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Rolls-Royce Beats Raytheon to $2.6B B-52 Engine Pact With U.S. Air Force

British engineering group Rolls-Royce will make new engines for the USAF's B-52 Stratofortress bomber at its U.S. manufacturing base in Indianapolis.

Rolls-Royce  (RYCEY)  shares jumped to a three-month high Monday after the British engineering group beat out rival Pratt & Whitney to win a $2.6 billion contract with the U.S. Air Force. 

Rolls-Royce will make F-130 engines for the USAF's B-52 Stratofortress bomber that it says will have "vastly greater fuel efficiency" than the current models, which have been made by Raytheon's  (RTX) - Get Raytheon Technologies Corp Report Pratt & Whitney since the 1960s. 

The new contract, worth $500 million, could rise to $2.6 billion under certain incentives, and could last for as much as 30 years. They'll be built in Rolls-Royce's manufacturing facility in Indianapolis, Indiana. 

In a separate statement Monday, Rolls-Royce also said it reached a deal to sell its Spain-based ITP Aero unit to private equity group Bain Capital for around $2.3 billion.

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"We are proud to join a truly iconic U.S. Air Force program and provide world-class, American-made engines that will power its missions for the next 30 years. The F130 is a proven, efficient, modern engine that is the perfect fit for the B-52," said Rolls-Royce CEO Tom Bell. 

"Rolls-Royce is deeply appreciative of the strong support we have received from partners at the federal, state and city level," he added. "Thank you for all you've done to support our bid. This is a truly great day for Rolls-Royce, the State of Indiana, City of Indianapolis and the future of the B-52 program."

Rolls-Royce's London-listed shares were marked 9.8% higher in mid-day trading to change hands at $145.5 pence each, extending their year-to-date gain to around 31%.

Raytheon shares, meanwhile, edged 0.3% higher in pre-market trading Monday to indicate an opening bell price of $87.43 each.

Pratt & Whitney generated $4.3 billion in second quarter sales for Raytheon, a 19% improvement on last year, thanks in part to the global post-pandemic recovery in commercial aircraft demand. Military sales in the division, however, fell 3%, and Raytheon's full-year forecast for its operating profits sits in the range of -$50 million to +25 million.