By Mark Gregory BBC World Service business correspondent in Derby

Rolls Royce makes most of its money from servicing engines

As the automaker and aircraft engineeers who share the Rolls-Royce name celebrate the marque's centenary, the BBC considers the engine maker's fortunes.

Much of British manufacturing has disappeared, but one company has managed to remain world class.

Rolls-Royce is the second largest manufacturer of engines for the global airline industry - as well as for military aicraft and for ships. Its share of the market has risen from a fifth to almost a third in the last ten years.

The company got a recent boost from Boeing's decision to make Rolls-Royce one of only two engine suppliers for the new "Dreamliner" mid-sized jet.

It is Boeing's biggest project in years, and it could ultimately give Rolls-Royce tens of billions of dollars in new business.

The aero-engine side of Rolls-Royce is less famous than the luxury car marque (now owned by BMW), but it too has a long and illustrious history.

On display

Some of it is on display at the company's in-house heritage centre in Derby, an industrial city in the English East Midlands.

The company's roots in aircraft engine making go back to the time of the First World War. On show at the heritage centre is the engine used in the first transatlantic flight in 1919.

Later on, Rolls-Royce Merlin engines powered the Spitfire and Hurricane fighter planes that flew in the Battle of Britain.

The company also produced some of the first jet engines, based on the original design of the inventor of the jet, Frank Whittle.

We had to decide between third place, or aiming for number one Nick Devall, Rolls-Royce

The largest item on display is the modern Trent 800 engine used on the Boeing 777 long range jet.

The modern history of Rolls-Royce is bound up with the Trent. There's a version of the engine available to fit virtually every type of plane used by the major airlines.

Fighting back

Everything about the aero-engine industry involves long time scales. The decisions that shape Rolls-Royce today were made back in the late 1980s.

At that time, the company's civil aircraft engine business was in danger of slipping into irrelevance in a market dominated by two larger American companies, General Electric and Pratt & Whitney.

"We had to decide between living off the scraps of being in third place in the market or aiming for the number one position," says Nick Devall, head of customer relations at Rolls-Royce's civil aviation division.

"Then we really only had two or three products."

So the company decided to develop variants of its products to fit a much wider range of planes. Aircraft engines are hugely expensive to develop, but once the technology is there it can be adapted to fit many different types of plane.

Rolls Royce makes engines to fit most types of aircraft

The company also put more effort into nurturing relations with its customers, as an engine stays in service for a long time. For airlines, the standard of aftercare and servicing as almost as important in their choice of supplier as the engine itself.

"When you sell an engine you are entering a twenty or even thirty-year relationship with the customer," explains Mr Devall.

Rolls-Royce has now clawed its way up from a distant third place to a vigorous second position in its chosen market.

Maintenance fees

But the going was far from easy.

Like the rest of the aviation industry, Rolls-Royce went through a very rough patch after the 11 September attacks. Engine orders plummeted as the company's airline customers went into deep recession.

Rolls-Royce dealt with the crisis in part by cutting costs and shedding jobs. But the company also subtly altered the way it gets its revenues.

Rolls Royce's aero-engine business has a long history

Most of its profits come not from selling new engines - intense competition keeps prices down - but from providing spare parts and repairing engines that are already in service.

This means Rolls-Royce has typically had to wait a long time before seeing a financial return on the huge outlay required to develop new engines.

To ease this problem the company has moved towards what it calls "power by the hour" service contracts with its airline customers.

Rolls-Royce takes responsibility for maintaining and repairing engines from the day they are delivered in return for a set fee.

This means the company gets revenues more quickly, while airlines get predictable repair bills and a reduction in risk.

Making aero-engines is hardly a get-rich-quick sort of business, so Rolls-Royce has sometimes been out of favour with the stock market. But, at the moment, all that long-term thinking seems to be paying off.