Rolls-Royce nears taxpayer subsidy deal to develop new engine in UK
Company hopes for state backing of up to £200mn to put towards engine for short-haul aircraft
Rolls-Royce is closing in on a deal for British taxpayer subsidies of up to £200mn to help fund the development of a new engine for short-haul aircraft, with an agreement potentially being announced as early as next week.
The investment would mark one of the biggest financial commitments by UK Prime Minister Andy Burnham towards his promise to reindustrialise the country and create thousands of new jobs in high-value manufacturing.
The support package of between £100mn and £200mn will help to fund the development and testing of a demonstrator model of Rolls-Royce’s new UltraFan 30 engine, according to two people briefed on the situation.
Negotiations between the two sides were still ongoing, according to one of the people, who cautioned that the timing of an announcement could yet change.
The FTSE 100 group has been pressing the government for more than a year about taxpayer support for its bid to re-enter the lucrative market for narrow-body aircraft such as the Airbus A320 or Boeing 737, which typically fly on short-haul routes.
Executives had hoped to secure an initial commitment towards the high-profile project in the first half of the year but an agreement was in part held up by the departure of Sir Keir Starmer as prime minister.
Burnham has made reindustrialisation of the UK a key priority since taking office in July.
Tufan Erginbilgiç, Rolls-Royce’s chief executive, has said the project could be a once-in-a-generation opportunity that could create as many as 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 decades-long lifetime of the programme.
The development of a fully certified aircraft engine ready to go into production could cost up to £3bn, with additional funding needed for full-scale manufacturing.
The research and technology money for the demonstrator is expected to come via Britain’s Aerospace Technology Institute, which allocates state funding for innovation in the industry.
Rolls-Royce and the Department for Business, Science, Innovation and Trade both declined to comment.
Rolls-Royce has previously received UK government backing for engine programmes, including research and development funding and launch support.
Erginbilgiç, who has driven a sharp turnaround of the group since taking the helm in 2023, defended the company’s request for state aid in February after unveiling plans to return up to £9bn to shareholders over the next three years.
This type of state support was not uncommon in the industry, he said at the time, noting that his competitors — America’s Pratt & Whitney and GE Aerospace, and France’s Safran — received significantly greater sums.
The company would also invest substantial sums itself. An agreement with the government is expected to include commitments from Rolls-Royce on jobs.
The company had warned it could move production of the engine to Germany, where it builds business jet engines. It made the gearbox for the UltraFan programme at its facility in Dahlewitz, near Berlin, and some work is still expected to take place there.
Airbus and Boeing are expected to decide on engines for their next-generation narrow-body aircraft by the end of the decade, a lucrative opportunity in a market that Rolls-Royce left more than a decade ago to concentrate on wide-body planes.