Rolls-Royce’s transformation program is accelerating as the British Aerospace Group has been hit hard by the pandemic and problems with its Trent 1000 engines.

One of the company’s latest pledges is to add £2 billion in operating profit by 2027, which is estimated to be four times the £0.65 billion it announced in 2022. But this method seems more reliable than previous attempts.

The project hinges on Rolls-Royce’s aviation and aerospace division, the largest of its three divisions by revenue, as it accounts for 45% of the group’s total revenue of £12.7 billion in 2022, while the defense and power generation divisions make up the rest, but civil aviation within the company The segment achieves operating margins of only 2.5% by 2022. The plan aims to increase this percentage to 15-17%. Projected increase in earnings before interest and taxes.

It seems possible. According to Nick Cunningham of Agency Partners, competitors such as Safran and General Electric have an 18 percent share of the sector. However, unlike Rolls-Royce, they benefit from making more margin engines for narrow body aircraft.

One reason for Rolls-Royce’s narrow margin is that it has priced its new engines higher as it tries to build market share in the wide-body aircraft sector. This happens when the company’s profits come from service and maintenance contracts.

A more rational approach is required. Rolls-Royce has achieved a fair amount of expansion; So they have to reduce the discount. At the same time, older aircraft fleets will require more servicing and maintenance, which will improve their revenue diversification.

Rolls-Royce has also indicated it wants to cut costs by between £400m and £500m and cut 2,500 jobs. Investors may view this with skepticism, as previous attempts to rein in the sprawling legacy of an expanding business have proven short-lived.

A positive factor is that new CEO Tufan Ergin Bilgic is strict. Also, the company had recently experienced a death, which allowed it to make the necessary cultural change.

Investors have increased the value of the stock by 80% in the past six months, hoping that Ergin Bilgic will be able to implement his plan. However, the group still trades at a discount of up to a quarter to rival Saffron based on 2025 earnings. If Ergin Bilgic achieves his goals, Rolls-Royce could fill the gap.