Since dropping below 1,100p in April, Rolls-Royce (LSE:RR) shares have surged by about 25%. And this week they climbed back above 1,400p, boosted by a couple of things.
First, we had news that John Healy is the new chancellor. He’s the former defence secretary who quit recently in a row over the slow pace of military spending, so this news has hoisted defence stocks.
Defence makes up almost 25% of Rolls-Royce’s total revenue. But the lion’s share comes from civil aerospace, where we also had goods news.
Philippine Airlines has signed a memorandum of understanding for 18 Trent XWB-97 engines to power nine Airbus A350-1000 aircraft. As a reminder, the XWB-97 is the exclusive engine for the A350.
Tajikistan’s Somon Air also selected the company to provide four Trent 1000 XE engines to power its two new Boeing 787 Dreamliners. These engines have re-designed turbine blades that increase cooling air flow by 40%, offering up to triple the time-on-wing of its predecessor.
This addresses previous durability issues in hot and sandy environments.
Finally, the firm announced progress on the Global Combat Air Programme to build a new stealth fighter jet. Alongside partners Avio Aero (Italy) and IHI Corporation (Japan), Rolls-Royce is moving toward ground-testing the engine demonstrator.
A narrowing window
One big future growth opportunity for Rolls-Royce is re-entering the narrowbody (single-aisle) market. For this, it will launch a dedicated engine programme based on its next-generation UltraFan architecture.
However, chief executive Tufan Erginbilgiç wants government backing for the project because the clock is ticking. In two years’ time, Boeing and Airbus will make a decision on engine partners for their new narrowbody jets.
Rolls-Royce estimates the programme, if successful, could create up to 40,000 well-paid British jobs. But if there’s no decision soon, it could move production abroad.
We would like to do it in the UK because of our origin. Do we have other options? Yes.
Tufan Erginbilgic, speaking at the 2026 Farnborough Airshow
Why bother?
Given Rolls-Royce’s lucrative position in the long-haul market, why bother with narrowbodys? Airbus tells us why in its latest global market forecast for the 2026-2045 period.
It writes: “In the next 20 years, urbanisation will shift to smaller cities. The number of smaller cities growing at a significantly faster pace, driving airlines to expand connectivity and establish new direct flights between small and medium city-pairs.”
In plain English, this is where the big opportunity lies. By 2045, Airbus anticipates a global demand for 42,060 new aircraft, with 33,920 of these (roughly 81%) being single-aisle planes.
Missing the selection window for the next generation of narrowbodies is a risk. These only come around every 15-20 years, and incumbent rivals already get far higher government support, according to Erginbilgiç.
Additionally, if Rolls-Royce can’t find a suitable partner to co-fund the project, it might run out of time to build and test the engine demonstrator.
Drip-feed candidate?
After surging 1,353% in five years, the stock’s future returns will be far less spectacular. Whether it can keep powering higher will depend on the half-year results due at the end of the month.
Anyone considering investing should be aware of the high valuation, and perhaps look to drip-feed money in.
Personally, I see more lucrative opportunities across the FTSE 100 and FTSE 250 today.
Should you invest £5,000 in Rolls-Royce Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls-Royce Plc made the list?
Ben McPoland owns shares in Rolls-Royce.
