Municipal sources said buyout companies including KKR, Blackstone and Carlyle had discussions about buying ITP Aero, which is based in Spain and manufactures engine parts for jets, helicopters and ships.
Rolls is said to be looking for a quick sale of the division after the collapse of an attempt last year to sell a stake to Spanish tech group Indra Sistemas. He reportedly valued ITP Aero at € 1.5 billion (£ 1.4 billion).
If accepted, a private equity sale could now be offered at a much lower price, reflecting the aerospace crisis. However, sources said Rolls is considering wrapping other parts of its jet engine business with ITP Aero to raise the price.
Warren East, chief executive of Rolls-Royce, said he was “considering all options” to raise funds after cutting 9,000 jobs, including 3,000 in the UK.
Lazard’s bankers are advising Rolls on its options, while Goldman Sachs is leading the potential sale of ITP Aero. Before the pandemic, Rolls depended on long-haul air travel for nearly half of its £ 15 billion in annual revenue.
Aviation is not expected to return to pre-Covid levels for five years, with the long-haul sector expected to be the last to recover.
To overcome the crisis, Rolls has so far raised £ 3.9bn, including taxpayer support in the form of guarantees from UK Export Finance and £ 300m from the Covid Business Finance Facility from the Bank of England.
However, the company burned £ 3bn in cash in the first half of the year and its shares fell by more than half to a market valuation of just £ 5.2bn. JP Morgan analysts predict Rolls will post a loss of £ 4.3 billion this year. The broker also said Rolls is due to raise £ 6bn.
Rolls is one of the companies being watched by Project Birch, a Treasury task force set up to save Britain’s biggest companies.
The government already owns a “preferred share” in Rolls, which prevents any foreign investor from owning more than 15% and limits foreign ownership to 25% in total.
ITP Aero was established as a joint venture between Rolls and the Spanish Sener in 1989 and played a key role in the development of the Eurofighter Typhoon engine. Rolls took full control four years ago, paying 720 million euros for the 53 parts it did not own.
A sale to private equity would be one of the biggest corporate deals in the pandemic to date.