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Silence isn’t golden for engine-maker Rolls-Royce
Question of the Day
LONDON (AP) - Silence has not proved golden for Rolls-Royce, the maker of an engine that blew apart on the world's biggest commercial jetliner this month, shooting metal scrap into the wing and setting off a plunge in the British company's stock price.
Rolls-Royce has limited itself to just one vaguely worded public statement since the Nov. 4 accident on the Qantas A380, a strategy that analysts say may be causing more damage to the British company than the incident itself.
The almost 10 percent drop in the share price has wiped around $1.5 billion off the value of the company since the blowout on the superjumbo. Some analysts say the plunge may result less from concrete evidence of financial trouble than investors' uncertainty and unanswered questions.
Aviation officials have identified an oil leak near a turbine as the flaw in the massive Trent 900 engines. Rolls-Royce has been speaking regularly in private to A380-maker Airbus and the airlines that use the Trent 900 about the impact on the superjumbos in service and the scores due for delivery to airlines in coming months.
But its public response has been a different matter.
Qantas Chief Executive Officer Alan Joyce was quick to call a press conference and has spoken out many times since the accident. Rolls-Royce's longtime CEO John Rose hasn't directly addressed the public yet. And the company has declined comment on virtually every question from the press.
Months after after BP executives spectacularly mismanaged their early response to the devastating Gulf of Mexico oil spill by promising quick fixes and making unguarded comments, Rolls-Royce appears to be treading more warily.
The engine issue is not on the scale of the Gulf oil spill, either commercially or politically. Still, the two companies, among the last of Britain's major international players, appear to have mishandled their responses, analysts said.
"Both companies have suffered due to inadequate crisis communication," said Jonathan Hemus, director of reputation management and communication consultancy Insignia.
Part of the problem may be the reserved corporate culture of many British firms. Those in crisis tend to be shy of making too many public announcements too soon, unlike American firms where the mantra of immediate public response to emergencies is nearly universal.
The advantage of communicating was highlighted on Friday when the company put out a statement saying the problem was linked to an unspecified single part and outlining a plan of action to replace it. Rolls-Royce's shares jumped 4.6 percent in a day _ almost halving a 10 percent wipeout over the previous week. The relief at a plan of action even outweighed an accompanying profit warning.
Then the stock started taking more hits Monday as the London-based company, which declined to comment on its communications strategy for this report, returned to its no-comment stance.
The world's second-largest engine-maker offered no response to reports that entire engines would be replaced on several A380 aircraft in use by Qantas, Singapore Airlines and Germany's Lufthansa _ reports that made the company the biggest faller on the blue-chip FTSE-100 index with a 2.5 percent loss. It also declined to talk about reports that it had asked Airbus to take new engines off its production line in Toulouse, France, to replace faulty engines on planes already in service, a process that could lead to delays in deliveries of new planes.
Airbus spokesman Justin Dubon said Tuesday the EADS-owned company was working to minimise disruptions and where there was a need would take engines off the assembly line and try to use them.
Analysts are unhappy that other lingering questions from Friday's statement _ How many engines need to be replaced? How long will that take? What is the impact on planned new deliveries of the A380 to airlines? _ were left unanswered.
"It's essential not to say something that's wrong, or communicate really badly," added Hemus, in reference to the gaffes by BP CEO Tony Hayward that hindered that company's recovery from the Gulf of Mexico oil spill. "But they need to communicate to ensure that they're leading the debate ... rather than letting somebody else do that."
Analysts said it could be argued that Rolls-Royce doesn't sell directly to customers, unlike the airlines that use its engines, giving it some extra breathing room.
But Charles Lewington, managing director at Hanover corporate communications and public affairs consultancy, said that like many other companies early in a crisis, Rolls-Royce was in a "no-win situation."
"There's fantastical pressure for information and you don't have all the information," he said, noting that Rolls-Royce was dealing with an incident that needed input from engineers and other experts spread around the world.
"I think when you do make statements around business critical issues, you have got to be sure that they are 100 percent accurate and you don't have to correct them later," he added.
Rolls-Royce _ an aerospace, power systems and defense company that was split off from the famous car manufacturer in the 1970s _ still has more in its favour than BP.
Unlike BP, which recorded a fatal explosion at its Texas City refinery and a pipeline spill in pristine Alaska before the Gulf disaster, Rolls-Royce has a strong safety track record. The Nov. 4 incident was its first uncontained engine blowout on a commercial flight in 16 years.
The company's reputation for technical excellence allowed it to succeed while other major British industrial companies were crowded out by tough international competition. The engines in question, the Trent 900 series, are an industry bestseller.
The question about how much damage has been done to that reputation is being determined day-by day. The share price was down 1.2 percent at 590 pence ($9.37) on Tuesday.
"They need to demonstrate that they are actually resolving the problems," said Hemus, who has provided advice for brands including Disney, Gillette and Procter & Gamble. "I do believe they would benefit from feeding the vacuum to restore people's faith in Rolls Royce to show they are on top of the situation."
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