Trump targets defense giants’ shareholder payouts as cost overruns mount, sources say

By Joey Roulette and Mike Stone

WASHINGTON, Dec 16 (Reuters) – The Trump administration is planning an executive order that would limit dividends, buybacks and executive pay for defense contractors whose projects are over-budget and delayed, according to three sources briefed on the order.

President Donald Trump and the Pentagon have been complaining about the expensive, slow-moving and entrenched nature of the defense industry, promising dramatic changes that would make the production of war equipment more nimble.

Industry groups have been on high alert about the closely-held proposal, which is tied to a Treasury Department initiative, two of the sources said.

Reuters could not determine exactly how the order would compel defense firms to enact any restrictions. The sources, who declined to be named because the information is confidential, said the language of the order could still change.

A White House official said: “Until officially announced by the White House, discussion about potential executive orders is purely speculation.”

Shares of Lockheed fell 1.6% and Northrop Grumman sank 2% in after-hours trading after some aspects of the news were first reported by online political news service Punchbowl.

DEFENSE FIRMS OFTEN BUY BACK SHARES

Share buybacks are common among defense firms, and several pay a dividend. Lockheed in October, for example, raised its dividend for the 23rd year in a row, to $3.45 per share. At the same time, it authorized the purchase of up to $2 billion of its shares, raising the total amount promised for repurchases to $9.1 billion.

Lockheed’s F-35 fighter jet, one of the most expensive U.S. defense programs, has been plagued by rising costs and delays. Many big defense programs take much longer to deliver a product than initially promised and at a far higher price. 

The $140 billion Sentinel intercontinental ballistic missile program that will replace aging Minuteman III missiles, designed and managed by Northrop Grumman, will be years behind schedule and 81% over budget, the U.S. military said last year.

The biggest defense firms, including Lockheed, Northrop Grumman, General Dynamics and Boeing did not immediately respond to a request for comment about the executive order.

PENTAGON PROCUREMENT OVERHAUL

U.S. Secretary of Defense Pete Hegseth unveiled sweeping changes in November to how the Pentagon purchases weapons, allowing the military to more rapidly acquire technology amid growing global threats, in accordance with an executive order signed by Trump in April.

That restructuring will have direct authority over major weapons programs to eliminate bureaucracy. 

The November reforms targeted what Pentagon officials call “unacceptably slow” procurement, which they blame on fragmented accountability and misaligned incentives that have hampered the military’s ability to field new technology quickly.

The defense industry has also lobbied for changes to the procurement process.

In June, an industry group that represents defense and aerospace companies said it identified more than 50 regulatory requirements that discourage companies from doing business with the government. 

In a June 3 letter to Hegseth, the Aerospace Industries Association, which represents defense companies including RTX, Boeing and General Dynamics said its members wanted to eliminate regulations related to cybersecurity compliance, cost accounting standards, intellectual property rules and commercial acquisition requirements. 

(Reporting by Joey Roulette and Mike Stone; Additional reporting by Chris Sanders; Editing by Chris Reese and Jamie Freed)