Rolls-Royce eyes new engine project as turnaround takes hold

By Sarah Young

FARNBOROUGH, England (Reuters) - Rolls-Royce (RR.L) is ready to provide Boeing (BA.N) with an engine should it design a new plane, Chief Executive Warren East said on Tuesday, as a turnaround plan at the British company gains traction.

East said current cost-saving plans were on track, and that much larger ones of up to 1 billion pounds were possible, but there was no target set, putting the company on a strong footing to start thinking about future growth.

The CEO was now encouraging his leadership team to start "to think about life after transformation".

Rolls-Royce would like to make the engine for any possible new Boeing plane, East told reporters at the Farnborough Airshow.

"We would like to participate if it's a sensible opportunity. We will see what plane they (Boeing) actually come up with, East said.

Boeing is examining a possible aircraft in the "middle of the market" which it identifies as 200-270 seats between the largest narrowbody jets and the smallest widebody aircraft, capable of linking up cities over long distances within the same region or across the Atlantic. Industry sources have said it is contemplating two versions carrying about 220 and 260 people.

East said Rolls-Royce was working on two new engines, the Advance and Ultra Fan programmes, and both were going well.

"If there are decisions from Boeing over the next 18 months or so we'll be well positioned to take advantage," East said, adding Rolls-Royce would also be ready whether that timeframe was six months or three years.

COST SAVINGS

East said he was confident of achieving the 150-200 million pound level of cost savings by 2017 which he set last year, and that future announcements over Rolls-Royce's turnaround programme would contain new targets.

"We are exploring how we can take that forward beyond 2017 to larger numbers," he said.

Asked specifically about a 1 billion pound cost saving ambition reported by the Financial Times, East told reporters that was the sort of number Rolls-Royce would need to reach to bring its margins in line with its competitor, GE (GE.N).

"I do not see any reason why we cannot achieve the sort of benchmark margin levels and that would imply that sort of number (1 billion pounds) out, but it is not a fixed target," he said.

A spokesman for Rolls-Royce clarified the company was seeking 1 billion pounds of additional profitability to make its margins more competitive and it would look not just for cost savings, but also try to achieve it through productivity improvements.

East, who has been at the helm for a year, repeated he did not expect Rolls-Royce to undertake any large-scale disposals, but that the company would instead look to reduce the number of products it makes in its marine and power systems units.

Rolls-Royce will release half-year results on July 28.

(Reporting by Sarah Young; Editing by Mark Potter)