American Airlines and Rolls-Royce Enhance Joint Venture

American Airlines and Rolls-
Royce announced today the enhancement of their joint venture, Texas Aero
Engine Services Ltd (TAESL), with a five year contract that could be worth
over $1.6 billion. The contract calls for Rolls-Royce to send $900 million worth of engine
repair and overhaul work to TAESL, located at Fort Worth’s Alliance
Airport, over the next five years (2004-2008). If TAESL meets its business
goals, then Rolls-Royce is committed to sending another $700 million in
work to the repair station.

“This new agreement should give the TAESL team more potential to grow the
business and it provides employees with more security and a great
opportunity to pull together and win together, a key element of American
Airlines’ turnaround plan,” said David Campbell, American’s vice president
of maintenance for the Alliance Fort Worth and Kansas City overhaul
maintenance bases.

Douglas Cribbes, TAESL’s president and general manager agrees, “TAESL has
been a mutually beneficial venture for its owners and this new agreement
further enhances the potential of the business.”

The repair facility is manned by American Airlines aircraft mechanics
represented by the Transport Workers Union. The total work force today is
over 530 employees. The TAESL joint venture has generated over 200
additional American Airlines employee jobs specifically tied to the growth
of engine maintenance work performed for new customers.

TAESL was formed in April 1998 as a joint venture between American
Airlines and Rolls-Royce. It repairs and overhauls the RB211 engine, which
American has on its Boeing 757 fleet, and the Trent 800 engine, which is
on American’s premier Boeing 777 aircraft.

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The joint venture provides Rolls-Royce a facility capable of overhauling
the large and powerful Trent engines in support of its TotalCare programs.
Currently there are only three other facilities capable of this work—
one in the United Kingdom and two in Southeast Asia.

For American, the business arrangement gives the airline a partner in
sharing the costs of operating a large engine facility and an insight from
the engine manufacturer perspective.

During its first five years of operation, TAESL has repaired engines with
revenues in excess of $1.2 billion. It has received a substantial amount
of business from third-party engines, and that revenue has grown 75
percent over the past five years.

American Airlines is the world’s largest carrier. American, American Eagle
and the AmericanConnection(R) regional carriers serve more than 250 cities
in more than 40 countries with approximately 4,200 daily flights. The
combined network fleet numbers more than 1,000 aircraft. American’s
award-winning Web site, AA.com, provides users with easy access to check
and book fares, plus personalized news, information and travel offers.
American Airlines is a founding member of the oneworld Alliance. 

Rolls-Royce operates in four global markets—civil aerospace, defense
aerospace, marine and energy. It is investing in technology and capability
that can be exploited in each of these sectors to create a competitive
range of products.

The success of these products is demonstrated by the company’s rapid and
substantial gains in market share over recent years. The company now has a
total of 54,000 gas turbines in service worldwide. The investments in
product, capability and infrastructure to gain this market position create
high barriers to entry.

Rolls-Royce has a broad customer base comprising more than 500 airlines,
4,000 corporate and utility aircraft and helicopter operators, 160 armed
forces and more than 2,000 marine customers, including 50 navies. The
company has energy customers in nearly 120 countries. Rolls-Royce employs
around 35,000 people, of which 21,000 are in the UK. Forty percent of its
employees are based outside the UK—including 5,000 in the rest of
Europe and 8,000 in North America.

The large number of engines in service will generate an assured
aftermarket demand for the provision of spare parts and services. The
company’s strategy is to maximize aftermarket revenues, which have
increased by 60 percent over the past five years due to the development of
a comprehensive services capability.

Annual sales total nearly $9 billion, of which 50 percent currently comes
from aftermarket services. The order book stands at more than $27 billion,
which, together with aftermarket demand, provides visibility as to future
activity levels.
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