Rolls-Royce begins talks with partners about narrow-body jet engines

Summer holidays are just a few months away for millions of sun-starved Britons. Many Britons will be flying to sunspots in the Mediterranean on single-aisle aircraft, the workhorses that make up the modern aviation fleet.

Rolls-Royce is one of the largest jet engine manufacturers in the world. It’s not because they don’t want to people go on vacation; far from that. Rolls does not make engines for this type of aircraft.

The Derby-based company has been a leader in the production of engines for wide-body aircraft, including the Boeing 777 and Airbus A350, which fly to all corners of the globe. As narrow-body aircraft become more fuel efficient and have a greater range, their market has grown. Tufan Erginbilgic is Rolls’s newest boss. He wants to get a piece of the pie.

Tufan Erginbilgic is the chief executive officer of Rolls-Royce and he’s looking for a partner in order to develop a narrow-body jet engine.

Erginbilgic is aiming for the next chapter after overseeing a remarkable recovery in the FTSE 100 Engineer since January 2023. After reporting record profits, Erginbilgic took a break from investor call to tell The Sunday Times he was actively searching for a partner in order to develop a narrow-body jet that could power planes into the 2030s.

He said, “We are confident that the opportunity for partnership will exist.”

Rolls spent millions on UltraFan, an next-generation engine that can be shrunk for narrow-body aircraft. Erginbilgic says a joint-venture would be the best way to enter the market. Rolls has a limited number of credible partners in the world. Analysts suggest Pratt & Whitney in the US, but it has its own problems at the moment, following defects in its engines caused by powdered-metal.

Rolls has been in exploratory discussions with several parties. However, the talks are still at an early stage. Erginbilgic suggests that he is confident. He said, “I don’t come in here and talk about things after I dream at night.”

The prize could prove to be very lucrative. The narrow body market continues to grow as routes are added. Analysts at data firm Cirium estimate that 73 percent of all jets by 2040 will have single aisles.

Nick Cunningham is an analyst with Agency Partners. He said that the gradual erosion of wide body routes could threaten Rolls’s wide body engine core market. “Rolls has already captured half of the wide-body aircraft market, and it is unlikely that they will be able grow this much further,” said Nick Cunningham, an analyst at Agency Partners.

Rolls would make a sort of return, having made narrow-body engines in the joint venture International Aero Engines with Pratt from 2001 until 2011, when they sold out and focused on their larger Trent engines. It also considered building engines for Boeing’s new “mid-market plane” in the late 2010s but backed out.

Erginbilgic seems to be in a rush. He is not a man of small talk. Instead, he uses management jargon to explain how he pulled Rolls from what appeared to be an imminent nosedive.

Erginbilgic, who replaced the mild-mannered Warren East as CEO of Rolls, has seen the stock price nearly quadruple since he took over. Rolls announced better than expected profits last week across its three divisions: civil aircraft, the jet engines part of the business, defence, and power systems which produces engines for ships and supplies power to industrial customers.

Rolls-Royce is a strong supplier of engines for wide-body aircraft such as the Airbus 380

The new CEO has transformed Rolls into a company that is firing on all cylinders. He quickly refutes suggestions that he’s simply building on East’s work, and that the aviation recovery after Covid has helped him. He said, “I don’t believe in luck.”

Erginbilgic’s data proves it: “Today, we made a historic amount of cash for Rolls-Royce – and that is with flying hours at 88% of 2019 levels.” He is arguing that Rolls makes more money than ever even though the markets have not recovered fully.

This was achieved by renegotiating contracts that were too burdensome and cutting costs. He hired new executives including two key lieutenants who had worked at BP for over 20 years. He declared Rolls standing on “a burning platform” within weeks of his arrival. Around 2,500 jobs are expected to be cut, including many in middle management. Erginbilgic claims he has instilled a more “performance-oriented culture” for the rest.

Erginbilgic said that to temper expectations, the beginning of a turnaround in a company is the easiest part. “We’re front-loading the performance improvement. This will not be linear. You will achieve a great deal in some years. “The improvement in the following years will be less.

He is aware that investors who have been patient for a long time will begin to ask questions about returns. Last week, he chose to pay down the debt over restoring the dividend. Shareholders also want to know how the company will grow: hence, the possible move into the narrow body market.

Erginbilgic believes that “more time spent on the wings” will also lead to bigger profits. In other words, he believes the less repairs required by his engines, the more profit they will generate. Power Systems could also make money by supplying datacentres with energy to keep up with AI demands. The defence industry could also benefit from the Aukus Security Pact between Britain and the US.

Rolls’s bid for building nuclear power plants using small modular reactors is a more speculative endeavor. Erginbilgic wants the government to introduce these mini-nukes as quickly as possible and insists that it is vital the final vendors be chosen by summer. “If we can meet these deadlines, it will be fantastic. I always encourage pace. “This is a new tech, so the first-movers advantage will be crucial.”

Erginbilgic, a member the new business council of the Prime Minister, makes a compelling — and self-serving — argument for the UK to invest taxpayer money in industries where the UK is the world leader. Erginbilgic said that when it comes to cutting-edge technologies, the US government is a big supporter of their companies. It’s important that we receive that support here. He notes, in a funny way, that the UK excels at gas turbine engines.

The chief executive leaves to do a live transmission for 7,000 senior managers from the kitchen at Rolls’s Kings Cross offices. During an hour-long session managers will be able to ask questions of the boss while he urges them to work with “pace” and “intensity”. Surely, this will be music to the shareholders’ ears. Tufan’s talk show is unlikely to have many jokes.