By Mike Stone
HUNTSVILLE, Alabama (Reuters) - Investments by L3Harris Technologies (NYSE:LHX) into its Aerojet Rocketdyne rocket motor unit have helped improve facilities and processes after years of underinvestment and late deliveries to customers, an executive told Reuters.
Aerojet was purchased by L3Harris 15 months ago and is one of only two large solid-fuel rocket motor makers for the Pentagon. It is a key producer of weapon components as the U.S. pushes to replace aging Minuteman III intercontinental ballistic missiles and build an inventory of tactical missiles to deter China.
"The challenge that we've been addressing is ... historical underinvestment in some areas of the business," Ross Niebergall, president of the Aerojet Rocketdyne segment, said in an interview at one of his Huntsville, Alabama factories.
Despite its national importance, Aerojet has been under pressure for years.
In 2019 - prior to the pandemic and a distracting 14-month antitrust saga that ended in Lockheed Martin Corp (NYSE:LMT) abandoning an acquisition attempt - the company's revenues were flagging.
The Federal Trade Commission blocked the deal over antitrust concerns weeks before Russia's 2022 invasion of Ukraine. Deliveries from the company to customers such as RTX were months behind schedule.
When L3Harris offered to purchase Aerojet in December 2022, the company was "many thousands" of motor deliveries behind across multiple missile programs, Niebergall said. It was also a gamble - no one knew how long the Ukraine war would last or what would happen to demand.
CAPITAL SPENDING
One example was the Javelin missile, which sees heavy use in Ukraine. "When we took over, we were 700 ship sets behind on that missile. As of right now, we're 50 ahead. So we've gone from being behind for more than five years to being ahead," Niebergall said.
Since closing on the deal, Niebergall said L3Harris has increased capital spending on the rocket motor unit by 84%.
That investment has paid off. Compared with $482 million in revenue for the third quarter five years ago, revenue in the L3Harris business unit was $598 million this quarter, up 23.6%.
The company has digitized factory operations, cutting down on hundreds of pages of paperwork that would accompany several types of motors.
It has also invested $25 million into its supply chain creating a second source for a rocket motor case that resulted in a 600% increase in output, Niebergall said. L3's money has helped reopen a factory and helped another supplier put on a second shift of workers at another location.
The rocket motor case holds a chemical propellant which is burned and focused by a nozzle shooting the missile towards its target.
Now demand is surging for rocket motors as militaries around the world believe future conflicts will require many more rockets and missiles - so called "affordable mass" - precision firepower to defeat foes.
This demand has spurred new entrants into the U.S. rocket motor manufacturing space, but they do not have capabilities to mass-produce motors that are qualified to be used by the Pentagon.
The company has made progress and Niebergall was "pleased, but not yet satisfied," he said.