The United States Department of Defense made history on Tuesday, announcing a $1 billion convertible preferred security investment in L3Harris Technologies' newly created Missile Solutions business—the first time the Pentagon has taken a direct equity stake in a private defense company.

Shares of L3Harris (NYSE: LHX) surged 13% on the news, making it one of the day's biggest gainers as investors digested the implications of this unprecedented public-private partnership.

A New Model for Defense Financing

The investment, which will automatically convert into common equity upon an initial public offering planned for the second half of 2026, represents a fundamental shift in how the Pentagon approaches critical supply chain challenges.

"This first-of-its-kind proposed partnership with the DoW will significantly increase capacity to build solid rocket motors that power vital U.S. and allied missiles," L3Harris said in its announcement.

The Missile Solutions business combines all aspects of L3Harris's capabilities in support of offensive and defensive missile systems, including the company's Aerojet Rocketdyne operations acquired in recent years.

Why Solid Rocket Motors Matter

The Pentagon's unusual move underscores the critical importance of solid rocket motor production to national security. These propulsion systems power some of America's most essential defensive weapons:

  • PAC-3 (Patriot Advanced Capability-3): The primary air defense missile protecting U.S. forces and allies
  • THAAD (Terminal High Altitude Area Defense): America's shield against ballistic missile threats
  • Tomahawk: The Navy's long-range precision strike cruise missile
  • Standard Missile: The fleet's primary air defense weapon system

Global conflicts and rising geopolitical tensions have exposed vulnerabilities in the defense industrial base, with solid rocket motor production emerging as a critical bottleneck.

What It Means for Investors

The planned IPO would create a publicly traded company focused exclusively on missile propulsion systems—a pure-play investment opportunity in one of defense's most essential technologies.

Following the transactions, L3Harris would retain a controlling interest in the business, providing stability while allowing public investors to participate in the growth story.

"The investment from the DoW, along with sustained, long-term demand, will support Missile Solutions' rapid expansion of capacity for critical missile programs."

— L3Harris Technologies press release

J.P. Morgan Securities LLC is advising L3Harris on the proposed transaction, with Vinson & Elkins LLP serving as legal advisor.

A Template for the Future?

Defense analysts are watching closely to see whether this arrangement becomes a model for addressing other supply chain vulnerabilities. The Pentagon has long struggled with the tension between market-driven defense contracting and the national security imperative of maintaining critical production capabilities.

By taking a direct equity stake, the government gains both financial exposure to the business's success and a seat at the table in strategic decisions—a departure from the traditional arms-length contracting relationship.

The Bigger Picture

The L3Harris deal arrives amid broader efforts to strengthen America's defense industrial base. With conflicts in multiple regions straining weapons stockpiles and production capacity, the Pentagon has increasingly focused on ensuring reliable supply of essential munitions.

For investors, the message is clear: defense remains a priority, and the government is willing to deploy creative financing solutions to ensure critical capabilities remain intact. The Missile Solutions IPO, expected in the second half of 2026, could mark the beginning of a new era in defense industry investment.