UK Stocks: Rolls-Royce (RR) and Airbus Explore Narrow-Body Engine Deal

FTSE 100-listed Rolls Royce Holdings PLC (GB:RR) is exploring partnership options with European aircraft manufacturer Airbus SE (EADSY) (FR:AIR) over the potential use of RR’s latest turbine in Airbus’ upcoming narrow-body aircraft. This partnership could mark a significant advancement for Rolls-Royce. RR stock was trading down by 1.14% as of writing, while Airbus shares fell 0.77%. Rolls-Royce is a British company that designs engines and power systems for the aerospace and defence industries. Meanwhile, Airbus is a leading manufacturer of commercial aircraft and military equipment. Rolls-Royce and Airbus’ Potential Deal According to the Wall Street Journal, Christian Scherer, head of Airbus’ commercial aircraft division, revealed that the company is considering incorporating Rolls-Royce’s latest engine technology into the successor of its popular A320neo aircraft family. The Airbus A320 model is a successful aircraft in the single-aisle category worldwide, with the next generation expected to launch in the late 2030s. The A320 model competes directly with Boeing’s (BA) 737 MAX, the fourth generation of Boeing’s narrow-body airliner 737 series. Scherer further mentioned that Airbus currently uses two types of engines for its A320, but its next-generation aircraft might have three options, including Rolls-Royce’s new UltraFan technology. Beginning of a New Era for Rolls-Royce Rolls-Royce’s current range of engines is widely used in larger wide-body jets. The company has long aimed to expand its offerings. Therefore, securing a role in Airbus’ upcoming narrow-body jet program would be a huge achievement for the company. Overall, narrow-body aircraft dominate the global civil aircraft market, further highlighting the scope of this opportunity for Rolls-Royce. Earlier this month, Rolls-Royce conducted ground tests of its UltraFan engine and achieved favourable results. The company’s CEO, Tufan Erginbilgic, stated that RR has begun developing a smaller-scale demonstrator for the UltraFan engine, tailored specifically for next-generation single-aisle aircraft. Rolls-Royce will release its first-half results for 2024 on August 1. In its first trading update for 2024 in May, the company maintained its full-year forecast, citing robust operating profits and cash growth. Is Rolls-Royce a Good Stock? Overall, analysts are bullish on RR stock, driven by its strong financials, successful transformation efforts, and solid future prospects. According to TipRanks, RR stock has received a Strong Buy rating based on unanimous Buy recommendations from nine analysts. The Rolls-Royce share price forecast is 544.24p, which is 20.6% higher than the current trading level. See more RR analyst ratings. Disclosure