In this paper, we address the thermal management issues which limit the lifespan, specific power and overall efficiency of an air-cooled rotary Wankel engine used in Unmanned Air Vehicles (UAVs). Our goal is to eliminate the hot spots and reduce the temperature gradients in the engine housing and side plates by aggressive heat spreading using heat pipes. We demonstrate by simulation that, for a specific power requirement, with heat spreading and more effective heat dissipation, thermal stress and distortion can be significantly reduced, even with air cooling. The maximum temperature drop was substantial, from 231°C to 129°C. The temperature difference (measure of temperature uniformity) decreased by 8.8 times (from 159°C to 18°C) for a typical UAV engine. Our heat spreaders would not change the frontal area of the engine and should have a negligible impact on the installed weight of the propulsion assembly. We expect our approach could lead to a very significant reduction in thermal stress-induced warping which is primarily responsible for wear and high friction. With reduced friction and wear, the thermal efficiency of the rotary engine is increased, and the durability of the engine would be improved very significantly at the same time. Under proper thermal management, the Wankel engine could be run at a higher rpm to yield a higher specific power. Rotary engines represent a huge emerging market for aerospace as well as a myriad of commercial applications if key issues related to life, combustion efficiency, power density and specific fuel consumption can be improved.