L3Harris Technologies’ impending purchase of Aerojet Rocketdyne will strengthen the industrial base and promote competition, according to the company’s CEO.
“This acquisition represents a pivotal moment for both our company and the defense industry and is poised to generate shareholder value beyond initial expectations,” L3Harris CEO Chris Kubasik said during the company’s second-quarter 2023 earnings call Thursday.
Kubasik told investors Wednesday the Federal Trade Commission will not block L3Harris’s $4.7 billion acquisition of Aerojet, allowing the deal to close.
“Budgets are increasing for munitions, and the DOD has committed Defense Production Act funding for the expansion and modernization of Aerojet Rocketdyne operations. Upon closing, this acquisition will strengthen the defense industrial base, foster healthy competition, and accelerate innovation in supporting the warfighter,” Kubasik said.
The deal, set to close as soon as Friday, would end a years-long saga involving one of the most important suppliers for the Pentagon and NASA.
Kubasik also sought to quell fears that his company would block access to rockets. Lockheed Martin’s COO Frank St. John said in June his company worried the deal would block access to rocket motors needed for its missiles.
“Once we close Aerojet Rocketdyne, I can assure you, we are highly motivated to sell rocket engines and rocket motors to anyone who wants to buy them within the rules globally,” Kubasik said. “So some of the theories that were bounced around never made a heck of a lot of sense to me, to be honest with you. We bought this company to sell engines and motors and that’s what we’re going to do.”
The company did not negotiate or sign a consent agreement, he said, but gave the Pentagon “assurances” the company would be a supplier of rocket motors and engines.
The Pentagon announced in April it would give Aerojet $216 million to expand and modernize its manufacturing facilities in Arkansas, Alabama, and Virginia in an attempt to boost production of rocket motors used in missiles given to Ukraine.
“That money will go mainly to those facilities and the programs you mentioned, but also money in there to digitize their engineering, so we’re quite excited about that,” Kubasik said.
But Aerojet has struggled to deliver rocket motors, and has become “the weak link” in Raytheon Technologies’ supply chain, Raytheon’s CEO said.
To improve operations, Kubasik said they have developed tools since the merger.
“We utilize capability modeling, we have zero defect planning—just as a couple of examples. So we’re going to take those processes and merge them into what Aerojet has them and we’ll be ready to hit the ground running on day one,” he said.
Kubasik also said he foresees growth in the company’s hypersonic programs. “Our hypersonic capability is going to be a differentiator, and I think [it will] continue to disrupt the market,” he said.
However, some members on Capitol Hill are leery of the deal—arguing consolidation hurts innovation. Sen. Elizabeth Warren, D-Mass., has been outspoken about the deal, arguing it “would threaten competition and national security, increase prices, reduce innovation, and reduce product quality and create production delays for the defense industrial base” in a July 9 letter to Pentagon acquisition chief Bill LaPlante.
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