In the six months since L3Harris Technologies [LHX] acquired Aerojet Rocketdyne, business opportunities for the rocket maker are exploding and it is making progress on improving operating performance to meet contracted requirements, Chris Kubasik, chairman and CEO of L3Harris, said last Friday.
L3Harris already has achieved the targeted $50 million in cost savings synergies it expected to gain after acquiring Aerojet Rocketdyne and expects to drive an additional $20 million to $30 million in savings, Kubasik said.
“The team is using the savings to deploy resources from across L3Harris to help improve operational performance and ultimately increase capacity,” he said during a call with investors to discuss the company’s fourth quarter and 2023 financial results. “In our short time owning this business we are seeing improvements and we are progressing toward returning to contracted production levels.”
Aerojet Rocketdyne, which now reports as one of four operating segments of L3Harris, is one of two domestic suppliers of solid rocket motors (SRMs) for U.S. defense companies building missiles for the Defense Department. Northrop Grumman [NOC] is the other SRM supplier.
U.S. supply of various tactical missiles to Ukraine in that country’s war against Russia’s invasion has laid bare shortfalls in production rates of, and supply chain challenges related to, these weapons.
A top Air Force official who oversees his services’ acquisition and sustainment of air-delivered munitions told Defense Daily this month that he has been “encouraged” by the L3Harris acquisition.
“I’m sure that they have strong plans on how they’re going to execute that,” said Brig. Gen. Jason Bartolomei, program executive officer for weapons, said in an interview.
Ken Bedingfield, L3Harris’s chief financial officer, said during the earnings call that the investments the company is making in Aerojet Rocketdyne include “investing in critical suppliers, deploying resources to their sites, improving processes, and co-investing in supplier infrastructure.” He also echoed Kubasik, saying the rocket maker is improving operations to “increase throughput of its critical products.”
The demand signal for Aerojet Rocketdyne’s products is huge, Kubasik said.
Since owning the business, L3Harris has submitted more than 200 proposals worth more than $13 billion in business for Aerojet Rocketdyne, an amount that Kubasik said was unexpected and shows that “demand is outweighing the supply, so, feel good about the potential there and the ability to return to their historical margins or even better.”
Aerojet Rocketdyne generated nearly $1.1 billion in sales and $122 million in operating income for L3Harris since the acquisition closed on July 28, 2023. The segment’s sales for all of 2023 will be reported soon when L3Harris files its quarterly financial statement with the Securities and Exchange Commission, which will show 5 percent growth over 2022, Kubasik said.
Kubasik said that Aerojet Rocketdyne still needs to win and then negotiate the business it has bid on.
Another recent plus at Aerojet Rocketdyne has been a one-third drop in the employee attrition rate, and a 50 percent decline in the rate of engineers leaving the company, he said.
Results from employee surveys demonstrate that “There’s just a lot of enthusiasm and excitement about the acquisition, the strategy,” he said.
Last year, prior to the acquisition, the DoD awarded Aerojet Rocketdyne more than $200 million to invest in its SRM capacity. Kubasik said the company has purchased a building in Huntsville, Ala., and expanded capacity by four times.
Asked about potential new entrants in to SRM space, including Lockheed Martin’s [LMT] investments in bringing along a third rocket motor supplier, Kubasik answered, “We don’t shy away from competition.”
However, he said adding more SRM manufacturers “doesn’t really solve the problem” because everyone relies on the same supplier at the sub-tier level for things such as igniter cases, nozzles, and other key SRM components and that is where the “challenges” are. L3Harris is investing in these suppliers, not to acquire them, but to help with purchasing equipment, tooling, providing capital, and increasing capacity, he said.
The supply chain is improving, he said.
L3Harris is “chipping away” at the backlog of undelivered rocket motors, Kubasik said.
“Once we get these facilities and equipment up and running, I think it’s going to look pretty good,” he said. “And yeah, there’s a lot of people trying to get into this market now, which is fine. It’s a high growth market and in my mind reaffirms the rationale and the value potential from this acquisition.”
Lockheed Martin has invested in X-Bow Systems, which is developing SRMs. Some other potential new entrants in the SRM market include Anduril Industries, Firehawk Aerospace, and Ursa Major.