As the Rolls-Royce ‘Care’ range approaches its 30th birthday next year, the aerospace manufacturer is continuing to update the brand based on the evolving needs of its lessor customers.
Earlier this month, Rolls-Royce announced the launch of LessorCare+, a new subscription product that will run alongside its predecessor, LessorCare.
Launched in 2018, LessorCare offers a suite of aftermarket solutions to support lessor customers across the lifecycle of their Rolls-Royce engine portfolios.
The model allows lessors to sign a single agreement that ensures access to support services for all Rolls-Royce engine types across their portfolio, with support services that cover MRO needs, transitions, asset management, and technical upgrades.
The key difference between LessorCare and LessorCare+ is that the former is provided to lessors free of charge, whereas the latter is sold as an annual subscription package, which unlocks a new level of dedicated service.
Luke Mallows, senior vice president of marketing and leasing at Rolls-Royce, spoke to Airline Economics about how the LessorCare range has evolved from the company’s TotalCare product.
Launched in 1996, TotalCare offers a similar suite of aftermarket services, albeit aimed at airline customers.
TotalCare is sold on a dollar-per-flight-hour basis, which was a “very novel” way of packaging the support service when it was launched 30 years ago, said Mallows.
“It aligned our interests perfectly with those of the airlines,” he said. “If they're not operating, we're not getting paid, but as soon as they're operating, we're absolutely committed to ensuring that those engines do the job that they’re expected to do.”
At present, more than 95% of operators of Rolls-Royce engines use TotalCare for support, said Mallows.
Leasing changes the engine market
The emergence of the leasing market, which has grown “ferociously” over the past 30 years, created a new type of customer for Rolls-Royce with different needs to those of the airlines.
According to Mallows, lessors now own approximately 50% of Rolls-Royce engines in operation, or 50% of the aircraft that are running these engines.
The novelty of LessorCare is that it allows the lessor and lessee to retain the fully reserving structure of their engine lease deals, while ensuring that Rolls-Royce assumes the maintenance risk directly.
“Traditionally, a lessor likes to collect cash reserves against engines and aircraft, so we came up with an agreement with the lessors which enables us to work together to do that,” said Mallows.
“This ensures that there is always sufficient cash in the Rolls-Royce bank, so to speak, to be able to pay for shop visits.”
At the end of each term, an agreement between Rolls-Royce and the lessor allows cash collected but unspent against maintenance events to be returned to the lessor.
The original LessorCare product sets out provisions on how Rolls-Royce shares those reserves with lessors, and at what point during the lifecycle.
It also offers the ability for lessors to perform shop visits with Rolls-Royce directly, outside of a TotalCare agreement.
Enter, LessorCare+
According to Mallows, the development of LessorCare+ is a product of the increasingly fierce competition between lessors for airline customers.
“It’s a ferocious market, and lessors are always looking to gain additional insights into how they can better manage and more competitively price those engines, either as a sale and lease back or as a finance lease,” said Mallows.
As LessorCare+ goes to launch, Rolls-Royce already has agreements in place with over 100 lessors through the original LessorCare.
LessorCare+ aims to provide these customers with an improved understanding of areas such as shop visit forecasts, hours and cycles flown, and cash reserves held against their engines.
In theory, these insights should allow lessors to more accurately predict end-of-lease return conditions and end-of-lease liabilities, as well as cash-holdings.
LessorCare+ also enables lessors to access “expedited” support services from Rolls-Royce, and this is expected to be a key selling point.
“For example, if a lessor is trading a platform or trading a number of engines between lessors, then there could be quite a significant commercial burden on Rolls-Royce to novate all the contracts,” said Mallows.
“Obviously, there's quite a lot of contractual and commercial work involved in making sure that all the documents follow the assets.
“So if the lessor gets LessorCare+, we are willing to work to some really aggressive timeframes, against which we'll make sure those transitions go through, meeting lessors’ obligations and expediting that sales process.”
Rolls-Royce is not expecting LessorCare+ to be a significant profit driver, but is expecting the service to greatly improve the accessibility and flexibility that it can offer to lessor customers.
Mallows said LessorCare+ is expected to be used tactically by lessors during particularly busy or complex periods – for example, when engines are approaching transitions, extensions, or remarketing.
“It's really about additional insight so that lessors can better manage and better understand risk and return,” he said.
“Lessors work very, very quickly, typically quicker than industry OEMs do, so we're providing greater assurance around the pace at which we can work and what we can deliver within specific timeframes.”
Mark Harrison, SVP and senior manager of Powerplant at Avolon, the launch partner of LessorCare+, echoed these sentiments in a joint statement with Mallows.
“LessorCare+ better aligns the lessor and OEM model, by allowing greater predictability and efficiency in meeting our customers’ needs and delivering optimal fleet solutions,” he said.
LessorCare+ target customer profile
Mallows said LessorCare+ is likely to be particularly attractive to larger lessors who are “transaction-heavy” or “transition-heavy”.
However, mid-sized and smaller lessors are also expected to be attracted to LessorCare+, due to in-house time and resource constraints, across teams that may have less experience and less technical expertise.
So far, Rolls-Royce has only named Avolon as a launch partner of LessorCare+, but Mallows said the company is in talks with “a number of larger and smaller lessors” on very near-term subscriptions.