Stiff upper lip costs

The Big Read:RollsRoyce has found out the hard way that it needs to communicate through the media and even social networks after a recent engine blowout showed its tight-lipped approach to business was well out of date.

Rolls was criticised for its muted public response after one of its Trent 900 engines failed in mid-flight on a fully laden Qantas Airbus A380 last month, forcing the pilot to make an emergency landing.

Some commentators say its decision to ration information betrayed an aloof approach that backfired and did nothing to allay the public's safety fears or calm shareholder nerves.

"We knew what was happening but a little more information would not have hurt," said one Rolls investor, who asked not to be named.

Jonathan Hemus, founder of British crisis-management consultancy Insignia, said Rolls, which released only three short statements on the incident, should have communicated better.

"It is all very well keeping your priority stakeholders posted, but when you have members of the public wondering if it is a Rolls engine on the wing of the plane they are in, I think it is in their interests to be told what is happening," he said.

Rolls seldom courts publicity and its outgoing CEO of 15 years, John Rose, is famously reticent with the media and rarely gives interviews.

Qantas CEO Alan Joyce took advantage of Rolls' relative silence and drove the media agenda by talking to the press daily, laying the blame firmly at Rolls' door.

"Rolls ceded control of their communications and reputation to Qantas and that spooked investors, who were left wondering who was in control," said Andrew Bruce Smith, founder of digital communications consultancy Escherman.

British oil company BP - like Rolls - was criticised for its response to the media storm after its own crisis, the Gulf of Mexico oil spill, but it is already starting to recover. Its shares have risen 49% since their low on June 25 and it has since shaken up its communications team.

Insignia's Hemus said part of Rolls' problem was that it sells products to companies, not individuals, and so was not used to communicating with the public.

"Its methods might work in the good times but it made them a hostage to fortune in a crisis situation," said Hemus.

"In a crisis, it is always better for a company to communicate often. Rolls needed to be more expansive, open and clear, and communicate with a human tone instead of putting out a few bland, technical-sounding statements."

A Rolls-Royce spokesman said: "We have been careful throughout this investigation to stick to the facts and maintain our focus on returning the whole fleet to service."

Communications professionals say the use of social media, such as Twitter, would have helped Rolls disseminate information to the public and the press.

"News of the incident moved online through social networks but Rolls had zero engagement online," said Escherman's Smith.

"There is no question that channels like Twitter could have been used. Just look at the 'Dell Hell' case to see what can be done."

In 2005, US personal computer maker Dell suffered a huge blow to its brand after a popular technology blog repeatedly criticised its products and customer support.

But Dell invested significant time and money in social media, overcoming much of the negative press, and now uses social networks to generate sales and build its reputation.

Rolls' attitude to social media contrasts with that of aircraft manufacturer Boeing, which sent out several Twitter messages outlining problems that caused an electrical fire during a test flight of its new 787 Dreamliner earlier this month.

Rolls has kept mum in previous crises, including those involving engine problems on Embraer jets a decade ago, and the crash-landing of a Rolls-powered British Airways Boeing 777 at Heathrow in 2008.

It also used a similar tactic to deal with the recent failure of a Trent 1000 test engine for Boeing's 787 Dreamliner.

"Rolls' reputation has been hit, leading airlines to favour alternative engines when possible," said Credit Agricole analyst Antoine Boivin-Champeaux.

The blowout could present an opportunity for rival engine makers General Electric and Pratt & Whitney.

Rolls shares fell 14% in the three days following the blowout, during which it released a short statement that failed to quell concerns that it had wider engine problems.

"This created uncertainty which was reflected in its share price," said Escherman's Smith.

However, some analysts pointed to its shares having been at an all-time high three days before the engine trouble.

"About £1.2-billion was wiped off Rolls' value, which seemed excessive given there are not many industrial stocks pressing all-time highs," said Nomura analyst Jason Adams.

Rolls has recovered losses in the last fortnight after it revealed the failure was confined to a single component. Its shares will probably rise now that Qantas has resumed A380 flights.

"They probably prefer to let their products do the talking," said Smith.

"I am not sure that that is the right way, but their shares could be at a new high in a month, so it might work for them."