Aerospace Investors Contemplate Long-term RiskNovember 19, 2010
 Rolls-Royce shares plummeted 10% after the recent blowout of its engine on a Qantas airline A380 plane. But even if the company proves that its engines were not at fault, the incident will wake up investors and force them to rethink their long-term investments in aerospace as a new generation of planes becomes more intricate and difficult to design. With each new commercial aircraft, the complexities increase exponentially and add to the risks of the manufacturers, Nomura Aerospace analyst Jason Adam told Reuters for a piece on the repercussions of the Rolls-Royce blowout. "Investors and companies that carry significant development risk need to be compensated for that with upside potential." The article notes that over the past hundred years, aviation technology has moved from biplanes to model planes, and then from propeller to jet engines. The next generational change is from jetliners made of metal to jets made of carbon composite -- a tough, yet light form of plastic. But as the major manufacturers like Airbus and Boeing begin to design and implement new technologies, the risks are also increasing. Earlier this month, Boeing halted flight tests on its 787 Dreamliner because cabin smoke led to an emergency landing. And earlier this year, Rolls-Royce's new Trent 1000 engine blew up during testing, according to Reuters. This is the engine destined for Boeing 787, which is already three years late. Rolls-Royce is pegging its future growth on the Trent 1000 and Trent XWB for the Airbus A350. Adams added: "Investors are right to ask the question: 'Are there going to be more problems down the road?'" |
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