For three decades, the Pentagon told defense contractors to consolidate. Now it's paying $1 billion to help one spin off. The Defense Department announced in January 2026 it will take an equity stake in L3Harris's solid rocket motor business, which will become a separate publicly traded company later this year. It's the first time the Pentagon has directly invested in a defense supplier rather than simply buying its products.
The investment targets a chokepoint that has constrained American missile production since 2022: the solid rocket motors that propel everything from Patriot interceptors to Tomahawk cruise missiles. After decades of consolidation left only two domestic suppliers, the Pentagon is now funding capacity expansion and encouraging new market entrants—a reversal of the policy that created the bottleneck in the first place. The strategy received validation when Czechoslovak Group completed the world's largest defense IPO on January 23, raising €3.8 billion on the Amsterdam exchange with shares surging 31% on debut. Days later, the Pentagon formalized the approach in its 2026 National Defense Strategy, identifying defense industrial base revitalization as one of four top-line national security priorities.
Fictional content for perspective - not real quotes.
Thomas Paine
(1737-1809) ·Revolutionary · politics
Fictional AI pastiche — not real quote.
"The government that once commanded manufacturers to unite now discovers it must become a merchant itself to undo the monopoly it engineered—a fitting monument to the folly of central planning. When common sense dictated competition would secure liberty through abundance, the Pentagon chose consolidation; now the people's treasury must purchase what the market would have freely provided. Perhaps next they shall learn that the surest defense springs not from the state owning the means of war, but from free men competing to forge them."
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Mark Twain
(1835-1910) ·Gilded Age · wit
Fictional AI pastiche — not real quote.
"The government has discovered that the surest way to fix a problem created by telling everyone to merge into a monopoly is to become a partner in said monopoly—a scheme that would make a railway baron blush, though at least the railway barons had the decency to bribe the government rather than have the government bribe itself."
0% found this insightful
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Renamed from Department of Defense in 2025, now pursuing direct supplier investments and acquisition reform.
CZ
Czechoslovak Group
Defense Conglomerate
Status: Completed record-breaking defense IPO on Euronext Amsterdam
Prague-based defense conglomerate and critical NATO supplier, second-largest medium/large-calibre ammunition producer in Europe and largest small-calibre ammunition producer globally.
R.
R.E. Darling Co., Inc.
Defense Supplier
Status: Expanding solid rocket motor insulation manufacturing capacity
Specialized manufacturer of rocket motor case insulation materials, awarded $27.7M under Defense Production Act to modernize facilities.
SY
Systima Technologies Inc.
Defense Supplier
Status: Expanding advanced aerospace component production
Aerospace component manufacturer awarded $5M under Defense Production Act to expand solid rocket motor supply chain capacity.
Timeline
L3Harris Reports Record $38B Backlog
Corporate
L3Harris Q4 2025 earnings show record backlog exceeding $38 billion with 1.3 book-to-bill ratio. Company provides 2026 guidance of $23-23.5 billion revenue, reflecting Missile Solutions spinoff momentum.
Czechoslovak Group Completes Record Defense IPO
Corporate
Prague-based CSG lists on Euronext Amsterdam after raising €3.8 billion in the world's largest defense IPO ever. Shares surge 31% on debut, validating investor appetite for defense industrial base expansion. CSG is Europe's second-largest medium/large-calibre ammunition producer.
Pentagon Releases 2026 National Defense Strategy
Policy
Defense Department formalizes industrial base revitalization as one of four strategic priorities, calling for 'once-in-a-century' expansion of production capacity, reduced regulatory barriers, and leveraging allied production at scale.
Pentagon Takes $1B Stake in L3Harris Spinoff
Investment
Defense Department announces first-ever direct equity investment in a defense supplier. L3Harris will spin off Missile Solutions as public company with Pentagon as anchor investor.
Kubasik Appears on Fox Business to Discuss Pentagon Partnership
Media
L3Harris CEO Christopher Kubasik joins Under Secretary Duffey on 'Mornings with Maria' to explain the unprecedented government equity investment structure and spinoff strategy.
Northrop Wins $94.3M Navy Rocket Motor Contract
Contract
Navy selects Northrop Grumman for second stage solid rocket motor program, continuing expansion of domestic production capacity beyond legacy duopoly.
Trump Executive Order Restricts Defense Contractor Buybacks
Regulatory
President issues 'Prioritizing the Warfighter' executive order barring underperforming defense contractors from stock buybacks and dividends until delivering 'superior product, on time and on budget.' Order caps executive compensation and ties future contract renewals to performance metrics.
PAC-3 Production Tripling Agreement
Contract
Lockheed Martin and Pentagon sign seven-year framework to increase PAC-3 MSE interceptor production from 600 to 2,000 units annually.
L3Harris Sells Civil Space Propulsion Unit
Corporate
L3Harris sells majority stake in civilian space propulsion business to AE Industrial Partners, focusing resources on defense applications. Kubasik states move aligns with 'DoW's vision for a faster, more agile defense industrial base.'
Pentagon Invests $32.7M in Motor Supply Chain
Investment
Defense Department awards Defense Production Act funding to R.E. Darling Co. ($27.7M) for rocket motor case insulation facility and Systima Technologies ($5M) for aerospace components, targeting critical supply chain bottlenecks.
Hegseth Announces Acquisition Overhaul
Policy
Defense Secretary unveils 'Warfighting Acquisition System' strategy prioritizing speed, direct supplier relationships, and industry capital investment in capacity expansion.
Pentagon Funds New Motor Suppliers
Investment
Defense Department awards contracts to Ursa Major, Anduril, and X-Bow Systems to expand solid rocket motor production capacity beyond legacy duopoly.
L3Harris Closes Aerojet Acquisition
Corporate
L3Harris completes $4.7 billion purchase of Aerojet Rocketdyne after FTC declines to block the deal, consolidating solid rocket motor supply to two domestic producers.
Russia Invades Ukraine
Geopolitical
Full-scale invasion triggers surge in global munitions demand. U.S. transfers of Javelins, Stingers, and GMLRS rockets deplete stockpiles and expose solid rocket motor production constraints.
Lockheed Martin Abandons Aerojet Bid
Regulatory
Lockheed exits $4.4 billion Aerojet Rocketdyne acquisition after FTC lawsuit alleging the deal would harm competition among missile prime contractors.
The 'Last Supper'
Policy
Defense Secretary Les Aspin hosts dinner with defense contractors, signaling post-Cold War consolidation. Over the next four years, the number of major defense contractors falls from 51 to 5.
L3Harris completes IPO in late 2026, Pentagon's convertible preferred shares convert to common equity, and the new company attracts additional private investment. Success leads Pentagon to replicate the model with other critical suppliers facing capacity constraints. Solid rocket motor production expands sufficiently to meet both stockpile replenishment and allied demand.
Lawmakers question the precedent of government equity stakes in defense suppliers, raising concerns about conflicts of interest and market distortion. Appropriators attach conditions to future investments or restrict the authority. The L3Harris deal proceeds but becomes a one-off rather than a template.
Motor production expands but remains constrained by shortages of critical chemicals, specialized metals, or skilled workers. The Pentagon's investment in final assembly capacity proves insufficient without parallel investments in sub-tier suppliers. Production targets slip despite the capital infusion.
Anduril, Ursa Major, and X-Bow scale production faster than expected using 3D printing and modern manufacturing. By 2028, the solid rocket motor market has four or five viable suppliers. The L3Harris investment accelerates rather than consolidates the market.
Historical Context
The 'Last Supper' and Defense Consolidation (1993-1997)
July 1993 - 1997
What Happened
Defense Secretary Les Aspin and Deputy Secretary William Perry gathered defense executives at the Pentagon and told them the government could no longer support the existing number of contractors. Over the next four years, 51 major defense contractors consolidated into five: Lockheed Martin, Boeing, Raytheon, Northrop Grumman, and General Dynamics. Lockheed Martin alone was built from 17 separate corporate mergers.
Outcome
Short Term
Defense companies reduced overhead, closed 14 million square feet of factory space, and passed savings to the government through lower bids.
Long Term
Consolidation created durable market power for the surviving five. Tactical missile suppliers dropped from 13 to 3. When demand surged after 2022, the shrunken industrial base couldn't scale.
Why It's Relevant Today
The Pentagon's current investment in L3Harris explicitly aims to reverse this consolidation's effects. CEO Kubasik called it 'a creative way to start unwinding a three-decade consolidation spree.'
Chrysler Bailout and Government Equity (1979-1983)
1979 - 1983
What Happened
Congress authorized $1.5 billion in loan guarantees to prevent Chrysler's bankruptcy. The government received warrants to purchase 14.4 million shares at $13 per share as compensation for the risk. Few expected the warrants to be exercised.
Outcome
Short Term
Chrysler survived and restructured under Lee Iacocca's leadership, avoiding mass layoffs in the auto industry.
Long Term
The government sold its warrants in 1983 for a profit as Chrysler's stock recovered. The bailout became a template for government intervention in distressed industries, later applied during the 2008-2009 financial crisis.
Why It's Relevant Today
The L3Harris investment differs structurally—it's proactive capacity building rather than crisis bailout—but establishes similar government-as-investor mechanics: convertible securities, minority stake, no governance control.
Post-2008 Auto Industry Government Ownership (2008-2013)
2008 - 2013
What Happened
The Treasury took a 60.8% stake in General Motors and significant positions in Chrysler, GMAC, AIG, and Citigroup as part of TARP. The government managed these stakes as temporary investments, not permanent nationalizations, and sought to exit as quickly as markets allowed.
Outcome
Short Term
GM and Chrysler avoided liquidation. The auto industry preserved roughly 1.5 million jobs.
Long Term
The government divested its GM stake by 2013 at a $10.5 billion loss. The interventions established that the U.S. would take temporary equity stakes in systemically important industries during crisis.
Why It's Relevant Today
The Pentagon's L3Harris investment extends this precedent to proactive industrial policy rather than crisis response. Officials have emphasized the investment is 'economic only' with no governance role—consistent with post-2008 practice of minimizing government involvement in management.
