Rolls-Royce has announced a significant development for the UK's aerospace industry, confirming a £2.5 billion program to develop new jet engines, with substantial backing from the government. The initiative is set to re-establish the company's presence in the lucrative market for engines powering narrow-body aircraft used in short-haul flights.
Treasury support will initially contribute over £300 million to research, with the potential to rise to half of the total £2.5 billion outlay if Rolls-Royce secures contracts with major aircraft manufacturers like Airbus or Boeing. The company is expected to invest billions more of its own funds for engine development and factory construction.
Chancellor John Healey stated in his Budget speech that Rolls-Royce "will develop their next generation of turbine engine technology here in the UK in partnership with government." He further emphasized that the investment would sustain "thousands of jobs across the Midlands, Bristol and the UK."
Rolls-Royce CEO Tufan Erginbilgic described the agreement as a "landmark moment for the UK's aerospace industry." He added, "This is a once-in-a-generation opportunity to lay the foundations for decades of sustainable economic growth across the UK, creating high-value jobs and transforming the country's advanced manufacturing supply chain."
The government's funding package is contingent upon legal, value-for-money, affordability, and approval processes. The Treasury's support is intended to aid in the development and testing of gas turbine technologies for both civil and defense aerospace applications.
Rolls-Royce has been developing its UltraFan technology as part of its strategy to re-enter the narrow-body jet engine market. The deal is projected to create 3,300 high-value jobs at Rolls-Royce and its supply chain partners by the end of 2029. If the engines are selected for new narrowbody aircraft, this could lead to tens of thousands more roles and contribute approximately £120 billion to the economy over the program's duration.
The company plans to select sites within Britain for the assembly and testing of new engines, necessitating new factories to maximize opportunities for domestic suppliers. This commitment follows earlier considerations by Rolls-Royce to develop its narrow-body engine program in Germany or the United States if the UK did not provide the necessary subsidies.
Erginbilgic, who has been credited with improving the company's performance and boosting its share price since taking over in 2023, highlighted the partnership's importance for the UK's competitiveness. He also noted that collaboration would help maintain the nation's capability in powering military aircraft and secure its position as one of the few countries capable of designing, developing, manufacturing, and servicing jet engines for commercial airliners.
Rolls-Royce shares saw a modest increase of 1.6 percent following the announcement.