L3Harris to spin off its rocket motor business with the Pentagon as an anchor investor

Updated: 3:13 p.m. ET.

L3Harris Technologies’ plan to create a new publicly traded solid-rocket-motor company in the second half of this year includes the U.S. government, which will become a significant stockholder in that post-IPO entity.

Their transaction announced Tuesday has multiple moving parts to it, starting with the Defense Department’s agreement to invest $1 billion in L3Harris’ rocket motor business. That stake is initially starting as a convertible preferred security, which will then automatically switch to common equity upon the IPO.

DOD and L3Harris are touting this pact as a starting point for negotiating future multi-year procurement framework agreements for solid rocket motors, pending congressional authorization and appropriations.

 “We are fundamentally shifting our approach to securing our munitions supply chain,” Michael Duffey, defense undersecretary for acquisition and sustainment, said in a DOD release. “By investing directly in suppliers, we are building the resilient industrial ⁠base needed for the Arsenal of Freedom.”

For DOD, this is the first direct-to-supplier partnership of this kind and stems from both the department’s acquisition transformation strategy and its “Go Direct-to-Supplier” initiative. The department is pushing to more directly negotiate with and invest in suppliers of key products such as motors, munitions and others that are part of larger systems.

Recall as well that the U.S. government owns a 10% stake in chipmaker Intel and is investing in several mineral suppliers.

Capital Alpha analyst Byron Callan has questions about the deal, including: Why is public money flowing to L3Harris, not other missile/rocket suppliers, including Anduril, Northrop Grumman, and Ursa Major? Why not to Lockheed Martin or RTX, the primary buyers of rocket motors? And: “If a return to taxpayers via DoD is to be realized from this deal, how will conflicts of interest be avoided?”

And what does L3Harris get out of this arrangement?

During a conference call with investors Tuesday, L3Harris’ chief executive Chris Kubasik said the company is staying in place as majority owner and controller of the business it calls Missile Solutions.

“They have no board seats, they have no influence with management or the day-to-day operations, it's just an economic investment,” Kubasik said.

Missile Solutions employs roughly 7,000 employees and posted $3.6 billion-to-$3.8 billion in revenue during 2025, according to an investor presentation. Missile Solutions also makes the RS-25 engine used by NASA for deep space missions.

The IPO plan has Missile Solutions’ leadership team remaining in place including its president Ken Bedingfield, who works in that role alongside his chief financial officer duties.

Then there is the go-forward plan for Missile Solutions as it takes in this investment and prepares to become a public company. Bedingfield told investors that Missile Solutions has been in the process of changing how it makes rocket motors over multiple years.

Historically, much of that manufacturing activity has taken place on a very program-specific model. Bedingfield said the unit is transitioning to a new approach of “more common production across motors” from new facilities it is constructing.

“We'll be able to reconfigure. We'll be able to put new motors to Monday or Tuesday, be pouring and casting for one program, and Wednesday and Thursday for another,” Bedingfield said. “We think it enables us to not only produce for the current demand and current programs, but have that flexibility to be able to surge across programs or bring in new as we see dynamics change.”

As L3Harris sees things, that transition also requires a different approach for investing in the business to align with the demand landscape. Kubasik said “we need billions of dollars” in order to accomplish that, which led the company to view the public markets and DOD becoming an anchor investor as a “creative solution.”

The government’s new equity position does mean it will have an ownership stake in a business, and soon-to-be company, that bids on contracts. Kubasik said “there will be competition, and it will be fair in arm’s length.”

In 2023, L3Harris acquired the solid rocket motor maker Aerojet Rocketdyne as a way to enter the munitions market and get more visibility into supply chains. Aerojet and the legacy Orbital ATK business, which Northrop Grumman acquired in 2017, have long been the two dominant suppliers of solid rocket motors to the U.S. military and other defense hardware companies.

Several other largely venture-backed startups have emerged in the landscape this decade with the goal of breaking up that duopoly.

L3Harris is in the process of selling a majority stake in the Aerojet space propulsion and power systems business to AE Industrial Partners, which plans to revive the Rocketdyne name after that transaction’s closure.

Kubasik views the Missile Solutions IPO and space propulsion business divestiture as potentially starting a deconsolidation of the defense industry, which would reverse course from the consolidation that began in the 1990s.

“The best thing for the nation is we have more prime companies and public companies in the defense industrial base to move faster and provide more competition, which is good for the Department of War, good for the taxpayers, and I believe ultimately good for the shareholders,” Kubasik said.

JP Morgan Securities is acting as financial adviser to L3Harris on the transaction with DOD, while Vinson & Elkins LLP is the company's legal adviser.