WASHINGTON — The Pentagon on Jan. 13 said it will become an “anchor investor” in L3Harris Technologies’ missile business, committing $1 billion to expand U.S. capacity to produce solid rocket motors that power U.S. and allied missile systems.
Under the agreement, the Defense Department will invest $1 billion in a convertible security tied to L3Harris’ Missile Solutions business, which includes solid rocket motors. The investment would convert into equity only if L3Harris carries out a planned initial public offering of the missile unit, which the company said it intends to pursue in the second half of 2026.
The arrangement marks one of the most interventionist steps the U.S. government has taken in the defense industrial sector.
The Pentagon said the agreement is a “direct outcome of the Department of War’s acquisition transformation strategy to negotiate and invest in companies throughout the supply chain, securing better deals for taxpayers.” Officials described it as the first direct-to-supplier partnership of its kind, structured as a $1 billion convertible preferred equity investment.
The deal follows a broader reorganization at L3Harris after its 2023 acquisition of Aerojet Rocketdyne, long one of the two dominant U.S. suppliers of solid rocket motors alongside Northrop Grumman. L3Harris recently agreed to sell a majority stake in its commercial space propulsion business to private equity firm AE Industrial Partners, framing the move as a shift toward a sharper focus on defense.
As part of that transition, the company reduced its operating structure from four business segments to three: Space & Mission Systems; Communications & Spectrum Dominance; and Missile Solutions. Missile Solutions now houses the former Aerojet Rocketdyne assets that for decades supplied solid rocket motors to the U.S. government.
Kubasik: Pentagon will not run the company
Christopher Kubasik, chairman and chief executive of L3Harris, told analysts that the company would retain a controlling interest in the Missile Solutions business and that the government would not run the company. The unit will be led by Ken Bedingfield.
Kubasik said L3Harris executives worked with Pentagon officials for several months to structure the agreement, concluding the company would need at least $1 billion to modernize and scale solid rocket motor production to levels sought by the Defense Department.
The company determined that such an investment would be difficult to fund through internal cash flow alone. “Access into public markets and having the Department of War as our anchor investor made a lot of sense,” Kubasik said.
Solid rocket motors, or SRMs, are propulsion units used in many U.S. weapons systems, including tactical missiles, missile-defense interceptors, hypersonic weapons and some space launch boosters. Unlike liquid-fueled engines, SRMs use a solid propellant sealed inside a casing and deliver high thrust immediately once ignited, making them well suited for weapons that must remain stored for long periods and launch with little warning.
Demand for SRMs has surged as the United States replenishes stocks sent to Ukraine, sustains military operations in the Middle East and accelerates production of new missile and hypersonic systems aimed at deterring China and Russia. At the same time, manufacturing remains capital-intensive and highly concentrated, with long qualification timelines and hazardous production processes that defense officials have described as “fragile” and “constrained.”
To address those constraints, the Pentagon has increasingly relied on tools such as the Defense Production Act and unconventional financing structures to expand capacity and stabilize supply chains. The L3Harris agreement represents a significant escalation of that approach.
Under the partnership, L3Harris and the government plan to negotiate multi-year procurement agreements for solid rocket motors, subject to congressional appropriations. The Pentagon said a future IPO would give the U.S. government an opportunity to “benefit from this unique investment framework.”
Focus on munitions supply chain
“We are fundamentally shifting our approach to securing our munitions supply chain,” said Michael Duffey, undersecretary of defense for acquisition and sustainment.
If an IPO takes place, Kubasik said L3Harris will maintain control of the spun-out company. Bedingfield said Missile Solutions employs more than 7,000 people across 11 states and combines propulsion, precision, maneuvering, advanced effects, seekers and launch technologies.
Pentagon funding will be used to expand factories in Camden, Arkansas; Orange, Virginia; Huntsville, Alabama; and Canoga Park, California. The Camden site will focus on medium and large motors for high-end missiles and interceptors.
Kubasik said the government’s role would be limited to a financial stake. “They have no board seat. They have no influence with management or the day to day operations. It’s just an economic investment,” he said.
He said the agreement aligns with broader industrial policy signals from President Donald Trump, who has argued the U.S. government should take a more direct role in investing in strategic domestic industries where supply chains are concentrated or difficult to scale.
Kubasik also said the structure protects shareholders. “We talked about $3 billion of free cash flow in 2026 for L3Harris shareholders. I think taking a third or half of that and investing in Aerojet Rocketdyne capex would not be viewed positively by our existing shareholder base,” he said.
Responding to analyst questions, Kubasik rejected concerns that demand for solid rocket motors could prove temporary. He pointed to new congressional authorities allowing multi-year contracts of up to seven years. “In the past, it was year to year,” he said. “There is not only a demand signal, there is language in the NDAA that permits multi year contracts.”
The planned missile business IPO could also mark the start of a gradual deconsolidation of a sector shaped by decades of mergers. L3Harris itself is the product of multiple legacy defense companies brought together over time.
New entrants such as Anduril Industries, X-Bow and Ursa Major have sought to challenge the two dominant SRM suppliers, but have not commented publicly on the L3Harris deal. Some competitors may view the arrangement as the Pentagon reinforcing an incumbent’s position rather than leveling the field, particularly if government-backed capacity influences future missile program awards.
