Rolls-Royce lifts profit forecast to £4.9bn as defence spending surges

Rolls-Royce and BAE Systems raised their profit forecasts on July 30, 2026, citing increased global defense spending. Rolls-Royce shares climbed 5.5% in morning trading on the London Stock Exchange, making it the top riser in the FTSE 100 index.

The upgraded guidance affects shareholders and customers of both companies, as well as governments and defense contractors worldwide. Rolls-Royce now expects underlying operating profit of £4.7 billion to £4.9 billion for the year, up from a previous range of £4 billion to £4.2 billion. Its free cash flow forecast rose to £3.8 billion to £4 billion, from £3.6 billion to £3.8 billion. BAE Systems anticipates earnings growth of 10% to 12%, slightly above its earlier estimate of 9% to 11%.

The revisions reflect sustained increases in defense budgets since Russia’s full-scale invasion of Ukraine in 2022, according to the companies. Rolls-Royce also cited growing demand from AI datacenters for its power generation unit and a recovery in long-haul flights boosting its civil aerospace engine revenues. BAE pointed to a volatile global threat picture and rising government commitments.

Rolls-Royce highlighted contracts linked to recent NATO summit commitments, including the Saab GlobalEye airborne early warning system and the MQ-4C Triton high-altitude surveillance system, both using its engines. BAE referenced a deal to supply Turkey with training and support for 20 Typhoon aircraft, a US contract to quadruple production of the infrared seeker for the THAAD interceptor missile, and a £5.9 billion contract with the British government for the HMS Dreadnought nuclear deterrent submarine.

Rolls-Royce CEO Tufan Erginbilgiç, who took over in 2023, said the company’s transformation is delivering results, noting operational and strategic progress in the first half of the year. BAE CEO Charles Woodburn stated that the combination of proven execution, a diverse geographic footprint, and continued investment positions the company for long-term growth.

The upgrades signal confidence that elevated defense expenditure will persist, with both firms citing healthy order backlogs and expanding market opportunities.