Concorde successor Reaction Engines scrambles to avert collapse

A British hypersonic aviation campaign which has been hailed as a successor to Concorde is this weekend racing to avert collapse.

Sky News has learnt that Reaction Engines has lined up PricewaterhouseCoopers (PwC), the accountancy firm, to act as administrator if its quest to secure new funding is unsuccessful.

The company is understood to be in detailed talks with the UAE state-backed Strategic Development Fund (SDF), one of its existing shareholders, about an injection of new capital.

A number of Reaction Engines’ other investors are also said to be considering whether to assist with new funding for a company which has previously raised £150m and is now said to require tens of millions of pounds more within weeks.

One source said on Saturday: “They are running out of time.”

PwC is understood to have been placed on standby to oversee an insolvency of Reaction Engines if the financing discussions fail.

The company’s existing investors include BAE Systems and Rolls-Royce, the FTSE-100 defence and aerospace companies.

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It was unclear whether they would be willing to commit new money to ensure Reaction Engines’ survival.

Founded in 1989, Reaction Engines is chaired by Philip Dunne, a former defence minister.

A specialist in developing advanced propulsion systems, the company is developing a new type of engine aimed at powering aircraft to Mach 25 – or 19,000 miles per hour – outside the Earth’s atmosphere.

This week, Sky News revealed that Artemis, the fund manager, was slashing the value of its 2.3% stake in Reaction Engines by 75% amid concerns about its future and its commercial income.

A statement on Friday from Artemis echoed one issued the previous day by Schroders Capital Global Innovation Trust, which said it had decided to cut the value of its holding from £10.6m to £1.4m.

That revalued the entirety of Reaction Engines, whose shareholders also include the FTSE-100 companies BAE Systems and Rolls-Royce Holdings, at just £34m – wiping £200m off its overall valuation.

Other fund managers, including Baillie Gifford, are said to be keeping Reaction Engines’ valuation under review.

One asset management source said this week that they continued to have conviction about the potential of the company’s technology and said a successful and substantial fundraising could encourage upward revisions to Reaction Engines’ valuation.

Sky News revealed last month that the Oxfordshire-based company had appointed Silverpeak, an advisory firm, to oversee a new fundraising.

According to recent updates to shareholders, it grew its commercial revenues by more than 400% last year and is understood to have a strong pipeline of contract and R&D opportunities.

One industry source said the application of Reaction Engines’ cooling technology across a range of existing and in-development military aircraft had the potential to unlock significant short-term and long-term revenues for the company.

They added that the company had also seen interest in its technology for use in hydrogen and battery powered zero-emission commercial flight technologies.

In January last year, Reaction Engines announced that it had raised £40m of additional equity, taking the total sum it had banked from investors to roughly £150m.

Reaction Engines’ ability to attract interest and funding from some of the world’s biggest aerospace companies underlined the excitement it has galvanised among both strategic and financial investors.

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However, it remains lossmaking and earlier in the summer Mr Dunne said its financial performance last year had “not been in line with our forecasts”.

Warning that Reaction Engines would also be lossmaking this year, he added: “Although the company has a successful track record of raising capital it is clear market conditions are tougher than when we last raised new equity in 2022.”

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If it does secure new funding it would be at a steep discount to the last valuation at which it raised and more closely aligned to the pre-money valuation cited this week by fund managers, according to an insider.

In January last year, it announced that it had raised £40m of additional equity, taking the total sum it had banked from investors to roughly £150m.

Mr Dunne added in his update to shareholders that the company’s workforce had been cut earlier this year, with its leadership structure simplified.

This weekend, Reaction Engines declined to comment, while PwC also declined to comment.

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