Rolls-Royce sells out of IAE and joins Pratt & Whitney for future narrowbody engines

IAE manufactures the V2500 engine that is used worldwide on Airbus narrowbodies . It is a consortium created in 1983 by Rolls-Royce and Pratt & Whitney along with German and Japanese partners to provide a four-nation alternative to CFM International.

The deal is estimated at $1.5billion.

There has been some tension between the partners over recent years about the direction that IAE should go.  P&W went alone to develop the geared turbofan engine which has been selected for the Airbus A320 Neo and the Bombardier CSeries.

Speaking earlier today both companies denied that IAE had “ended in divorce.”

P&W and Rolls will hold an equal share in the new venture, which will focus on geared turbofan technology and study open rotor technology and other engine configurations preferred by the UK manufacturer

Reuters quoted Seattle-based aerospace analyst Scott Hamilton as saying "The buyout of Rolls-Royce is not unexpected; the stunning part of this announcement is the creation of a new joint venture to go for the heart of the market with an initial focus on the geared turbofan," he said .

As part of the IAE restructuring, Rolls-Royce will continue to make engine parts and assemble 50 percent of the V2500 engine. It will also get payment for each hour flown by the current fleet of V2500-powered aircraft for 15 years.

"We have found a way to continue working together currently and then plan for the future,"  Todd Kallman, president for commercial engines and global services at Pratt & Whitney told Reuters news agency.

Alhough the buyout makes Pratt the majority shareholder in IAE, the company said it intends to offer a portion of the Rolls shares it is buying to its other IAE partners: Germany's MTU Aero Engines and Japanese Aero Engines Corp.