In a move that could have major ramifications for the military aerospace industry, President Donald Trump said this week that he will block defense contractors from executing stock buybacks and “excessive” dividends if they underperform.
In an executive order issued Wednesday, the president slammed the defense sector for, in his view, prioritizing shareholders “at the cost of production capacity, innovation, and on-time delivery.”
“Effective immediately, they are not permitted in any way, shape, or form to pay dividends or buy back stock, until such time as they are able to produce a superior product, on time and on budget,” the order read.
Trump directed the U.S. Defense Department to identify “underperforming” contractors and, if needed, rework their contracts to limit corporate distributions. Similar restrictions on stock buybacks and dividends will also be built into future contracts, the White House said.
The goal of the directive is to speed up production of military equipment and weaponry, while also making the process more efficient. The administration commended the U.S. defense industry for making the “best military equipment in the world” but added that “we do not make enough of it quickly enough to meet the needs of our military and our partners.”
Complaints concerning the speed and cost-effectiveness of U.S. weapons production are as old as the military-industrial complex itself, but recent events, including the Russian invasion of Ukraine, have highlighted perceived weaknesses in the nation’s industrial base. The U.S. has at times been forced to pause deliveries of artillery to Ukraine because domestic stockpiles were at risk of thinning out. The conflict also underscored Washington’s relative disadvantage in drone warfare, which some adversarial countries, like Russia and Iran, have been quick to embrace.
There are also concerns that the complexity and price of U.S. weapons systems have become excessive relative to the advantages they provide. One notable target for that criticism is Lockheed Martin’s F-35 stealth strike fighter, which faced huge cost overruns and years of delays. Only in recent years has F-35 production stabilized.
Overruns and development challenges have also plagued programs such as the Bell-Boeing V-22 Osprey and Sikorsky CH-53K King Stallion.
Not ‘Business as Usual’
This week’s order did not single out any defense contractors by name, but Trump himself did, targeting Raytheon in a post on Truth Social.
“I have been informed by the Department of War that Defense Contractor, Raytheon, has been the least responsive to the needs of the Department of War, the slowest in increasing their volume, and the most aggressive spending on their Shareholders rather than the needs and demands of the United States Military,” the president wrote. “Raytheon seems to think this is the Biden Administration, and this is ‘business as usual,’ IT’S NOT! Either Raytheon steps up, and starts investing in more upfront Investment like Plants and Equipment, or they will no longer be doing business with Department of War.”
Trump also threatened to block the company from carrying out stock buybacks.
Raytheon builds a number of radar, communications, and weapons systems for the U.S. military, including radars for the F-22, F/A-18, and B-2 heavy strategic bomber.
The company has not responded to the president’s statement.
The stock price of several major defense firms, including RTX, Lockheed, General Dynamics, and Northrop Grumman, dipped midweek, but as of Friday they had mostly recovered.
Reuters reported Friday that contractors are seeking legal advice on how to comply with the White House’s directive. Unnamed sources told the news outlet that, while the order will probably be difficult to enforce, contractors may decide to curtail buybacks and bonuses for executives to keep from angering Trump and alienating his administration.
