Shares in Rolls-Royce Holdings climbed as much as 7% on Thursday after the jet engine maker lifted its profit outlook, unveiled plans for up to £9 billion in share buybacks and signalled a possible return to the narrow-body aircraft market.
The British engineering firm told the market to expect an underlying operating profit of £4 billion to £4.2 billion this year, ahead of analyst expectations, with free cash flow forecast at £3.6 billion to £3.8 billion.
Management added that £2.5 billion of share repurchases will be completed this year as part of a £7 billion to £9 billion programme running from 2026 to 2028.
Chief executive Tufan Erginbilgic expects the upgraded guidance to see Rolls-Royce reach its previous mid-term profit targets two years earlier than planned.
For 2028, the group now expects underlying operating profit of £4.9 billion to £5.2 billion, operating margins of 18% to 20% and free cash flow of £5 billion to £5.3 billion.
The stronger outlook follows a year in which operating profit rose more than 40% to £3.46 billion, beating market forecasts, while revenue increased 12% to £20.1 billion.
It marked the fourth consecutive year the company has exceeded earnings expectations, extending a turnaround that began after Erginbilgic took charge in 2023.
Performance was led by the power systems division, which benefited from rising demand for data centre power generation linked to artificial intelligence (AI) infrastructure.
The unit generated £4.89 billion in revenue in 2025, up 19% on an organic basis, with margins in the second half approaching 19%.
Civil aerospace, the group’s largest division, reported 15% growth as long-haul flying hours climbed above pre-pandemic levels.
Large engine flying hours reached 111% of 2019 levels by year-end, supporting aftermarket revenues under long-term service agreements.
Defence revenue rose 8%, and the company now expects its government business to grow at a compound annual rate of about 20% over the medium term, reflecting higher military spending among NATO members.
Rolls-Royce also updated progress on improving engine durability, a key issue for airline customers.
The company raised its time-on-wing improvement target for its Trent engine programme to more than 100% by the end of next year, up from 80%.
It's understood more than half of that improvement has already been delivered, driven by life-extension work on the Trent XWB-84, which powers the Airbus A350-900.
Enhanced blades for the Trent 1000 and Trent 7000 engines, used on the Boeing 787 Dreamliner and Airbus A330neo, respectively, are being introduced into new and in-service engines this year.
Beyond wide-body aircraft, Erginbilgic confirmed the company is studying a return to the narrow-body market, where it has not competed for more than a decade.
Aircraft manufacturers have faced engine shortages, with CEO at the aerospace corporation Airbus SE, Guillaume Faury, recently acknowledging supply constraints affecting deliveries.
Rolls-Royce’s potential re-entry would coincide with the development of its UltraFan demonstrator, designed to improve fuel efficiency and reduce emissions.
The UltraFan project has also opened a debate in the UK over state support.
Rolls-Royce has indicated it would welcome government funding to help develop the engine, arguing that rival manufacturers receive significant backing overseas and that most of the programme’s output would be exported.
The company has suggested production could shift abroad without competitive support, a prospect likely to intensify discussions in Westminster over industrial policy and advanced manufacturing.
For now, investors are focused on cash generation.
After relying on emergency financing during the pandemic, Rolls-Royce is committing to multibillion-pound shareholder returns while funding expansion across civil aerospace, defence and power systems.
With margins rising and balance sheet pressure easing, the group’s recovery has moved into a new phase defined less by survival and more by capital allocation and strategic reach.
