L3Harris Sells Space Propulsion Business to AE Industrial for $500M+ as Defense Giant Pivots to Missiles

January 04, 2026 · by Fintool Agent

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L3harris Technologies+3.08% is nearing a deal to sell a 60% stake in its space propulsion portfolio to private equity firm AE Industrial Partners, as the $55 billion defense contractor accelerates its strategic pivot from NASA-oriented businesses toward missiles and national security programs. The transaction, which could be announced as early as Monday, values the portfolio at $845 million, with AE Industrial paying over $500 million for its majority stake.

The deal marks over $4 billion in divestitures since the 2018 L3-Harris merger, and represents one of the larger space industry transactions in recent months as private equity firms consolidate capabilities across the commercial and defense space sectors.

The Deal Structure

Notably, L3Harris will retain sole ownership of the RS-25 rocket engine—the powerhouse behind NASA's Space Launch System for the Artemis program—along with the associated workforce and facilities. The transaction is not expected to impact L3Harris's offerings for the Pentagon's emerging Golden Dome missile defense initiative.

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What's Being Sold: The RL-10 and Beyond

The crown jewel of the portfolio is the RL-10 upper stage rocket engine—a workhorse that has powered space exploration for over 60 years. The RL-10 has helped send spacecraft to every planet in our solar system, including Voyager 1 and Voyager 2, and today powers the upper stages of United Launch Alliance's Atlas V, Delta IV Heavy, and the new Vulcan Centaur rocket.

Just this past quarter, L3Harris secured a major award for 130 upper stage RL-10 engines valued at nearly $850 million, highlighting the engine's critical role in enabling space launch missions. 2

Portfolio assets include:

Two RL10 engines power the Centaur V upper stage on ULA's Vulcan rocket, providing thrust of approximately 24,000 lbs with liquid hydrogen and liquid oxygen propellants. The engine's expander cycle and restart capability enable precise orbital insertions for both commercial and national security missions.

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L3Harris's Strategic Pivot: From NASA to Missiles

The divestiture is the latest chapter in L3Harris's deliberate transformation away from commercial and NASA-oriented space businesses toward national security-focused operations. On the Q1 2025 earnings call, CFO Ken Bedingfield made the strategy explicit:

"We continue to proactively reshape our business. In this quarter, we further sharpened our national security focus portfolio by completing the divestiture of our commercial aviation solutions business, the last remaining commercial aerospace business in our portfolio." 1

The pivot is driven by surging demand for missiles. The Russia-Ukraine war and conflicts in the Middle East have created a global scramble to replenish stockpiles, benefiting L3Harris's Aerojet Rocketdyne missile solutions business, which grew 15-16% in the first half of 2025. 2

CEO Christopher Kubasik emphasized the durability of this demand on the Q2 2025 call:

"Growth we view is durable and likely to continue for decades. Demand is exceptionally strong, and we see significant opportunities for further investment in the business, expanding manufacturing capacity, increasing the workforce, and accelerating deliveries to meet long term needs and to support sustained growth." 3

L3Harris is channeling proceeds from the space propulsion sale into rocket motor and missile production capacity—including new modular robotic-enabled facilities in Virginia, Arkansas, and Alabama that will "significantly increase capacity, enhance efficiency and quality, and reduce product travel time distances by 90%." 4

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AE Industrial: Building a Space Propulsion Empire

For AE Industrial Partners, the L3Harris acquisition extends an aggressive consolidation strategy across the space sector. The Boca Raton-based private equity firm, which manages $7.5 billion in assets and specializes in aerospace, defense, and government services, has assembled an impressive portfolio of space capabilities.

AE Industrial's Space Portfolio:

The L3Harris propulsion assets provide AE Industrial with a critical capability gap: propulsion. With Firefly providing launch vehicles, Redwire providing satellite components, York providing small satellites, and now L3Harris providing upper stage and in-space propulsion, AE Industrial is building an end-to-end space infrastructure platform.

The deal also positions AE Industrial for opportunities in the Pentagon's Golden Dome initiative—a multi-layered space-based missile defense architecture that will require significant satellite deployment and, critically, in-space propulsion to position those assets.

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Investment Implications

For L3Harris (LHX): The transaction reinforces the company's strategic clarity. Management has committed to $1.2 billion in cumulative cost savings through its LHX NeXt initiative by end of 2025—exceeding the original $1 billion target a year early. 1 With the space propulsion divestiture adding cash for debt paydown and missile capacity investment, L3Harris is positioning itself as a pure-play on global missile demand.

The company's satellite and space superiority businesses remain intact, with a record backlog of 40 satellites—"a noteworthy achievement considering we started with no satellites as a prime" five years ago, according to CEO Kubasik. 2 These capabilities align with Golden Dome requirements and the company's national security focus.

For ULA (Boeing+3.14%/Lockheed Martin+4.72%): The sale of L3Harris's majority stake in the RL-10 program to private equity raises questions about long-term supply continuity for Vulcan Centaur, though L3Harris's retained 40% stake and the expected H2 2026 close provide runway for transition planning.

For Space Sector: Private equity consolidation in space is accelerating. AE Industrial's strategy mirrors broader industry dynamics where specialized capabilities are being rolled up into integrated platforms. Smaller public space companies without clear differentiation may face valuation pressure as PE-backed competitors gain scale.

For Defense Primes: The transaction underscores a broader sector dynamic: legacy aerospace/space businesses inherited from earlier eras are being shed as defense contractors refocus on missiles, hypersonics, and space-based defense systems—capabilities directly tied to current geopolitical tensions and Pentagon priorities.

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What to Watch

1. Formal announcement: Expected as early as Monday, January 6
2. L3Harris Q4 earnings: Will management provide additional color on strategic rationale and proceeds deployment?
3. AE Industrial IPO pipeline: With Firefly public and York Space Systems IPO pending, how will L3Harris propulsion assets fit into the portfolio strategy?
4. Golden Dome contract flow: Both L3Harris (retained businesses) and AE Industrial (propulsion) will compete for roles in the emerging space-based missile defense architecture
5. ULA response: Any statements regarding RL-10 supply continuity for Vulcan

Related:

• L3harris Technologies+3.08%
• Boeing Company+3.14%
• Lockheed Martin+4.72%
• Redwire Corporation+6.86%
• Firefly Aerospace+7.57%
• Northrop Grumman+4.74%
• RTX Corporation+0.71%
• General Dynamics+0.70%