Pentagon to invest $1 billion in L3Harris missile unit

L3Harris Technologies branding (Bloomberg image)

• US Defense Dept to invest $1B in L3Harris missile unit via preferred security
• Investment aims to boost solid rocket motor production for US missiles
• L3Harris will keep control; Pentagon won't manage or join the company's board

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The US Department of Defense is set to invest in L3Harris Technologies Inc.’s missile unit with a $1 billion convertible preferred security, tightening the direct links between the government and a major defense contractor.

Calling it a “first-of-its-kind proposed partnership,” L3 said the move will “significantly” increase capacity to build solid rocket motors for US missiles. The preferred security would automatically convert into common equity upon the unit’s planned IPO in the second half of the year, according to a statement on Tuesday.

L3Harris said it will keep a controlling interest in the Missile Solutions business. The company’s shares rose as much as 6.1% in morning trading.

The Trump administration has accumulated governance and equity stakes in several US businesses in the last year. Directly investing in defense companies echoes China’s civil-military fusion, said Kelly Grieco, a senior fellow at the Stimson Center.

“Washington needs to ask itself what role it wants government to play in markets, including defense markets,” Grieco said. “There is a risk of distorting the market an discouraging competition, if the Pentagon becomes both the investor and the buyer.”

L3Harris will remain the majority shareholder, and the Defense Department will not serve on the board of governors or be involved in managing the company or the investment, Chief Executive Officer Chris Kubasik said during a Tuesday media briefing.

“We have no interest in exercising control over the company,” said Michael Duffey, the Pentagon’s undersecretary for acquisition and sustainment, although he added that the Defense Department is done “writing checks” to expand the industrial base “with no promise of return.”

US defense efforts call for increased numbers of systems such as the SM-6 and SM-3 Block IIA air defense missiles, and advanced strike missiles such as PrSM.

Lockheed Martin Corp. said last week it had reached a deal with the Defense Department to more than triple production of Patriot PAC-3 missiles from about 600 a year to 2,000.

Anduril Industries purchased a solid-rocket motor company in 2023 and has invested more than $75 million in building a production facility in McHenry, Mississippi. Last month, Boeing Co. chose Anduril to build the rocket motors for the US Army’s Integrated Fires Protection Capability system.

The Pentagon sees robust competition in the solid-rocket motor industry but chose to invest directly in L3Harris for the sake of speed, as it is a proven supplier.

Even so, the demand to ramp up munitions production is so high and promises so much expansion “that there will be room for future competition and will result in the growth that we need throughout the industrial base,” Duffey said.

The L3 Harris announcement comes a day after Defense Secretary Pete Hegseth pushed the industry to speed innovation, lamenting what he called defense companies’ “risk-averse culture.”

The administration has threatened to cut out some major contractors if they don’t accelerate production and innovation, with President Donald Trump demanding they cap executive pay, and stop issuing dividends and buying back their own stock.

He singled out RTX Corp., whose Raytheon unit makes the Patriot air defense system, calling them “one of the least responsive” companies to the needs of the Defense Department.

Bloomberg Economics analyst Becca Wasser said the L3Harris deal aimed to fill a gap in the motors needed for drones and missiles.

“The shortage of rocket motors and the small number of qualified suppliers is a choke point for ramping up munitions production,” Wasser said.