Yahoo Finance Why Rolls-Royce’s ‘hard man’ wants to put himself out of a job
If Tufan Erginbilgic succeeds in his mission, he’ll have worked himself out of a job.
At least that’s how the Rolls-Royce chief executive puts it himself, a year and a half into a business turnaround that has won rapturous praise in the City.
“I came with a purpose,” he tells The Telegraph. “I say to people, I want to be redundant.
“My vision is that you go into a meeting and people tell you the issues and what they are doing about it and you sort of look and say, ‘Wow, OK, thank you. I really appreciate what you’re doing’, but you realise you can’t contribute anymore – because they’ve done everything.
“This has happened to me in previous transformations but not at Rolls-Royce, yet.”
Pulling off a lasting culture change at Rolls, a 118-year-old engine manufacturer known for its bureaucracy, will be far from easy. But it has been at the heart of Mr Erginbilgic’s strategy from the start – and has occasionally required him to administer shock therapy.
Soon after taking charge in January 2023, the Turkish executive – known as “Turbo” by admiring stock market analysts – told the company’s 40,000 employees they were standing on a “burning platform”. Later he described the Germany-based power systems business as “grossly mismanaged” after it allowed profits to slip even as sales rose.
The blunt remarks ruffled feathers at first, with critics accusing him of scoring needless own-goals.
During an interview in The Telegraph’s offices in London, Mr Erginbilgic says the tough comments were necessary to shake the company out of its stupor.
Rolls-Royce had a near-death experience during the coronavirus pandemic under ex-boss Warren East, but too many people were still complacent.
“Some people knew something was wrong and were frustrated and some people, not really,” he says. “So you have to change the mindset, change the culture, change the processes and, in some cases, change the people.
“But I shared my vision of where I think we can go – and that energised people.
“You need a clear strategy if you’re going to mobilise 40,000 employees. And to me, strategy is not about the boardroom.”
Mr Erginbilgic’s early comments have now been reassessed in the wake of his success. He has slashed costs and souped-up profitability.
At the same time he spent much of last year renegotiating loss-making contracts with airlines and plane manufacturers, including Airbus and Boeing, that had been struck under previous management.
“Making engines is fine,” Mr Erginbilgic says. “But if they don’t generate margins, one million times zero is still zero, right?
“So – and I’m not kidding – we renegotiated every [original equipment manufacturer] contract last year. The last one, we signed on December 28. Then we renegotiated loss-making contracts with the airlines, some of which we concluded last year and some we are still working on.”
Previous Rolls management teams avoided putting prices up, fearing they would lose market share.
“Are they easy conversations? Of course not,” Mr Erginbilgic says. “But we went in saying ‘we are a partner’ and we actually told them what the problem was.
“Any sustainable partnership needs to be mutually beneficial otherwise it’s not sustainable. I’ve been on too-good sides of contracts in my career as well and, actually, they weren’t sustainable. They were good. But one day the other party says ‘enough is enough’.
“So these are tough conversations. But as long as there’s mutual respect, I can assure you in every case there’s a win-win. I will never overuse the Rolls-Royce position – but I want us to get the strong value we bring to the table. And that wasn’t the case before.”
Mr Erginbilgic has also ensured that all contracts signed since he arrived have been profitable – something he hopes will break the vicious cycle that Rolls has long been stuck in.
The approach is not just limited to the company’s civil aviation arm either. He has also renegotiated deals in the defence and power systems divisions while relentlessly squeezing costs and centralising key functions such as procurement to spread best practice across the whole business.
The result has been a doubling of profit margins overall, with Rolls reporting record free cash flow of £1.3bn in 2023.
The healthier numbers have sealed Mr Erginbilgic’s hero status among Rolls’ long-suffering investors. However, he insists that this is only the start of his improvement plan.
“We are changing, but we have a lot more to do. And if you’re sitting there thinking, ‘these guys are done’, we’re far from it.
“Every day we’re setting new expectations. Even yesterday, I can tell you, I was intervening in the way we think about things.”
Many long-suffering shareholders are now anxiously awaiting news about when they will finally get a payout.
That could come in the form of the dividend returning or potentially a share buyback, though Mr Erginbilgic is coy about the precise timing.
He has previously suggested it would only happen once the company’s debts fall and all the big credit ratings agencies restore Rolls’ investment-grade status – something S&P and Fitch have done so far, but not yet Moody’s.
Should investors dare to hope for a surprise this year?
“Shareholder distributions can come in different forms and we don’t rule out any of them,” he says.
“We have set out the criteria and we are making progress. If we can meet the criteria, it will be as soon as possible.
“I want a strong balance sheet and I can’t tell you more than that.”
Early results from Mr Erginbilgic’s turnaround strategy have given the chief executive room to contemplate Rolls’ longer-term options.
He rattles off a list of circumstances that bode well for the company’s prospects: the fruits of a three-year, £1bn investment programme to improve its engines; rising UK defence spending on programmes including Aukus-class submarines and the Tempest fighter jet; and booming demand for back-up power generators from AI-focused data centres.
“The things we are doing now will impact beyond 2027,” he says, referencing when current mid-term targets set out by the business come to an end. “I’m excited about what we are creating.”
The company is also mulling a return to the narrow-body planes market – probably by partnering with another engine maker – and sees big potential for its mini nuclear reactors business beyond 2030. It will even consider making acquisitions, Mr Erginbilgic says, before quickly adding that nothing is in the works today.
“There’s opportunity everywhere, in all our divisions. But it needs to be value-creating and we are not in a rush,” he says. “We don’t need M&A to grow the company.”
Mr Erginbilgic, a father of two, rarely breaks eye contact through an hour-long conversation. His intensity and unyielding focus on results has given him a reputation as a steely operator – even a corporate hard man.
However, at times during the conversation he verges into the professorial.
“Who doesn’t want to win? Who doesn’t want to be successful?” he says. “Everybody uses the term transformation at their liberty. But for me, transformation is taking Rolls-Royce to a place it has never been. The ultimate goal is to create what I call a high-performing, competitive, resilient and growing business.
“I’m not here, frankly, for short term outcomes. I’ve said that since day one. This is a holistic transformation, where all the stakeholders will benefit – not only investors, but also employees and society.”
With such lofty ambitions, it will be a long time before Mr Erginbilgic is redundant at Rolls. But if he does succeed in putting himself out of a job, he needn’t worry: he’ll be the most sought-after chief executive in the City.
