Rolls-Royce struggles despite $100 million deal

Investors were pretty unimpressed with aircraft engine maker Rolls-Royce Holdings on Wednesday, although it has been awarded a contractor logistics support contract valued at over $100 million (£59.68 million) by the US Department of Defence to provide continued support for the F405 Adour engines used in training aircraft for new aviators for the Navy and Marine Corps. The shares rose just 0.85% to 1,062p by 2pm.

Rolls-Royce will provide depot-level maintenance and related logistics support for more than 200 F405 engines in the US Navy fleet in a follow-on, one-year contract that extends an arrangement that has lasted ten years.

One issue for Rolls-Royce is that it faces further scrutiny of its conduct in India after allegations that it paid intermediaries to help it win contracts. Last month, Rolls agreed to repay £1.8 million to the Indian government after admitting it had paid commission to Singapore-based firm Aashmore while securing contracts.

State-owned gas company GAIL India, which has taken delivery of 63 gas turbines from Rolls on a nationwide pipeline network in India, had issued the engine-maker with a "show cause notice" over claims it used middlemen to win deals, forcing the FTSE 100 company to explain its actions.

The use of intermediaries or agents is not illegal in India for civil contracts but companies must declare them. In the UK, Rolls is still facing an investigation by the Serious Fraud Office about claims of bribery to win contracts in China, Indonesia and other regions, where some of the allegations date back more than 10 years. Two executives were arrested in February.

Allegations of corruption have been far from limited in the iconic engine-maker. Elsewhere in the defence industry, BAE Systems was fined by the US and the UK in 2010 following corruption investigations, and in January, Italian company Finmeccanica lost a helicopter deal with Indian authorities after an alleged scandal.

Back to what Rolls does best - the manufacture of gas turbines and piston engines that propel planes, boats and submarines - on Friday it started assembly of the first higher-thrust version its Trent XWB, which will power the Airbus A350-1000 aircraft, and is a good example of its technological edge.

The Trent XWB-97 is a 97,000lb-thrust version of the engine designed to power the longest-fuselage version of Airbus's new family of wide-body jetliners. The increased thrust has been achieved through a combination of high-temperature turbine technology, a larger engine core and a higher-flow fan which uses advanced aerodynamics. The best selling 84,000lb-thrust Trent XWB engines will power the first A350 XWB into commercial service with Qatar Airways in 2014.

All the more surprising then that the shares did not pick up after their recent weakness and spectacular nose-dive in February.