Rolls-Royce (LSE: RR) is nearing a deal with the British government for subsidies of up to £200 million ($267.9 million) to fund a next-generation jet engine program.
The proposed funding, estimated at between £100 million and £200 million, would support development and testing of a demonstrator version of the company’s UltraFan 30 engine, according to the Financial Times.
An announcement on the subsidy agreement could come as early as next week, the Financial Times reported, citing people familiar with the discussions.
The potential deal marks a critical step in Rolls-Royce’s strategy to re-enter the narrowbody aircraft market, a segment considerably larger than the widebody market the company has focused on in recent years.
Rolls-Royce had originally hoped to secure a government commitment for the UltraFan 30 programme during the first half of the year, but negotiations appear to be approaching a resolution.
The total development cost for a fully certified narrowbody engine is estimated to reach £3 billion, with funding expected to be routed through the UK’s Aerospace Technology Institute.
Chief Executive Tufan Erginbilgic has argued forcefully for government backing, stating in July that a combination of state support and a platform position on a narrowbody aircraft could create 40,000 jobs in Britain.
Erginbilgic also confirmed that Rolls-Royce had held discussions with other governments, including Germany and the United States, about potential support for the programme.
Rolls-Royce projects the UltraFan 30 programme could generate up to £120 billion in economic impact and support what the company describes as UK reindustrialisation.
The company exited the narrowbody market in 2011 when it withdrew from the International Aero Engines consortium, which produced the V2500 engine for the Airbus A320 family.
With both Boeing and Airbus expected to make decisions soon on future aircraft and engine programs, the timing of a UK government commitment has become increasingly urgent for Rolls-Royce.
Prime Minister Andy Burnham faces pressure to act as the window for securing a position on next-generation narrowbody platforms narrows for British aerospace industry participants.
