Pentagon Takes Equity Stake in Missile Supply Chain as U.S. Bets $1bn on L3Harris Rocket Motors

The U.S. government is taking an unusually direct role in shoring up its weapons supply chain, committing $1 billion to L3Harris Technologies’ expanding rocket motor business.

The decision is part of a broader and increasingly explicit policy shift in Washington, which has seen the federal government move from being merely a regulator and customer to becoming a direct investor in strategically important domestic companies.

At the center of the deal is a pressing military reality. Solid rocket motors are essential components for a wide range of U.S. weapons systems, including Tomahawk cruise missiles, Patriot and THAAD interceptors, and the Standard Missile family. Years of consolidation in the defense sector, coupled with surging global demand driven by wars in Ukraine and the Middle East and rising tensions with China, have left the Pentagon worried about supply bottlenecks and production speed.

“This is a fundamental shift in how we secure our munitions supply chain,” said Michael Duffey, the Pentagon’s under secretary of defense for acquisition and sustainment. “By investing directly in suppliers we are building the resilient industrial base needed for the Arsenal of Freedom.”

Under the agreement, L3Harris will spin off its Missile Solutions unit into a new company focused on rocket motors and missile propulsion. The U.S. government will inject $1 billion through a convertible security that will automatically convert into equity when the new entity goes public, an IPO targeted for the second half of 2026. L3Harris will retain majority ownership and operational control, while effectively locking in long-term Pentagon demand for the new business.

Chief executive Chris Kubasik said the missile unit is expected to grow at a mid-to-high teens annual rate, reflecting what he described as sustained and rising demand for missile systems. Shares of L3Harris rose about 1% following the announcement, a sign that investors view the deal as a strong endorsement of the company’s role in U.S. defense planning.

The transaction, however, sits within a much larger policy context. The Trump administration has been openly critical of what it sees as high costs, slow delivery timelines, and excessive consolidation in the defense industry. Last week, President Donald Trump signed an executive order tying share buybacks, dividends, and executive compensation at defense contractors to weapons delivery schedules, sharply escalating pressure on the sector.

Direct equity investment is now emerging as another lever. The L3Harris deal follows the U.S. government’s decision to take a 10% stake in chipmaker Intel, a move aimed at rebuilding domestic semiconductor manufacturing capacity viewed as vital to economic and national security. Intel’s shares more than doubled after that investment was announced, reinforcing the administration’s argument that strategic government capital can stabilize and revive critical industries.

Commerce Secretary Howard Lutnick had previously signaled this direction, saying the administration was weighing equity stakes in major defense contractors, including Lockheed Martin. The L3Harris investment now makes clear that this is no longer theoretical. Washington is willing to put taxpayer money directly into companies it deems essential to national security, from chips to missiles.

For the Pentagon, the rationale is straightforward. By becoming a financial partner rather than just a buyer, it believes it can secure predictable production, negotiate multi-year procurement agreements, and ultimately lower costs. The Defense Department said the deal will allow it to pursue long-term frameworks for solid rocket motors, pending congressional approval, reducing uncertainty that has historically discouraged capacity expansion.

However, once converted, the government’s stake would make it a part-owner of a company that competes for Pentagon contracts, raising questions about conflicts of interest and fair competition. Northrop Grumman, which owns rocket motor maker Orbital ATK, is the only other major U.S. producer in this space. Analysts warn that rivals could be placed at a disadvantage if one supplier enjoys both guaranteed demand and government backing.

Duffey has pushed back on that concern, saying the Pentagon remains committed to open competition and will not factor its investment into procurement decisions. He also stressed that the department does not dictate which rocket motors are used in specific missile systems.

Still, the structure of the deal is highly unusual for the defense sector. Combining a government-backed convertible security with a planned IPO, while allowing the parent company to retain control, is likely to attract scrutiny from lawmakers and regulators concerned about market distortion and governance.

Supporters argue that extraordinary times justify extraordinary measures. Demand for interceptors and long-range weapons has surged far faster than the industrial base can respond, exposing weaknesses created by decades of outsourcing, consolidation, and just-in-time manufacturing. The administration sees direct investment as a way to reverse that trend quickly.

Kubasik framed the move as part of a broader reset. “Recent Trump administration actions have placed renewed emphasis on strengthening the defense industrial base and reinvigorating competition following a 30-year wave of consolidation,” he said, adding that the new rocket motor company will become a key long-term partner to the Pentagon.

If the IPO proceeds as planned in 2026, the government could ultimately profit financially from the investment, mirroring its experience with Intel. For now, however, the priority is strategic rather than monetary: ensuring that the United States can produce critical weapons at scale and speed in an increasingly volatile world.