LONDON (Reuters) – Rolls-Royce will seek to increase its margin in the civil aerospace sector to between 15% and 17% from 2.5% last year, the engineering group’s chief executive said on Tuesday , Tufan Erginbilgic, in a presentation on strategy.

The group, which notably manufactures aircraft engines, intends to achieve an annual operating profit of 2.8 billion pounds (3.23 billion euros) in the medium term, compared to a forecast of 1.4 billion for this year.

Tufan Erginbilgic, a former head of oil giant BP who took office in January, is the latest boss to try to remedy Rolls-Royce’s lack of profitability.

It seeks to achieve a radical change in margins by 2027 in the sector of engines equipping almost half of long-haul aircraft.

Rolls-Royce shares, which have climbed 161% since the start of the year, gained more than 6% on the London Stock Exchange.

The new margin target would bring Rolls closer to rivals, such as General Electric, its main competitor in the wide-body sector.

“We are setting compelling and achievable medium-term financial targets that will enable Rolls-Royce to significantly exceed its previous financial performance,” Tufan Erginbilgic said on Tuesday.

For Nick Cunnigham, analyst at Agency Partners, this announcement implies that the group is ready to reduce its revenues in exchange for better profitability.

“If so, this is a profound cultural shift from Rolls-Royce’s traditional approach to market share optimization over the past decades,” he said.

The company, which also owns defense and power systems units, has announced a group-wide divestment programme, targeting up to £1.5 billion over the next five years, to focus capital on the essential parts of its activity.

Rolls-Royce powers Airbus’ A330neo and A350 aircraft, and its engines are one of two options for Boeing’s 787.

The group’s finances have been hit by problems with its Trent 1000 engine and by the pandemic, which grounded long-haul planes and reduced Rolls-Royce’s revenue from engine flying hours to zero.

Since the arrival of Tufan Erginbilgic at the head of the group, Rolls Royce has experienced a rapid recovery. First-half operating profit increased five-fold, driven by increased engine maintenance prices and rigorous cost base management.

Tufan Erginbilgic said Rolls-Royce was well placed to return to the narrow-body aircraft market by joining the upcoming new engine program, with its next-generation UltraFan technology a key step.

(Reporting Paul Sandle and Sarah Young; Gaëlle Sheehan, edited by Blandine Hénault)

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