Tufan Erginbilgic: Charting A New Course For Rolls-Royce

Rolls-Royce Holdings plc has made a crucial leadership change by appointing Tufan Erginbilgic as its new Chief Executive Officer and Executive Director, succeeding Warren East. Tufan assumed his new role on January 1, 2023. This development is a momentous occasion for the company.

Tufan’s illustrious career boasts a strong engineering background and an extensive international business track record. Having spent over 20 years with BP (British Petroleum), including five years as a vital member of its executive team, Tufan’s expertise shines through. His final assignment with BP saw him spearheading the transformation of the downstream business, encompassing Refining, Petrochemicals, Service Station Network, Lubricants, Midstream operations, and the Air BP jet fuel operation.

Under Tufan’s leadership, the business experienced a remarkable metamorphosis, achieving unprecedented levels of profitability while setting new records for safety performance. Furthermore, Tufan has assumed non-executive director roles in prominent heavy industry and manufacturing companies, such as the aerospace technology group GKN. Presently, he serves as a partner at Global Infrastructure Partners (GIP), a prestigious private equity firm responsible for managing a staggering $81 billion in investments, primarily in infrastructure businesses.

Tufan’s educational qualifications further validate his exceptional capabilities. Holding a degree in engineering from Istanbul Technical University, a Master of Business Administration degree from Boğaziçi University in Istanbul, and an MA in economics from The Ohio State University, he brings diverse knowledge and skills to his new role.

“I am determined to deliver the full potential of the market positions which the company has built over many years through its engineering excellence and innovative technology and to build a platform for growth to create value for all stakeholders. I look forward to working with customers, partners, and the Rolls-Royce team worldwide on the next successful chapter for this iconic global engineering brand,” says Tufan Erginbilgic.

Rolls-Royce, the iconic British aircraft engine manufacturer, has appointed Tufan Erginbilgic as its new leader during one of the most challenging periods in its 116-year history. Tufan, a citizen of Turkey and the UK, will guide the company through a profound energy transition, overcome adversity, and embrace a sustainable future.

Amidst its endeavors to navigate this transformative landscape, Rolls-Royce is spearheading research into cutting-edge technologies such as electric and hydrogen power. The company’s visionary research program on hydrogen propulsion, emitting zero carbon dioxide, is gaining momentum. Additionally, the company’s tireless pursuit of efficiency has birthed the UltraFan, an engine that delivers impressive fuel economy while reducing the release of harmful pollutants.

At the heart of this exciting transformation, Tufan brings to the table a unique perspective. “I am honored to be joining Rolls-Royce at a time of significant commercial opportunity and strategic evolution as its customers embrace the energy transition,” shares Tufan. Although his aerospace experience may be limited, his prowess in the realm of clean energy is unparalleled. During his influential tenure at BP, he spearheaded the company’s investments in electric vehicle charging infrastructure, propelling their exponential growth in this field. It is precisely this deep-rooted connection to clean energy that fuels Tufan’s enthusiasm for the role at Rolls-Royce. “Rolls-Royce has the opportunity to take the whole business to low carbon,” he affirms with honor and excitement.

Anita Frew, Chair of Rolls-Royce, lauds Tufan Erginbilgic as a “proven leader of winning teams” within complex organizations who has the ability to “drive a high-performance culture.”

“He has extensive strategic and operational experience and a firm understanding of safety-critical industries, including aerospace, as well as the challenges and commercial opportunities presented by the drive for low carbon technologies,” Anita Frew adds.

While presenting Rolls-Royce’s full-year results, Tufan Erginbilgic candidly critiqued the company’s strategic and financial position. He identified several vital vulnerabilities that require immediate attention, revealing a prolonged period of underperformance. However, there was no sugar-coating or room for excuses in his assessment.

Tufan stated, “Cash generation is unsatisfactory. Our debt is still too high. As a result, too much of our gross profit is simply covering overheads and interest payments. In addition, our weak balance sheet and sub-investment-grade credit rating limit our ability to invest in growth for the future.”

While the company did show improved results last year, Tufan emphasized that more than relying solely on market recovery is needed to demonstrate sustained improvement. He highlighted the staggering -67% total shareholder return over the past five years, emphasizing that the problem extends beyond the impact of the Covid-19 pandemic.

Even excluding the challenging year of 2020, when businesses faced the brunt of the pandemic, Rolls-Royce’s average return on capital employed stood at a meager 3.5%. Moreover, Tufan revealed that a benchmark study conducted by the company confirmed its margins to be below that of competitors on an adjusted like-for-like basis.

“Low operating margins and a relatively high fixed-cost base leave us financially exposed when uncertainty impacts our markets,” Tufan warned.

He also mentioned that a lack of clear strategy hindered Rolls-Royce’s investment decisions. He says the company requires more explicit guidance to make informed investment decisions. As a result, he needs to keep more options open.

Despite the challenges, Tufan firmly believes in the manufacturer’s potential to enhance their operations and become a superior and more competitive company. Leveraging his past experiences, he possesses unwavering confidence in his aptitude to propel performance enhancements, establish unequivocal strategies, and realize sustained profitability, cash flows, and returns. “Everything I’ve seen since arriving has made me even more confident in the potential to do the same at Rolls-Royce,” Tufan affirmed.

During the full-year briefing, Tufan Erginbilgic made a compelling case for further cost reduction measures at Rolls-Royce, asserting that the company still has room to enhance its financial performance despite the extensive restructuring efforts implemented during the pandemic.

Highlighting the previous cost-cutting endeavors, which primarily targeted civil aerospace and were driven by the decline in demand, Tufan expressed his confidence in the company’s past actions, stating, “Demand disappeared, so Rolls-Royce did what it needed to do.” However, he acknowledged that as activities have recovered, costs have resurfaced, necessitating a more sustainable and competitive cost base.

Tufan emphasized a crucial shift in focus, stating, “What we’re trying to do is intervene with that, starting from this year, and create a more sustainable and more competitive cost base.” This intervention goes beyond managing liquidity; it aims to position the company in a stronger and more advantageous position for the future.

Acknowledging the decentralized nature of Rolls-Royce, Tufan expressed a definitive change in approach, declaring, “We’re one team, one company, and we’ll take all the synergies – not only between divisions but divisions and the group.” He believed that the company had a massive opportunity for collaboration that had been overlooked until now, calling it a “big synergy opportunity.” Furthermore, he revealed additional opportunities for simplification beyond this initial synergy exploration.

As Rolls-Royce enters this new phase of its journey, the potential for cost reduction through synergies becomes a powerful catalyst for progress. Tufan Erginbilgic’s strategic foresight and determination to create a lean, efficient organization lay the foundation for a revitalized Rolls-Royce, poised to seize new opportunities and redefine its industry standing.