Don't let the mavericks of private equity make a Pratt out of Rolls

Here's one from Rolls-Royce; £2.5 billion to power Airbus A350 XWBs for Qatar Airways, taking the company's workload to £30 billion and providing more fuel for a share price that has risen like a jumbo out of Heathrow in the past four years.

Rolls is a true British success story.

There are only three makers of big jet engines in the world, and the third, Pratt & Whitney, is getting out of a market that is demanding ever cleaner, quieter and more efficient machines.

The jet engine will be powering aircraft for at least the next half century, so the rewards for being part of a global duopoly will be enormous one day.

The lead times in this industry are measured in decades, and while Rolls is on a roll, there's a spectre at this feast. The analysts at SG Research reckon that the company has spent £12 billion on R&D in the past 20 years.

Even after the shares' take-off, the market value of the company is less than £10 billion, there is no debt to speak of on the balance sheet, and the pension fund is in fair shape.

SG like the shares, but since the price has risen eightfold from its 2003 low, you might say they'd missed the plane. On a yield of less than 2%, buyers at 560p need to take the long view to justify their investment and, despite Rolls' impressive track record, no amount of R&D spending guarantees success.

This opens a terrible temptation. As Pratt is currently demonstrating, when you stop engine development, profits really take off, as the money pours in from spares and servicing. The current management of Rolls would rather jump into a rotating turbine than shut down the development programme, but others may not be so queasy.

After yesterday's battering from MPs, some private-equity maverick might decide that the industry's image could hardly be worse, and that destroying a national treasure, an unparalleled skills base and a worldclass business is a small price to pay for enriching himself beyond the dreams of avarice. After all, if Rolls is such a great business, how come it's worth less than the accumulated cost of its research? So far, nobody has asked this question, and maybe nobody will, and Rolls can carry on doing what it does so well. But finance is the new capitalism, and the shareholder base of every big company is increasingly febrile, foreign and fickle.

We are witnessing the triumph of the speculator over the manager and the financier over the producer. Helped by technological advances albeit ones that few Rolls engineers would recognise as such old relationships between companies, banks and investors are breaking down. The next transaction, rather than past history, is what counts.

Few will mourn if the Dulux dog gets a Dutch kennel, since its current master, ICI, is now almost unknown to the public.

If Sainsbury's becomes a family firm again, it matters little that the family is Qatari rather than British. The new owners can hardly take it away, and if Outvoted, but they let it run down, competitors will quickly move in.

Rolls, though, is a different matter. It is spending today for a return that is over the investment horizon for almost every other industry. Sir John Rose, its charismatic chief executive, frequently points out that we won't really know whether he's made the right decisions until after he's gone. Incidentally, he has been in the job 12 years now, and experience elsewhere suggests it's time to think about succession.

The best-equipped internal candidate is Colin Smith, a real engineer who understands how desperately important Rolls is to Britain's shrunken manufacturing sector. We, and he, can only hope that no financial engineer is watching the planes over Paris and musing about making his fortune from shutting the engines down.