Concorde successor Reaction Engines in Whitehall talks over rescue deal

A British hypersonic aviation pioneer has opened talks with the government about a rescue deal that will see a Gulf-based state fund emerging as its single-biggest shareholder.

Sky News has learnt that Reaction Engines has held discussions this week with Whitehall officials about the implications of a capital injection to be led by the Strategic Development Fund (SDF), the investment arm of the UAE's Tawazun Council.

The talks have been necessitated by the sensitive defence and security implications of Reaction Engines' advanced aviation cooling technology, and come as the company races to avert collapse.

The outline of a deal led by SDF has been under negotiation for several weeks, with Reaction requiring new funding later this month, according to insiders.

Once an agreement is reached with investors, it will require formal clearance under the National Security and Investment Act, they added.

Reaction Engines is trying to secure a £20m lifeline amid mounting losses caused in part by slower-than-expected revenue growth.

Last month, Sky News revealed that the company is negotiating a two-part financing that will include leading shareholders extending loans to the company before providing a further equity injection.

Dubbed a successor to Concorde, the supersonic passenger jet which disappeared from service more than 20 years ago, Reaction Engines is developing engine technology aimed at powering aircraft to Mach 25 - or 19,000 miles per hour - outside the Earth's atmosphere.

Sources said that Rolls-Royce Holdings, the FTSE-100 aerospace group, would not inject new funding into the company, although BAE Systems, another of Reaction Engines' existing investors, could commit a small sum.

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Both London-listed companies could agree to defer or cancel sums they are owed by Reaction Engines as part of the rescue package.

PricewaterhouseCoopers (PwC), the accountancy firm, has been put on standby to act as administrator if the quest for new funding fails.

A number of City investors have in the last two months slashed the value of their stakes in the business amid doubts about its survival.

According to its most recent update 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.

Founded in 1989, the company is chaired by Philip Dunne, a former defence minister.

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.

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

Reaction Engines declined to comment.