Shares in Rolls-Royce, which sells turbines and engines for passenger jets and military aircraft, increased more than 10% Monday after the U.K.-listed company signed a valuable U.S. military engine deal and agreed to a landmark disposal.
The London-based company said it had been selected to provide engines to the U.S. Air Force. The deal, worth up to $2.6 billion, will mean the American-made Rolls-Royce F-130 engine will power the B-52 Stratofortress for the next 30 years.
The shares ended up £14.98 ($20.53) at £147.48.
(RR.LON) will build and test the F-130 engines at its Indianapolis facility following the recent completion of a $600 million investment in the campus.
Tom Bell, chairman and CEO of Rolls-Royce North America, said: “The F-130 is a proven, efficient, modern engine that is the perfect fit for the B-52.”
Howard Wheeldon, an analyst at Wheeldon Strategic Advisory, wrote in a note: “With eight engines on each B-52 aircraft, 58 in active operational service plus an additional 18 held in reserve and 12 in long-term storage, re-engining the B-52 Stratofortress is a very big deal to win.”
The engineering giant has had a tough three years. Shares have dropped 60.52% because of challenges resolving problems with the company’s Trent 1000 engine and the impact of coronavirus.
The engineering group makes a significant portion of earnings from maintenance contracts for its engines, and if aircraft are grounded regular maintenance isn’t needed, reducing earnings. Things are now improving as air travel rebounds — the stock increased 157% over the past 12 months.
In a separate announcement, Rolls-Royce said it was selling 100% of Spanish unit ITP Aero for approximately €1.7bn ($2 billion) to a consortium led by Bain Capital Private Equity, hitting a strategic £2 billion target for disposals that had been set in August last year.
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