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The aerospace giant’s request for public funding to develop its next-generation UltraFan 30 engine sits uneasily alongside record profits, a reinstated dividend and the largest share buyback programme in the company’s history — but the strategic arithmetic may be more complicated than the headline optics suggest.
The Subsidy Request and What It Actually Buys
Rolls-Royce is seeking between £100 million and £200 million in initial government support to advance a £3 billion programme aimed at returning the company to the narrowbody aircraft engine market it abandoned more than a decade ago, according to a Financial Times report published on 23 February citing people familiar with the discussions. The funding would go toward development and testing of a scaled demonstrator for the UltraFan 30, a next-generation power plant designed to be 25% more fuel-efficient than the first Trent engines and positioned to compete for Airbus and Boeing single-aisle contracts expected before the end of the decade. Chief executive Tufan Erginbilgiç has been in direct talks with Business Secretary Peter Kyle in recent weeks, per the FT, and wants a commitment in the first half of 2026. Rolls-Royce has already invested more than £1 billion of its own capital in UltraFan research, as Erginbilgiç confirmed during the 26 February results presentation reported by Leeham News, and estimates the full £3 billion undertaking could support 40,000 UK jobs, open access to the $1.6 trillion narrowbody market and generate upwards of £100 billion in lifetime economic value. Erginbilgiç told reporters that every pound of public investment could deliver £34 in economic growth — a figure that, even heavily discounted, represents a substantial multiplier by any industrial-policy standard.
A Company That Hardly Looks Like It Needs the Money
The timing makes the request politically combustible. Full-year results published on 26 February, per Rolls-Royce’s own press release, showed underlying operating profit of £3.46 billion for 2025 — a 38% increase on an organic basis — on revenue of £20.06 billion. Free cash flow reached £3.27 billion and the balance sheet swung to a net cash position of £1.9 billion, a remarkable reversal for a company that was raising emergency capital just five years ago. Management guided for £4.0 billion to £4.2 billion in operating profit for 2026 and upgraded mid-term targets to £4.9 billion to £5.2 billion, roughly doubling the outlook set when Erginbilgiç took charge in January 2023. Alongside those figures came the announcement that defined the market reaction: a multi-year share buyback programme of £7 billion to £9 billion across 2026 to 2028, with £2.5 billion earmarked for this year alone, as reported by CNBC. Shares surged roughly 6% on the morning of the results, hitting an intraday record above 1,420p before settling around 1,366p, per Investing.com data, valuing the company at approximately £114 billion. The stock has appreciated more than 1,200% since the depths of the turnaround, according to CNBC. To critics, the juxtaposition is self-evidently absurd: a company sitting on £1.9 billion in net cash, generating over £3 billion a year in free cash flow and promising shareholders up to £9 billion in buybacks should not need £200 million of taxpayer money. That argument gained further force from the fact that Rolls-Royce secured a £2 billion UKEF-backed loan facility — with an 80% government guarantee — during the Covid crisis in July 2020, followed by a £1 billion accordion extension the following year. A share price that has broken successive all-time highs this year only sharpens the optics.
Why the Government May Say Yes Anyway
The counter-argument rests on the structure of international aerospace competition, where sovereign support is not an aberration but a precondition. Erginbilgiç pointed to the scale of state assistance available to GE Aerospace and Pratt & Whitney in the United States and to Safran in France, telling reporters that such backing is standard practice across the industry, per Business Matters Magazine. The UK government’s own Industrial Strategy, published by the Department for Business and Trade, described securing a domestic engine position on next-generation single-aisle programmes as the single biggest opportunity in aerospace over the next fifty years — language that Rolls-Royce has repeatedly cited. The strategic window is unusually wide. Rolls-Royce exited the narrowbody market in 2011 when it sold its stake in the International Aero Engines joint venture with Pratt & Whitney, a move now widely regarded as a major strategic error given that single-aisle aircraft dominate global fleet orders. That gap may now be bridgeable because Pratt & Whitney is battling durability problems with its geared turbofan engines that have forced delivery delays and aircraft groundings across multiple airlines, per reporting from CNBC. Erginbilgiç said UltraFan would offer superior fuel efficiency and durability and confirmed the company is exploring industrial partnerships to share development risk. Crucially, he also disclosed that Rolls-Royce is evaluating alternative manufacturing locations — including Germany, where it already builds business-jet engines, and the United States, where it produces military power plants — if UK support fails to materialise. For a government already contending with UK car production at its lowest since 1952 and a manufacturing base hollowed out by a decade of underinvestment, the threat of losing a flagship aerospace programme to a rival jurisdiction is not an idle one.
The Fiscal and Political Calculus
The decision will land on Chancellor Rachel Reeves’s desk at the worst possible moment. With the Spring Statement due in early March and the Office for Budget Responsibility expected to revise growth forecasts lower, every spending line is under forensic scrutiny. A £200 million commitment to a company returning nine billion to shareholders invites an attack line that writes itself — and Labour is already under pressure over employer National Insurance rises that critics blame for suppressing hiring across the private sector. Yet the cost-benefit framing cuts differently at the industrial level. Rolls-Royce’s civil aerospace division alone generated £10.38 billion in revenue in 2025, per the company’s results, a 15% increase year-on-year. The company employs 42,000 people globally, with its core engineering and manufacturing operations concentrated in Derby, Bristol and the wider East Midlands. If UltraFan production anchors in the UK, the supply-chain multiplier could sustain tens of thousands of additional positions over a programme life measured in decades. If it moves overseas, those jobs — and the tax revenue, apprenticeship pipelines and export earnings they generate — go with it. The £200 million ask amounts to roughly 6% of the programme’s total cost and less than one day’s worth of the company’s market capitalisation. Whether that constitutes a prudent investment in national industrial capacity or an indefensible handout to a cash-rich FTSE 100 champion will depend entirely on which side of the political ledger the government chooses to stand.
