Rolls-Royce has threatened to build a major new jet engine programme in Germany or the United States instead of the UK unless it receives significant Government financial support.
The Derby-headquartered engineering group is seeking hundreds of millions of pounds in taxpayer funding to support the development of a new narrow-body aircraft engine.
The programme would focus on engines for short-haul aircraft, including planes used on routes within Europe.
It is understood, Rolls-Royce is in discussions with the UK Government over funding for the project.
At the same time, officials in Germany and the United States are actively courting the FTSE 100 firm to locate the programme overseas.
Politicians in both countries are seeking to attract investment by highlighting lower energy costs and existing industrial infrastructure.
Rolls-Royce has estimated the new engine programme could generate more than £100billion in economic value over its lifetime.
The company has also said the project could support around 40,000 jobs across its operations and supply chain.
Rolls-Royce warns new jet engine programme may go to Germany or US unless UK provides major support
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The narrow-body engine market that Rolls-Royce is targeting is valued at approximately £1.6trillion globally.
This segment includes aircraft such as the Airbus A320 family, which operate on shorter routes and are produced in far greater volumes than long-haul wide-body planes.
Rolls-Royce exited the narrow-body market around ten years ago, with the company currently focused on engines for wide-body long-haul aircraft, including the Airbus A350.
The proposed return to the narrow-body market would mark a significant shift in the group’s commercial aerospace strategy.
The manufacturer is seeking around £3billion of research and development costs associated with the programme.
Industry sources have indicated that without financial backing from the UK Government, the company has alternative options available.
It already operates manufacturing facilities in both Germany and the United States.
The company focuses on engines for wide-body long-haul aircraft, including the A350
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These sites could accommodate new production more quickly than building capacity from scratch.
Energy costs are understood to be a key factor in the company’s assessment of potential locations.
According to a recent report by Santander, UK businesses face electricity prices around 50 per cent higher than those in Germany and France.
The same report said electricity prices for UK firms are around four times higher than those paid by businesses in the United States.
The report said higher energy costs have affected the competitiveness of energy-intensive manufacturing sectors.
Manufacturers have repeatedly warned energy prices influence decisions about where to locate new investment.
Chief executive Tufan Erginbilgic has overseen a turnaround in the company’s performance since taking on the role.
He is understood to favour developing the new engine programme in the UK if conditions allow.
The Labour Government has identified advanced manufacturing and aerospace as priorities within its industrial strategy.
Ministers have highlighted the importance of securing high-value investment and skilled jobs across the UK.
Any decision by Rolls-Royce to locate the project overseas would come despite those ambitions.
The Unite trade union declined to comment directly on reports about the potential relocation.
A spokesperson for Unite described the reports as speculation based on unnamed sources.
They has not confirmed where the new engine programme would be based.
The company has declined to comment on the discussions.
A spokesperson for the Department for Business and Trade said the Government remains confident in the UK’s aerospace sector.
Sir Keir Starmer has identified advanced manufacturing and aerospace as priorities
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The spokesperson said: “The UK has one of the world’s most competitive aerospace sectors, and we expect Rolls-Royce to continue to play a key role in the sector.”
The department said it continues to engage with major manufacturers on future investment opportunities.
Any final decision on the project would take into account long-term commercial, operational and economic considerations.
The company has previously said large-scale aerospace projects require close cooperation between industry and government.
Discussions between Rolls-Royce and ministers are ongoing.