We are lowering our fair value estimate for Rolls-Royce (RR.) to £9.71 per share from £11.15 following the transfer of coverage to a new analyst. We lowered our five-year revenue compound annual growth rate to 1.9% from 4.6% on lower sales estimates for defense aerospace and marine. Due to strong operational efficiency focus and steady growth of high-margin aftermarket sales, we increased our 2018 terminal exit margins assumptions to 11.2% from 10.3%. We maintain our narrow moat rating as we believe the firm enjoys high switching costs and technology leadership.
Rolls-Royce's large investments in research and development are a major structural competitive advantage that have secured a market-leading position in wide-body aircraft. Still, the void in narrow-body planes is difficult to ignore. Although we see softer demand resulting from lower government spending in 2014-15 hurting defence-related sales, we still believe Rolls-Royce is attractively positioned in this market.
The loss of revenue from equipment deferrals within the defence area can be mitigated by increased service revenue from extended use of the legacy installed fleet. As result of increased engine deliveries in recent years, the installed base of civil and defence engines has grown to 29,000, providing a long-term annuity of aftermarket services revenue.
The next big catalysts are the launch of the Airbus 350 and additional order intake for the Airbus 380. Rolls-Royce se cured sole-provider status for the Airbus A350-XWB, and orders for the Trent XWB engines represent more than 60% of the firm order book, making Rolls' earnings sensitive to the timing of A350 launch. On December 10, Airbus announced the postponement of the A350 debut until further notice.
We are still positive on Rolls-Royce's wide-body engine sales as aircraft debut delays is an ongoing sector issue, in our view. The Boeing 787 was scheduled to enter service in 2008, but due to multiple delays, the first aircraft was not delivered until 2011.