By Thomas Blackwood

Feb 26, 2026, © Leeham News: Rolls-Royce posted strong 2025 full year results on Thursday, with profits up and upgraded mid-term targets, as the UK-based manufacturer restated the case for its re-entry into the narrowbody engine market.

Speaking to analysts, CEO Tufan Erginbilgic said Rolls-Royce was seeking partners for the £3 billion ($4 billion) Ultrafan 30 engine development project, which will allow the company to establish itself within the large and growing narrowbody market.

Responding to media reports that he was seeking a UK government loan of up to £200 million initially to help support the development and testing of a demonstrator, Erginbilgic suggested Rolls-Royce was looking for grant funding through initiatives such as the Aerospace Technology Institute (ATI) rather than any lending facility. The ATI programme co-funds civil aerospace research and technology development in the UK.

“Let me be very clear, we are not asking for any loan from anybody, not to mention government,” he said. “It is not actually uncommon that governments support R&D, and our competitors get two-three times what we do. They are not actually loans… so we are talking about that kind of support. We don’t need any loan, but we are in a competitive world.”

The UltraFan 30 program

The UltraFan 30 program is still at an early stage and details are scant on exactly when and how it will enter the market, aside from a 2028 date for testing, but Erginbilgic said the UltraFan technology at Rolls-Royce’s disposal put it in a strong position for the next generation of narrow body aircraft.

“The narrow body market is large and would offer meaningful synergies with our wide body and business aviation activities. We are building a narrow body size demonstrator with up to 30,000 pounds of thrust, which will be ground tested by 2028,” he said.

A demonstrator from the UltraFan program (not the 30) in the new RR test stand. Photo: Rolls-Royce

“We expect the UltraFan to deliver a significant improvement in fuel burn versus today’s narrow body engines, as well as meeting the time on wing expectations for customers in this market. We have already invested significantly into UltraFan, and will continue to do so as we look to re-enter the narrow body market in partnership.”

The starting position for Rolls-Royce is that a partnership on the project would be beneficial, and the company is talking to engine makers and other entities. Airbus and Boeing are said to be supportive of the project. But the engineering capability is there to go it alone, and Rolls-Royce continues to work on a demonstrator, with or without a partner.

“Given the developments we made with UltraFan – we already spent more than £1 billion on UltraFan – and the new technologies we are incorporating, and continue to incorporate in UltraFan, that positions us really well for [the] narrowbody [market],” Erginbilgic said. “We prefer [a] partnership, we are talking to multiple parties. More importantly, they want to talk to us and two airframers…Airbus and Boeing, they are actually keen that we participate in narrowbody.”

Profits surge after bumper 2025

On the financial side for full-year 2025, Rolls-Royce posted underlying operating profit of £3.5bn in 2025, up from £2.5bn in 2024, with an operating margin of 17.3%, versus 13.8% in 2024.

Free cash flow reached £3.3bn, up from £2.4bn in 2024, and net cash stood at £1.9bn at the end of 2025 compared with £475m by the end of 2024.

Rolls-Royce 2022-2025 financial performance. Photo: Rolls-Royce

The civil aerospace division delivered an underlying operating margin of 20.5%, versus 16.6% in 2024, helped in part by stronger large engine aftermarket performance and higher spare engine profitability.

On the defense side, Rolls-Royce reported an underlying operating margin of 14.4%, flat from 2024 (14.2%), due to the absence of a one-off benefit in submarines last year.

Rolls-Royce has benefited from increasing defense budgets worldwide. Testing of the AE 1107 and F130 engines, which will power the MV-75 (Future Long-Range Assault Aircraft) and B-52 aircraft, is progressing to plan, the company said,

Power Systems achieved an operating margin of 17.4%, up from 13.1%.

Rolls-Royce earnings potential in the mid-term. Photo: Rolls-Royce

As a result of its strong balance sheet, the engine-maker announced a £7-9 billion multi-year share buyback to 2028, following a £1bn share buyback in 2025.

Rolls-Royce likes to compare its financial position now with that of 2022, to highlight the transformation of the business under its new CEO Tufan Erginbilgiç, who joined the company at the start of 2023.

In that time, the operating margin has risen from 5.1% to 17.3% (2022 vs. 2025), free cash flow from £500 million to £3.3 billion and a return on capital from 4.9% to 18.9%.

Erginbilgic said: “I’m proud of what we achieved over the past three years, and we are not done yet. Our transformation has delivered a step change in performance across the group, this has been achieved despite a challenging external environment, including supply chain and tariffs.”

Future growth

Rolls-Royce expects underlying operating profit of £4-4.2 billion in 2026, with free cash flow of £3.6-3.8 billion. This includes a £150-200 million cash impact related to the supply chain, similar to that of 2025. The company said parts availability was improving but was still constrained.

Rolls-Royce has upgraded its 2028 mid-term group targets, increasing underlying operating profit to £4.9–5.2 billion (from £3.6–3.9 billion), underlying operating margin to 18–20% (from 15–17%), free cash flow to £5–5.3 billion (from £4.2–4.5 billion), and return on capital to 23–26% (from 18–21%).

The guidance includes the continued supply chain headwinds, which Rolls-Royce said would be gone by the midterm.

While Rolls-Royce has its sights set on a future position within the narrowbody market, it also continues to increase its share of widebody deliveries.

Over the last three years, the company has captured more than 50% of wide body deliveries, driving up its share of the installed fleet from 34% to 38%. Erginbilgic said this was expected to grow by 6-7% per year in the installed fleet to the midterm.

Improving time on wing and MRO capability 

Tufan Erginbilgic, Rolls-Royce CEO. Photo: Screengrab/Rolls-Royce

There have also been significant time-on-wing improvements supporting this strengthened market position.

Rolls-Royce is targeting a more than 100% increase in durability across in production engines with more than half of this improvement target already delivered. This increase, compared to a previous target of more than 80%, reflects critical part life extensions for the Trent XWB-84 (Airbus A350-900).

Other key time-on-wing milestones include the certification of the first phase of improvements for the Trent 1000 XE (Boeing 787) in June, the second phase of HPT blade improvements for both Trent 1000 (Boeing 787) and Trent 7000 (Airbus A330neo) which were certified in December, and planned improvements for XWB-97 (Airbus A350-1000), which remain on track to be completed by the end of 2027.

Rolls-Royce has also been expanding MRO capacity and has seen increased shop visits – up more than a 50% since 2022.

The MRO network capacity will grow by a further 20% by the midterm to support future fleet growth. LTSA shop visits rose 10% last year.

The use of AI continues to reshape the operation. Last year, Rolls-Royce launched an AI platform, AiRR, which has capabilities in generative and agentic AI.

Erginbilgic said this was being used across engineering, MRO and the supply chain, helping to improve intelligent engine monitoring and planning, reducing turnaround times and shop visit costs.