Britain backs Rolls-Royce with £2.5 billion deal for new jet engine

LONDON, Oct 28 (Reuters) - Rolls-Royce has agreed a framework deal for £2.5 billion ($3.3 billion) in government support to develop a new engine for narrowbody jets, paving the way for the British company to return to the biggest segment of the civil aerospace market.

Finance Minister John Healey announced the deal in his budget speech on Wednesday, saying the multi-decade programme would help develop engine technology for next-generation narrowbody aircraft and defence applications, supporting 3,300 jobs.

CFM International, a joint venture between GE Aerospace and Safran, and Pratt & Whitney dominate the market for engines powering the Airbus A320 and Boeing 737 families.

Rolls-Royce has developed UltraFan technology as part of its efforts to re-enter the market. Chief Executive Tufan Erginbilgic said in July that he would prefer British backing, although other countries were also interested.

Erginbilgic called Wednesday's agreement a "landmark moment for the UK's aerospace industry".

The government said funding would be subject to legal, value-for-money, affordability and approval processes.

Rolls-Royce has been shut out of the narrowbody market since selling its stake in the International Aero Engines consortium to Pratt & Whitney in 2012.

Erginbilgic has led a turnaround since becoming CEO in 2023, bringing in new management, improving efficiency and renegotiating long-term contracts with airline customers.

The company expects underlying operating profit of up to £4.9 billion this year, having reported a loss in 2021.

($1 = 0.7527 pounds)

(Reporting by Paul Sandle; Editing by Toby Chopra)