The Defense Department on Tuesday announced it has agreed to invest $1 billion in L3Harris Technologies’ solid rocket motor production in a first-of-its-kind deal.
L3Harris will spin off its Missile Solutions business into a separate company as part of the direct-to-supplier partnership, the company and the Pentagon said in their respective statements announcing the signing of a letter of intent on the deal.
The Pentagon said its investment will support Missile Solutions’ — a division formed after the company’s 2023 acquisition of Aerojet Rocketdyne — effort to expand capacity on critical missile programs such as the Army’s PAC-3, or Patriot Advanced Capability, and THAAD, or Terminal High Altitude Area Defense system, and the Navy’s Tomahawk and Standard Missile.
The investment will provide up-front cash and stability that the new L3Harris spinoff will need to increase its solid rocket motor production, modernize its facilities and improve industrial resilience, the Pentagon said. And the department said this partnership will allow it and L3Harris to negotiate multiyear procurement framework agreements.
The Pentagon said this new approach is part of Defense Secretary Pete Hegseth’s new acquisition transformation strategy, which calls for negotiating and investing directly with critical suppliers to save money and time.
“We are fundamentally shifting our approach to securing our munitions supply chain,” Michael Duffey, undersecretary of defense for acquisition and sustainment, said in the Pentagon’s statement. “By investing directly in suppliers we are building the resilient industrial base needed for the arsenal of freedom. This direct-to-supplier model is a crucial step toward replenishing stockpiles, rebuilding our military and reestablishing deterrence by ensuring the availability of critical components.”
L3Harris said the partnership will help “significantly increase capacity to build solid rocket motors that power vital U.S. and allied missiles.” Solid rocket motors have become increasingly important as conflicts like the war in Ukraine rage on, consuming scores of missiles and straining the defense industrial base’s ability to churn out more.
The Pentagon and the U.S. defense industry have been looking for ways to accelerate the nation’s ability to produce more solid rocket motors, and previously have taken several steps to address the problem.
L3Harris, for example, paid $4.7 billion for Aerojet Rocketdyne to expand into the engines and propulsion market. And in February 2025, L3Harris announced it had broken ground on four new solid rocket motor production facilities at its Camden, Arkansas campus, as part of a $215.6 million Defense Production Act program agreement.
The newest agreement, however, is more than four times as large an investment — and could have a major impact on both the solid rocket motor industry and how the Pentagon approaches acquisitions.
The Pentagon said it will be the anchor investor in the new Missile Solutions company, with its $1 billion investment from its Industrial Base Analysis and Sustainment authority. An initial public offering for the new spinoff company is planned for the second half of 2026.
L3Harris said the department’s investment, a convertible preferred security, would automatically convert into common equity following the IPO later this year. L3Harris plans to keep a controlling interest in an independent Missile Solutions business.
L3Harris chief executive Chris Kubasik told investors in a Tuesday call that Pentagon officials have been meeting with defense industry representatives since summer 2025, and stressed the need to increase both speed and capacity of the industrial base. Over a span of dozens of meetings, Kubasik said, L3Harris and Pentagon officials homed in on the idea of a publicly traded spinoff company with a major government investment.
Kubasik said the government’s involvement with Missile Solutions will be purely economic, and they will not hold any board seats or have influence on management or day-to-day operations. The current management team of L3Harris’ existing Missile Solutions division will likely remain in charge as it is spun off.
Ken Bedingfield, L3Harris’ chief financial officer, told investors that the Missile Solutions company has the potential to more than double its sales by the end of the decade, and could continue growing well into the 2030s.
“This is really about taking a legacy business, turning it into the modern solid rocket motor producer of the future [with] modern factories [and] modern facilities,” Bedingfield said. “We feel like this is the right investment for us to get there.”
Bryan Clark, a senior fellow at the Hudson Institute think tank, told Defense News on Tuesday that this unusual arrangement could yield some significant benefits — but also may present risks.
The market for solid rocket motors has contracted considerably in recent decades, shrinking from six in the mid-1990s down to two, which were Aerojet Rocketdyne and Orbital ATK, now owned by Northrop Grumman. Clark said that part of the issue facing Aerojet and Orbital ATK was that the rocket motor business was, in the past, not a high-profit-margin business and the demand was not high, which drove their decisions to be absorbed by bigger companies.
Spinning off the Missile Solutions division as its own company returns a “pure-play rocket motor company into the marketplace,” Clark said. And the market has changed enough that there may be enough of a demand for solid rocket motors to allow a company building them to survive on its own.
“I think what’s changed is, the demand signal for munitions has grown so much that now a pure-play munitions company is a viable prospect,” Clark said. “And by having it on its own, the government can now make these kinds of investments in it and directly impact the supply of rocket motors. … This allows the government to independently contract for rocket motors with a company that just does rocket motor production.”
Choosing which technical experts to go to the spinoff firm and which will stay at L3Harris could also be a challenge, Clark said.
Clark said it’s surprising that L3Harris would move to spin off its missiles sector, only about two and a half years after acquiring Aerojet Rocketdyne after much effort and expense.
“If it was a good idea to buy Aerojet Rocketdyne, why is it now a good idea to spin it out as its own independent company?” Clark said. “Part of that may be the government’s investment [making a spinoff possible]. Maybe this essentially gets L3Harris out from under a line of business that’s not as lucrative as they had hoped. … So what the government’s done is essentially given them a lifeline to spin this business out, and continue to control it and have equity in it, but be able to translate it into a standalone business that’s going to be able to now more easily sell rocket motors to a wide variety of customers.”
And the close, unprecedented relationship between DOD and a new Missile Solutions company may present some future difficulties for Northrop Grumman’s Orbital ATK, Clark said.
“Going forward, is this government-sponsored … new company going to have a leg up in competitions for new weapons, because it’s got a government stake in it?” Clark said. “In a well-functioning acquisition process, it shouldn’t, but we know our acquisition processes don’t work well. And if we’re trying to go faster, it could be that it ends up being faster to go with this new spin-out that’s got government support than it would be to try to get in line over at Orbital ATK.”
A potential danger facing an independent Missile Solutions company could be if the demand for rocket motors is not as robust as it now seems, Clark said, or if it “whipsaws” between moments of high demand and low demand, making it harder for the spinoff firm to predict what investments it must make in the future during a future downturn.
“It’s a question for me as to whether this new company is going to be viable from a business standpoint and from a demand standpoint,” Clark said. “I think the demand is pretty strong right now, but that could change.”
“If there’s any changes in the environment, that [new] company may … be just as vulnerable as the original two [rocket motor] companies were before they merged,” Clark said.
Stephen Losey is the air warfare reporter for Defense News. He previously covered leadership and personnel issues at Air Force Times, and the Pentagon, special operations and air warfare at Military.com. He has traveled to the Middle East to cover U.S. Air Force operations.
