trend towards the
procurement of complete platforms and systems, and is looking to move up the
supply chain through partnering and other elements of total aviation service.
FSTA (Future Strategic Tanker Aircraft) is a current example, where
Rolls-Royce is among the bidders aiming to provide the RAF with a complete
management solution.

    Rolls-Royce views North America, Europe, and Asia Pacific as the major
regions for growth and expansion in demand for defence aviation products. In
North America, Rolls-Royce employs more than 8,500 people, principally at its
major Indianapolis facility.  Here it is developing new products and marketing
the entire range of Rolls-Royce defence products to customers in this region,
notably the U.S. Department of Defense.

    In Europe, Rolls-Royce is firmly positioned with several well-established
facilities in the UK and Germany that produce a broad range of military
engines.  And in Asia Pacific, Rolls-Royce is seeking to consolidate its
position as market leader by introducing a new range of high-technology
products.

    Notes:
    Rolls-Royce plc has established leading positions in civil aerospace,
defence, marine and energy markets.  Its core gas turbine technology has
created one of the broadest product ranges of aero engines in the world, with
55,000 engines in service in over 150 countries.  Customers include more than
500 airlines, 2,400 corporate and utility operators and 160 armed forces,
using both fixed and rotary wing aircraft.

    Rolls-Royce is the global leader in marine power systems with a broad
product range and full systems integration capability.  Over 2,000 marine
customers and more than 30 navies use Rolls-Royce propulsion.  The company is
investing in new products and capabilities for energy markets, which include
the oil and gas industry and power generation.  It also develops its own power
projects through Rolls-Royce Power Ventures Ltd.

    Rolls-Royce pioneered gas turbine technology for aerospace, power
generation and marine propulsion and is involved in the major future
programmes in these fields.  These include the Trent aero and industrial
engines, the Eurofighter Typhoon and Joint Strike Fighter combat engines, the
WR21 marine engine and leading edge water jet propulsion systems.