WASHINGTON — The Pentagon is investing $1 billion into L3Harris’s solid rocket motors business, which the company intends to spin off as a separate, publicly held company later this year.
The agreement, announced today, allows the Defense Department to take a direct ownership stake in L3Harris’s Missile Solutions business, with an initial public offering (IPO) of that division planned in the second half of 2026.
“We are not just writing a check that we hope will add capacity in the industrial base,” Michael Duffey, the department’s top acquisition and sustainment official, said during a roundtable with reporters. “This equity position allows the American people to share in its future success.”
L3Harris will remain the majority shareholder of the Missile Solutions company after it is spun off, company CEO Chris Kubasik said.
“The Department of War will not be on the board of directors or involved with managing this company. It’s purely an economic investment,” Kubasik said.
The move is the first of what the Pentagon is calling its “direct-to-supplier” initiative, and would allow it to negotiate multi-year procurement framework agreements for solid rocket motors and provide upfront investments to modernize facilities and ramp up production, the department stated in a news release.
Money for the investment will come from the department’s Industrial Base Analysis and Sustainment fund. Duffey said he felt “confident” that the department has the funding and authority needed to close the deal, but that congressional approval and appropriations would be needed to scale munitions production.
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“We do intend to pursue additional avenues of creating competition in solid rocket motor base … and we will be pursuing that,” he said. “But as I said earlier, L3Harris is a proven supplier of this capability. And because our absolute mandate here is speed, we needed to find a way to maximize production capacity in this absolutely essential component of the munitions industrial base as quickly as possible, and this deal provided that opportunity for us.”
As the demand for munitions skyrocketed after the 2022 invasion of Ukraine, the solid rocket motor industry has struggled to keep up. Consolidation of the defense industrial base during the 1990s and 2000s left the Pentagon with only two domestic suppliers — L3Harris and Northrop Grumman —and despite a wave of up-and-coming providers like Anduril and Ursa Major, the sector still routinely struggles with long lead times and supply chain challenges, as Breaking Defense described in an in-depth report Monday.
READ: With the boom for solid rocket motors for missiles, a perilous crunch in the supply chain
Asked whether the ownership stake in L3Harris’s missile division could disadvantage other solid rocket motor providers, Duffey said the ability to provide a return to the taxpayer was the driving force in the deal.
“We’ve had a pattern within the defense industry of writing checks from the Department of War on behalf of the taxpayer to expand the industrial base with no promise of return,” he said. “This is a direct change to that.”
Kubasik added that “multiple outsiders and law firms” had reviewed the deal and that he was confident that future competitions held by the department would continue to be open and transparent.
In response to the announcement, shares in L3Harris jumped by about 10 percent in premarket trading.
“LHX’s move is innovative and shareholder friendly, while also likely to satisfy the DoD’s desire for US defense contractors to make more stuff quicker,” Robert Stallard, an analyst with Vertical Research Partners, wrote in a note to investors, using L3Harris’s stock ticker designation.
Today’s agreement follows on the heels of a major deal between the Pentagon and Lockheed Martin, announced last week, to more than triple PAC-3 missile production over the next seven years.