Aerojet Rocketdyne Has a New Suitor. Will the Biden Administration Approve?

Updated at 1:30 p.m. to add quotes from Chris Kubasik.

L3Harris Technologies has entered a $4.7 billion agreement to buy Aerojet Rocketdyne, two years later and $300 million sweeter than the Lockheed Martin deal scuttled by the Biden administration.

“We’ve heard the DoD leadership loud and clear: they want high-quality, innovative and cost-effective solutions to meet both current and emerging threats, and they’re relying upon a strong, competitive industrial base to deliver those solutions,” L3Harris CEO Chris Kubasik said in a statement on Sunday. “With this acquisition, we will use the combined talents of more than 50,000 employees to drive continuous process improvement, enhance business operations and elevate the performance of this crucial national asset.”

In an interview with CNBC, Kubasik said L3Harris’s purchase of Aerojet would strengthen competition, add weapons to his company’s portfolio, and bring on a $7 billion backlog of work.

‘We have the scale and the strength to invest in people, processes, R&D,” he said Monday. “We all know competition spurs innovation.”

The Federal Trade Commission, which in recent months has moved to block large tech industry acquisitions, must still approve the deal, which the companies said they anticipate closing next year. 

In January, the FTC sued to block the proposed purchase of Aerojet by Lockheed, its largest customer. The government claimed the tie-up could give the world’s largest defense company a leg up over its competitors. Lockheed said the deal would have helped it deliver the Pentagon weapons faster.

Aerojet builds rocket motors for missiles and space launches.

“We see Aerojet as a unique strategic asset with capabilities and product lines in critical, fast-growing areas,” Cowen analyst Roman Schweizer, wrote in a Sunday evening note to investors shortly after the deal was announced. “We expect a thorough but quick FTC review, given the FTC's recent review of Aerojet's other deal. We expect approval but concede the current FTC is anti-consolidation.”

Aerojet has struggled with quality control, according to the CEO of one of the company’s largest customers. During a recent interview with Defense One, Raytheon Technologies Greg Hayes, called the rocket maker “distracted” and said it needs “adult supervision.”

Asked by CNBC about Hayes’ comments, Kubasik said, “I think we have the processes and the controls and the people that are going to be able to help improve the performance of this company.”

Demand for rocket motors is up, particularly since the U.S. and its allies have been sending thousands of rockets and missiles to Ukraine to help ward off a Russian invasion. The hot market has drawn new competitors for Aerojet, including X-Bow Systems, Estes Energetics, Firehawk Aerospace, and Adranos, Capital Alpha Partners analyst Byron Callan wrote in a Sunday evening note to investors.

“We strongly doubt that these firms could displace Aerojet from heritage tactical and air defense programs, but if new programs emerge to address precision weapon and air defense needs underscored by the Russo-Ukraine War, Aerojet will likely need additional investment and human capital to compete,” Callan wrote. “We suppose that L3Harris can supply that, but addressable markets may be more dynamic as the decade unfolds.”

For L3Harris, acquiring Aerojet continues Kubasik’s quest to grow the company to become a formidable competitor to the five largest U.S. defense companies. The Melbourne, Fla.-based firm has won new Pentagon business for attack planes and missile tracking satellites. In September, Kubasik told Defense One that he planned more acquisitions. 

“We're punching above our weight, and we need to continue to grow, including acquisitions, to get to scale, to be able to compete on a level playing field,” the CEO said at the time. 

Shortly after, the company announced plans to acquire ViaSat’s Tactical Data Links product line for $1.96 billion.