Interesting Read.
Rolls Royce and the Sequoia letter
At Bronte we have a large position in Rolls Royce - the UK based manufacturer of jet engines.
Rolls is a relatively simple story - Rolls is part of a duopoly in engines for wide-bodied aircraft (aircraft with two aisles like the Dreamliner, A350, A380, 777 and forthcoming 777X).
Jet engines cost a fortune to develop and are sold at a loss - but with huge out-year maintenance streams.
The maintenance is potentially very profitable. If you sell a lot of copies of the jet engine maintenance margins can get very fat.
This duopoly is almost impossible to break. Not only would a company need to spend billions of dollars before they developed a competitive engine they would then need to sell the engine at a loss for many years until the maintenance streams come on.
Moreover it is risky.
If you attach your engine to an unsuccessful plane (like say the A340) production will be a few hundred copies - and you will eat all those development costs for smaller maintenance streams and you will not get scale on maintenance. Making unsuccessful engines or attaching engines to unsuccessful planes is a good way to lose a lot of money.
Contra: if you attach your engine to a hit plane like the 777 - especially if it is the only engine choice for that plane - you will make thousands of copies of the engine and develop scale in maintenance. And that is profitable in the billions - and maybe even tens of billions of dollars range.
Rolls has had a few less than successful planes in recent years - let by the A340 but probably including the A380. (The super-jumbo is wondrously fuel inefficient.)