Rolls-Royce boss defends state aid bid for new engine despite share buyback

The head of Rolls-Royce has defended his company’s bid for taxpayer support to help it re-enter the lucrative market for short-haul aircraft, even as he laid out plans to return up to £9bn to investors over the next three years.

Tufan Erginbilgiç, who has presided over a sweeping transformation of the UK aero-engineer, said: “This kind of support of industry is not uncommon.”

Of the government subsidies available to Rolls-Royce’s rivals, Pratt & Whitney and GE Aerospace of the US and France’s Safran, he said: “Our competitors get three times more than I do.”

The company, he added, had already spent more than £1.2bn over a decade on the development of its UltraFan technologies for the next generation of engines for both the narrow-body and wide-body markets.

“We should be a little bit competitive in this space . . . whatever we get, it will be a fraction of what Rolls-Royce will spend on the [engine] development,” said Erginbilgiç.

The FT this week revealed the company had asked ministers to commit to initial support of up to £200mn in the first half of this year to help develop a prototype.

Erginbilgiç on Thursday declined to comment on the company’s talks with the UK government. Although Labour identified the project as a key industrial opportunity, there have been concerns that Rolls-Royce might opt to build the so-called Ultrafan30 engine in Germany, where it builds business jet engines, or in the US, where it builds engines for military jets, if it does not secure support from the UK.

Airbus and Boeing are expected to decide on engines for their next-generation aircraft by the end of the decade.

Rolls-Royce’s narrow-body plan has “gone official,” said Nick Cunningham, analyst at Agency Partners. The company, he added, was “putting down a marker to say, we are here and we are serious”.

Erginbilgic said the company would only pursue the narrow-body market “if it creates value for the stakeholder and for Rolls-Royce”. The UK group left the narrow-body market more than a decade ago and currently only builds engines for large wide-body planes that fly long haul. Narrow-body aircraft make up a far bigger share of the global civil aircraft market by volume.

His comments came as the company on Thursday raised its profit targets after revealing a 40 per cent surge in 2025 profits to a record £3.5bn on sales of just over £20bn. Free cash flow also jumped to £3.3bn.

The strong results triggered an upgrade to the company’s midterm targets. Rolls-Royce now expects underlying operating profit of £4.9bn-£5.2bn in 2028, up from £3.6bn-£3.9bn previously, and free cash flow to £5bn-£5.3bn from £4.2bn-£4.5bn. It expects an underlying operating margin of up to 20 per cent, from 15-17 per cent previously.

The company announced its first multiyear buyback in its history, saying it would buy back between £7bn and £9bn of its shares across 2026-28, with £2.5bn to be completed this year. It is paying a dividend of 9.5p for the year, equivalent to 32 per cent of its after-tax earnings.

The results sent Rolls-Royce shares up 7 per cent on Thursday to a record 1,420p.

Strong demand for its commercial aircraft engines, which power large Airbus and Boeing jets, as well as power systems for data centres, coupled with a restructuring under Erginbilgiç, have turbocharged the company’s shares over the past three years.

They have more than doubled over the past year, closing at £13.12 on Wednesday, valuing Rolls-Royce at £110.6bn and catapulting it into the top 10 of the FTSE 100.

Growth was strong across its three main divisions.

Its civil aerospace business delivered an underlying operating margin of 20.5 per cent in 2025, up from 16.6 per cent the previous year, driven by strong demand for its engines, as well as better contractual terms.

Rolls-Royce’s other two divisions, defence and power systems, also performed well, with the latter being boosted by orders for backup power generators from data centres and government customers. In defence, the company, which builds the engines for the Eurofighter Typhoon aircraft, will benefit from a recent order by Turkey for 20 jets from the UK.