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Rolls-Royce is urging the UK government to commit taxpayer support to the £3 billion development of a new aircraft engine, a key project for its plans to re-enter the lucrative short-haul market.
The FTSE 100 group has told senior executives it would like to secure a commitment in the first half of this year, according to three people familiar with the talks.
It is seeking between £100mn and £200mn at first to help develop and test the UltraFan 30 engine demonstrator, the people said.
He said Rolls-Royce Chief Executive Tufan Erginbilgic has been closely involved and has discussed the matter with Business Secretary Peter Kyle in recent weeks.
The company has been in talks with authorities since last year about subsidies to help develop a fully certified engine to go into production, with the project expected to cost around £3 billion.
Rolls-Royce’s potential re-entry into the narrow-body market follows a three-year restructuring under Erginbilgik.
The scale of change under the former BP executive will be underlined this week when the group is expected to report record profits and free cash flow for 2025, according to its latest guidance.
Investors are also expecting the company to announce further share buybacks. Rolls-Royce announced a £1bn buyback last February.
UK officials are considering various sources of support for the narrow-body project, including the Aerospace Technology Institute, which allocates state funding for innovation in the industry. Tapping the National Wealth Fund or offering launch support were other options, according to people familiar with the talks.
However, using the ATI funding is considered “difficult” because support for Rolls-Royce needs to be balanced with the demands of other aerospace companies, including Airbus and Safran, which have a large presence in the UK, he said.
The government can also take stake in this project. “It is not impossible,” said one of the people.
“This government is becoming too interventionist and therefore starting to think that we will be treated like an investor,” said another person. He said that Rolls-Royce is “running a massive sales campaign and attacking the government to extract money, and it is going quite well”.
Labor has prioritized advanced manufacturing as one of eight high-growth sectors in its industrial strategy.
Rolls-Royce says the project could create around 40,000 skilled jobs both within the company and the wider supply chain, and generate up to £120bn for the UK economy over the lifetime of the programme.
The company currently manufactures engines only for wide-body aircraft that fly long-haul routes. More than a decade ago it left the market for narrow-body planes like the Airbus A320 and Boeing’s 737 Max, which mainly fly short-haul routes.
By volume, narrow-body aircraft constitute a far larger share of the global civil aircraft market.
The group has spent more than £500mn on a demonstrator UltraFan engine, which aims to be 25 per cent more efficient than the group’s earlier Trent engine.
It said in 2024 that it had begun work on a “scaled-down” demonstrator, the UltraFan 30, which would be designed to power the next generation of narrow-body aircraft.
Airbus and Boeing are expected to decide on engines for their next generation aircraft by the end of the decade.
Erginbilgik also indicated that Rolls-Royce would need to partner with another company to return to the narrow-body market. The group previously partnered with American aerospace group Pratt & Whitney but backed out of the venture in 2013.
Rolls-Royce has stated that aerospace is a globally competitive industry and its competitors receive significant support from their home governments. According to industry officials, Germany, where the company has substantial operations, is also interested in helping finance the project.
Rolls-Royce said it was “having constructive discussions with the government about how we can work in partnership to realize (this) opportunity”, adding that the project could “open up a $1.6 trillion market for the UK”.
The UK Department of Business and Trade said: “The UK has one of the most competitive aerospace sectors in the world and we value the role that Rolls-Royce is playing in this, supporting thousands of high-quality, high-paid jobs.”
