Rolls-Royce Launches £9B Buyback

The comeback is led by CEO Tufan Erginbilgic, who took the helm in early 2023 and initiated a sweeping transformation plan. His strategy focused on aggressive cost-cutting, exiting loss-making contracts, and improving commercial terms with airline customers, leading to the company's best stock performance in three decades. This buyback is backed by a significant financial outperformance in 2025, where underlying operating profit surged 41% to £3.46 billion, and free cash flow climbed to £3.27 billion. Pretax profit more than tripled to £6.94 billion from £2.23 billion the previous year. The growth is firing on multiple cylinders. The Civil Aerospace division saw its operating margin climb to 20.5%, driven by a strong aftermarket for large engines. Meanwhile, the Power Systems unit's operating margin jumped to 17.4% from 13.1%, propelled by a surge in demand for generators for data centers powering AI. A key metric, large-engine flying hours (EFH), has surpassed pre-pandemic levels, reaching 109% of 2019's figures by late 2025. This metric is crucial as a significant portion of Rolls-Royce's civil aerospace revenue comes from long-term service agreements tied to usage. Buoyed by these results, management has sharply upgraded its mid-term targets. By 2028, it now anticipates underlying operating profit between £4.9 billion and £5.2 billion, a substantial increase from its previous forecast of £3.6 billion to £3.9 billion. The capital return plan is among the largest in recent UK corporate history, with plans to complete £2.5 billion of the buyback in 2026 alone. This move signals a strategic shift from balance sheet repair to substantial shareholder returns. Following the announcements, the company's shares soared to a record high, pushing its market valuation to approximately $157 billion. The stock now trades at a significant premium, with a forward P/E ratio far exceeding its historical average, reflecting high investor expectations for continued growth.