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Rolls-Royce is urging the UK government to commit to taxpayer support for the £3bn development of a new aircraft engine, a crucial project for its plans to re-enter the lucrative short-haul market.
The FTSE 100 group has told senior officials it would like to secure a commitment in the first half of this year, according to three people familiar with the talks.
It is asking for between £100mn and £200mn in the first instance to help fund the development and testing of a demonstrator of the UltraFan 30 engine, the people said.
Tufan Erginbilgiç, Rolls-Royce’s chief executive, has been closely involved and discussed the matter with business secretary Peter Kyle in recent weeks, they added.
The company has been in talks with officials since last year about subsidies to help develop a fully certified engine ready to go into production, a project that is expected to cost about £3bn.
Rolls-Royce’s potential re-entry into the narrow-body market comes after three years of restructuring under Erginbilgiç.
The scale of the transformation under the former BP executive will be underscored 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 a further share buyback. Rolls-Royce announced a £1bn buyback last February.
UK officials are looking at different 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 the people familiar with the talks.
Using ATI funding, however, is regarded as “tricky” given the need to balance support for Rolls-Royce with the demands of other aerospace companies including Airbus and Safran who both have a sizeable presence in the UK, they said.
The government could also take a stake in the project. “It is not impossible,” said one of the people.
“This government is being much more interventionist and therefore it’s starting to think we’ll behave like an investor,” said a second person, adding that Rolls-Royce was on a “massive sales campaign attacking the government to get money out of them, and it’s going quite well”.
Labour has prioritised advanced manufacturing as one of eight high-growth sectors in its industrial strategy.
Rolls-Royce says the project could create about 40,000 skilled jobs, both at the company and in the wider supply chain, and generate as much as £120bn for the UK economy over the lifetime of the programme.
The company currently builds engines only for wide-body aircraft that fly long-haul routes. It left the market for narrow-body aircraft — such as the Airbus A320 and Boeing’s 737 Max, which fly predominantly on short-haul routes — more than a decade ago.
Narrow-body aircraft make up a far bigger share of the global civil aircraft market by volume.
The group has spent more than £500mn on a demonstrator of the UltraFan engine, which aims to be 25 per cent more efficient than the group’s first Trent engines.
It said in 2024 that it had started work on a “scaled-down” demonstrator, the UltraFan 30, that would be designed to power a next-generation narrow-body aircraft.
Airbus and Boeing are expected to decide on engines for their next-generation aircraft by the end of the decade.
Erginbilgiç has also indicated that Rolls-Royce would need to partner with another company to get back into the narrow-body market. The group previously had a partnership with US aerospace group Pratt & Whitney but pulled out of the venture in 2013.
Rolls-Royce has said that aerospace is a globally competitive industry and that its rivals receive significant backing from their home governments. Germany, where the company has substantial operations, is also interested in helping to fund the project, according to industry executives.
Rolls-Royce said it was in “constructive discussions with the government about how we can work in partnership to realise [this] opportunity”, adding that the project could “unlock a $1.6 trillion market for the UK”.
The UK’s Department for 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 continues to play in it, supporting thousands of high-quality, high wage jobs.”