Unlock the White House Watch newsletter for free
Your guide to what Trump’s second term means for Washington, business and the world
The Pentagon is investing $1bn in the rocket motor business of major defence contractor L3 Harris, to bolster the supply of motors that are key for missile systems including Patriots, Tomahawks and THAADs.
The $1bn investment is in convertible preferred equity in L3 Harris’s missile solutions business, which will be spun off into a separate company as part of the deal.
An IPO for the new company is expected in the second half of 2026, at which point the Pentagon’s preferred securities will convert to common equity, making it an anchor investor. Shares in L3 Harris rose 12 per cent ahead of the New York open on Tuesday.
The Trump administration has moved to take direct stakes in a number of American companies, including Intel and US Steel. The Pentagon has also been making direct investments in critical minerals companies to shore up its supply of elements vital to virtually all of its weapon systems.
The defence department called the L3 Harris deal a “landmark” investment, and said it was the first direct-to-supplier agreement of its kind.
“This means we are not just writing a cheque that we hope will add capacity in the industrial base, we are taking a direct ownership stake in the new publicly traded company being created by L3 Harris,” said Michael Duffey, under-secretary of defence for acquisition and sustainment. “This equity position allows the American people to share in its future success.”
But the deal raised questions about a potential conflict of interest, because the Pentagon is taking a stake in its own contractor in an industry whose main customer is the US government.
The defence industry has struggled to source rocket motors in recent years. The US has only two major domestic makers of missile propulsion systems: L3 Harris and technology start-up Anduril Industries, which purchased a solid-rocket motor supplier in 2023.
L3 Harris chief executive Chris Kubasik said the Pentagon would not sit on the new company’s board or be involved in its management. “It’s purely an economic investment,” he said. He added that the company believed the deal was “fair”.
But Byron Callan, analyst at Capital Alpha Partners, said the investment raised questions about competition in the defence industry.
“Does this indicate any sort of favouritism, even implied, as there are other companies such as Northrop Grumman and Anduril who are involved in rocket motors,” he asked. “How balanced will the competitive landscape be? That is an open question.”
Duffey said: “We value competition and we look forward to increasing competition within this industrial base, but qualification takes time.”
The Pentagon last week struck a deal with Lockheed Martin for a “new acquisition model” for the company to expand production of PAC-3 missile interceptors from 600 to 2,000 annually in exchange for a seven-year supply contract from the defence department.
The L3 Harris investment comes just days after the Trump administration warned that it would curtail contractors from carrying out share buybacks, issuing dividends and executive pay if they did not perform.
Read the full article here
