L3Harris Technologies' proposed acquisition of Aerojet Rocketdyne is a way to branch into the missiles market, L3Harris CEO Chris Kubasik said Friday, adding that hypersonic missile technology could be the "crown jewel" of the acquisition.
L3Harris, which announced its plan to acquire Aerojet for $4.7 billion last month, has a strong presence in command-and-control systems and sensors, Kubasik said during the year-end earnings call, but the company wants to expand into weapons.
“Our weapons presence in this $75 billion market is practically nonexistent,” Kubasik said. “We believe that weapons, munitions, missiles, whatever you want to call them are absolutely aligned with the current emerging customer demand.”
The acquisition would bring a backlog of nearly $7 billion and “tailwinds driven by global demand,” Kubasik said.
Aerojet manufactures propulsion systems for customers including the Defense Department and NASA. It is one of only two U.S. manufacturers of solid-rocket motors -- the other being Northrop Grumman, which purchased Orbital ATK in 2018.
Solid-rocket motor production is vital for DOD’s continued hypersonic missile efforts.
“Someone said hypersonics is the future, and the reality is hypersonics is now,” Kubasik said. “I think this could be the crown jewel of the acquisition, and we believe there’s significant growth opportunities that are well supported by the budget and the customer.”
Sen. Elizabeth Warren (D-MA) wrote to the Federal Trade Commission Friday to urge the regulator to prevent the sale, decrying it as another example of “monopolistic behavior” in the defense industry and saying It would “reduce competition in the shrinking defense industry to a new low.”
“Lockheed Martin, Raytheon and Boeing are all dependent on products that only Aerojet is able to produce, and their operations would be hamstrung by its acquisition,” Warren wrote. “In simple terms, if L3Harris were to own Aerojet, L3Harris would be in a position to leverage its control over solid rocket motors and other Aerojet products to force other companies and the United States to purchase its other products, regardless of the impact this would have on price or quality.”
This is not the first acquisition proposal for Aerojet Rockedyne. The FTC sued Lockheed Martin to block that company’s attempt to purchase Aerojet, and Lockheed decided to back out of that acquisition last February.
Kubasik also touted the company’s growing presence in the space domain after L3Harris announced its purchase of Viasat’s Link 16 tactical data links business for $1.96 billion in October. That acquisition closed on Jan. 3, according to the company’s investor letter.
“Link 16’s diverse platform base combined with [L3Harris] Broadband Communications’ existing portfolio of advanced tactical datalinks and free-space optics has improved the company’s [Joint All Domain Command and Control] capabilities, advancing the L3Harris Trusted Disruptor strategy to provide customer innovative and alternative solutions,” the letter states.
L3Harris reported modest revenue growth in the fourth quarter -- up 5% over the previous year at $4.6 billion -- but full-year revenue was down 4% to $17.1 billion compared to 2022. The total backlog grew 5% over the previous year with a funded book-to-bill ratio of 1.08, according to the investor letter.
The company has not received cost adjustments for inflation on its fixed-price contracts, Kubasik told investors, but it also has not sought out any adjustments.
“Similar to COVID expenses and others, we just absorbed it as part of the business,” Kubasik said. “I just feel like we survived these three years and everything is looking much better" in the future.