EXCLUSIVE-L3Harris nears space propulsion asset stake sale to AE Industrial, sources say

By Mike Stone

Jan 4 (Reuters) - L3Harris Technologies LHX.N is nearing a deal to sell a 60% stake in a portfolio of space and propulsion businesses to private equity firm AE Industrial Partners as the large defense company sheds some NASA business lines to sharpen focus on national security, three people familiar with the matter said.

The deal, which could be announced as soon as Monday, represents one of the larger space industry transactions in recent months as private equity firms increasingly consolidate capabilities across the commercial and defense space sectors amid growing demand for satellite systems and space-based defense systems.

The defense contractor will retain a 40% stake in the portfolio of businesses which has an enterprise value of $845 million, and AE Industrial will pay over $500 million for its 60% stake, two of the people said, asking not to be named because the deal is private.

The deal could provide AE Industrial with opportunities in space exploration and the Pentagon's emerging Golden Dome initiative, a multi-layered space-based missile defense architecture, as the space propulsion assets could benefit from increased satellite deployment.

The space propulsion business being sold includes the RL-10 second-stage rocket engine, a workhorse motor used to position assets in space currently being used aboard the Vulcan rocket used in Boeing BA.N and Lockheed Martin's LMT.N United Launch Alliance joint venture.

The portfolio also encompasses in-space propulsion systems that help satellites maintain position and maneuver in increasingly hostile environments, developing nuclear power technology for lunar and Mars applications, and electronics supporting space launch operations, the people said.

Notably, L3Harris will retain its sole ownership of the powerful RS-25 rocket engine, currently used on NASA's Space Launch System for the Artemis program, along with the associated workforce and facilities.

The transaction is not expected to impact L3Harris' own Golden Dome offering.

AE Industrial already has several space-related investments, including satellite maker York Space Systems, satellite component company Redwire RDW.N and Firefly Aerospace FLY.O, which went public last year.

L3Harris plans to use the proceeds to invest in rocket motor and missile production capacity and general corporate purposes, the sources said. Some proceeds may be used to pay down debt.

The Russia-Ukraine war and conflicts in the Middle East have made demand for missiles balloon, with militaries around the world aiming to replenish stockpiles, benefiting contractors such as L3Harris.

The partial divestiture of the space propulsion portfolio would mark more than $4 billion worth of divestitures since L3 and Harris merged in 2018, as the company streamlines operations around its core defense capabilities.

The transaction is expected to close in the second half of 2026, pending customary closing conditions, two of the people said.

The transaction continues L3Harris' strategic shift toward missile-focused operations and away from certain space and NASA-oriented businesses, though the company serves customers beyond the Department of Defense.

A representative for AE Industrial Partners, a private equity firm specializing in aerospace, defense, technology and government services investments, declined to comment. L3Harris declined to comment.

(Reporting by Mike Stone in Washington, DC; Editing by Dawn Kopecki and Chris Reese)