The Pentagon has committed $1 billion to the rocket motor business of major defence contractor L3 Harris, aiming to secure the supply of propulsion systems essential for missile programs including Patriot, Tomahawk, and THAAD. The investment takes the form of convertible preferred equity in L3 Harris’s missile solutions division, which will be spun off into a new, separate company.
When the company goes public in the second half of 2026, the Pentagon’s preferred shares will convert into common equity, making the U.S. government an anchor investor. Shares in L3 Harris surged 12% ahead of the New York Stock Exchange open, signaling investor optimism about the deal.
The Trump administration has increasingly taken direct stakes in U.S. companies, ranging from Intel to U.S. Steel, while the Pentagon itself has been investing in critical minerals companies to secure the raw materials that underpin virtually all modern weapons systems. Michael Duffey, under-secretary of defence for acquisition and sustainment, described the move as a “landmark” investment, emphasizing that it goes beyond a traditional contract by allowing the public to “share in its future success.”
Questions of conflict and competition
While officials stress the strategic benefits, the deal raises significant concerns about conflicts of interest. By taking a financial stake in a contractor whose primary client is the U.S. government, the Pentagon enters unchartered territory. This is particularly sensitive in the missile propulsion sector, which already has limited competition: the U.S. has only two major domestic suppliers—L3 Harris and Anduril Industries, a tech start-up that acquired a solid-rocket motor supplier in 2023.
Industry analysts have highlighted potential market distortion risks. Byron Callan of Capital Alpha Partners asked:
“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? How balanced will the competitive landscape be?”
While Duffey assured that the Pentagon values competition, he admitted that qualification and regulatory approvals take time, leaving the door open to possible preferential treatment.
L3 Harris CEO Chris Kubasik insisted that the Pentagon would not take a seat on the board or interfere with management, framing the investment as purely economic. Nonetheless, the optics of government ownership in a major defence contractor—at a time when the Pentagon is the dominant buyer of missile motors globally—cannot be ignored.
Strategic urgency and industrial bottlenecks
The Pentagon’s move comes amid a persistent shortfall in missile propulsion supply. U.S. military capabilities rely heavily on solid-fuel rocket motors, and any disruption in production could impact not only domestic defense but also NATO commitments and allies in the Indo-Pacific region.
The investment parallels the Pentagon’s recent deal with Lockheed Martin, expanding PAC-3 missile interceptor production from 600 to 2,000 units annually through a seven-year supply contract. Both initiatives reflect a broader push to reshape the defence industrial base, ensuring faster production, improved supply chain resilience, and reduced dependency on foreign suppliers.
Analysts note that the Trump administration has signaled it will curtail share buybacks, dividends, and executive compensation if contractors fail to meet performance metrics—another layer of direct government intervention in private companies.
While the strategy may strengthen missile readiness, it also underscores the growing entanglement of public funds with private profits. If successful, L3 Harris could become a state-backed quasi-monopoly, raising long-term questions about fair competition, innovation incentives, and pricing in the U.S. defense market.
Implications for U.S. defence policy and governance
This $1 billion investment could set a precedent for future Pentagon involvement in private firms, representing a hybrid model between public-private partnerships and direct government ownership. While proponents argue it secures critical supply chains, critics warn of a slippery slope: government ownership of defence contractors may blur accountability lines, inflate costs, and stifle competitors.
Moreover, the deal occurs at a geopolitical inflection point. With missile defense becoming increasingly central to U.S. strategic planning in regions like the Middle East, Europe, and the Indo-Pacific, the ability to scale production rapidly is paramount. Yet the risks of market concentration and potential conflicts of interest must be weighed carefully.
The L3 Harris investment illustrates a broader trend in U.S. defence policy: direct financial stakes in contractors as a tool of national security, rather than relying solely on contracts or procurement incentives. Whether this approach enhances resilience or undermines market integrity will likely shape the Pentagon’s industrial strategy for decades.
