Rolls-Royce and Airbus sign £4bn deal with Garuda Indonesia

Rolls-Royce and Airbus have revised a deal with Garuda Indonesia to upgrade the fleet of the national airline. This is expected to boost UK's economy, the British government said.

The £4bn (€5.06bn, $5.75bn) deal that was signed yesterday (19 April) in the UK capital comes on the very first day of Indonesian President Joko Widodo's visit to the country. As per the deal, 14 Airbus A330 aircraft of Garuda will be upgraded to its newer A330neo version that are relatively more modern and aerodynamic and come with the latest engines, which Rolls-Royce has an exclusive contract to supply.

Prime Minister David Cameron said the deal indicates the importance of Far Eastern markets for UK companies. "This deal underlines the increasing importance of our ties with Indonesia — a fast growing economy and set to become the seventh-largest in the world by 2030. We are the fifth-biggest investor in Indonesia and our relationship has more untapped potential", Cameron added.

As per the deal, Airbus will manufacture the wings for the new A330neo aircraft, which have a list price of about £175m each, at its plant in Broughton, Wales. Rolls-Royce on the other hand, will supply and service 28 Trent 7000 engines, worth 1.2bn for the new jets. The UK engine marker will make them at its Derby and Singapore plants.

While these numbers look huge, the actual value it would add to the order book of both Airbus and Rolls-Royce is much lower. This is because the new deal replaces an older deal that included delivering seven older versions of the A330 to Garuda, hence reducing the overall value.

After taking into account the value of the older Trent 700 engines for the earlier Garuda Airbus A330 aircraft, the Derby-headquartered company is expected to add just £380m to its existing order book of £76.4bn from this new deal.

Moreover, both Airbus and Rolls-Royce are now expected to sell the previously ordered aircraft, which have lesser demand as they are less economical compared to the newer model. However, a Rolls-Royce spokesman said it was "confident those aircraft and engines will be sold to the marketplace."