Third Quarter Review

12 October 2006

                   QUARTERLY NEWS UPDATE FROM ROLLS- ROYCE:                    
                          THIRD QUARTER REVIEW, 2006                           

Growth of China's Rolls-Royce powered airliner fleet was one of the highlights
of the third quarter of 2006, along with continued development of the
Rolls-Royce aftermarket services business and significant progress in US
defence programmes - in both aerospace and marine sectors.

Rolls-Royce unveiled its interim results for 2006, which demonstrated the
strength of the order book, continuing growth of services sales and progress
with efficiency improvements, despite the challenges of a weak US dollar and
increased raw material costs.

At the half year, the order book had increased to £25.1 billion and sales
increased to £3,390 million, of which 54 per cent were aftermarket services
sales. The underlying profit before taxation increased by 22 per cent to
£324 million.

Following the EADS announcement that the first Airbus A380 will now be
delivered in October 2007, Rolls-Royce has suspended production of the Trent
900 for 12 months, although work continues on engine development to ensure a
flawless entry into service. Total civil engine sales represent 20 per cent of
Group sales and comprise a broad portfolio of engine programmes for a wide
range of customers. The Group has not changed its financial guidance for 2006.

Other business highlights during the quarter:

Civil

  * At the Farnborough International Airshow, Rolls-Royce announced that it had
    signed a preliminary agreement with Airbus to offer a new version of the
    Trent engine to power the A350 XWB. The sixth generation of the Trent would
    offer one engine across all proposed variants of the new twinjet.
   
  * Two Trent 1000 deals were also announced at Farnborough. International
    Lease Finance Corporation (ILFC), the world's largest aircraft leasing
    company, has chosen the Trent 1000 to power up to 20 Boeing 787 Dreamliners
    in a deal worth $600 million at list prices.Fellow lessor, Pegasus, similarly 
    opted for Trent power for the six 787s it has on order. Four of these will be 
    leased to Italian airline, Blue Panorama.

  * The new Rolls-Royce long-term forecast has revealed an engine market worth
    $600 billion, equating to 114,000 engines, over the next 20 years. Asia
    Pacific was identified as the primary region for growth, with predicted
    expansion of 6.6 per cent each year.
   
  * China's flag carrier, Air China, selected the Trent 1000 to power its new
    fleet of 15 Boeing 787s, due to enter service in 2008. The deal, including
    TotalCare, is valued at $800 million.
   
  * Hainan Airlines Group, the fourth largest airline in China, has purchased
    50 Embraer ERJ 145 aircraft, which are powered by the
    Rolls-Royce AE3007 engine. The engine deal is valued at $500 million and
    includes TotalCare long-term maintenance agreement. Deliveries are due to
    begin in 2007. The airline also selected the Trent 700 to power seven
    leased A330s in another $500 million deal.
   
Defence

  * Rolls-Royce won a £40 million contract to support Gem engines powering the
    UK Ministry of Defence's (MoD) fleet of Lynx helicopters. This initial
    contract will run for two years and is seen as the first step towards an
    agreement from 2008 which will provide a guaranteed level of engine
    availability at all times.
   
  * The GE Rolls-Royce Fighter Engine Team responsible for the F136, the engine
    designed to power the F-35 Lightning, signed agreements with Avio of Italy,
    TEI of Turkey, DutchAero of the Netherlands and Canada's National Research
    Council (NRC) Institute for Aerospace Research to confirm their involvement
    in the programme.
   
  * The 2007 US Defense Appropriations Bill has now been passed and includes
    $340 million funding for the F136 Joint Strike Fighter engine, being
    developed by General Electric and Rolls-Royce. The US Department of Defense
    was also directed to include funding in its budget request for the
    following year.
   
Marine

  * The first Lockheed Martin Littoral Combat Ship, the USS Freedom, powered by
    the MT30, the largest naval gas turbine in the world, was launched on
    September 23. Another set of two MT30s has now been ordered for the second
    LCS, a next-generation warship for the US Navy, to be delivered to the
    Bollinger shipyard in Lockport, Louisiana, in early 2007.
   
  * Rolls-Royce won its largest contract for a single offshore vessel, which
    will also be the world's most powerful offshore vessel with a pulling power
    of more than 350 tonnes. Rolls-Royce will deliver design and equipment
    systems worth nearly £20 million, following a contract between Farstad
    Shipping and Aker Yards to build the Rolls-Royce designed construction
    vessel. The company will supply all the engines, propulsion systems, deck
    machinery and automation and control systems.
   
  * The first three Rolls-Royce gas turbine generator sets to provide the main
    electrical power system for the Republic of Korea Navy's first 7,000-tonne
    destroyer, designated KDX-III, have been delivered. The first AG9140RF gas
    turbine generator set was produced at the
    Rolls-Royce Indianapolis plant, and the other two were assembled by Samsung
    Techwin from Rolls-Royce supplied kits. The first KDX-III destroyer, which
    is currently under construction, will be delivered to the Korean Navy by
    the end of 2008.
   
  * ESNAAD, a wholly-owned subsidiary of Abu Dhabi National Oil Company
    (ADNOC), has become the first Middle East based ship owner to order
    UT-Design vessels from Rolls-Royce. The contract covers the supply of two
    vessels with Rolls-Royce equipment. Construction of the UT 780
    anchor-handling tugs (AHTS) has begun in Indonesia for delivery in January
    and February 2008.
   
Energy

  * Rolls-Royce has won three orders from customers in Asia - Vietnam, Thailand
    and Indonesia - for energy equipment to operate on offshore oil and gas
    platforms. The combined value of the orders exceeds
    $100 million.
   
  * The UK Armed Forces Watchkeeper programme, a network of ground control
    stations which will receive data from unmanned aerial vehicles (UAV), will
    use 25kW electric power generators from Rolls-Royce Distributed Generation
    Systems.
   
Operations and technology

  * Rolls-Royce is the only Indianapolis company to win a 2006 Indiana
    Governor's Award for Environmental Excellence, recognising five years of
    continuous progress, during which it has cut water use by 44 per cent,
    electrical use by 16 per cent, solvent use by 41 per cent and hazardous
    waste-generation by 73 per cent. The Indianapolis facility also uses
    methane gas from a nearby city landfill as a fuel.
   
  * Redevelopment of the Bristol, UK, site continued as the first team moved
    into the new manufacturing facility and work started on the new military
    engine facility. The company is investing £75 million in the Bristol site.
   
  * ASTRAEA, a collaborative research project in which Rolls-Royce is a
    partner, was launched during the Farnborough air show. Co-funded by the UK
    DTI, RDAs and the industry partners - and involving eight UK universities -
    this three-year programme will undertake16 projects in the areas of
    technology, regulation and demonstration aimed at enabling uninhabited air
    vehicles (UAVs) of all classes to fly in UK airspace without the need for
    specialised conditions of operation.
   
For images please go to: http://www.rolls-royce.com/media/gallery/default.jsp

For further information please contact:

Caroline Harris 
Tel: [phone] 
[e-mail] 

Martin Brodie
Tel: [phone]
[e-mail]