Overview
- President Trump’s executive order immediately bars stock buybacks and dividends for defense contractors the secretary deems underperforming, with a 15-day window for board-approved remediation after notice.
- The order requires new contract clauses within 60 days tying executive incentives to on-time delivery, production speed, and investment, with potential caps on base salaries during periods of underperformance.
- The SEC chairman is directed to consider changes to Rule 10b-18 that could remove the buyback safe harbor for identified defense contractors, adding market and compliance uncertainty.
- Key terms like “underperforming” and which firms qualify as “major” remain undefined, raising legal questions over enforcement under existing FAR/DFARS tools and Defense Production Act authorities.
- Industry responses range from startups praising the policy to large primes emphasizing production moves, with RTX highlighting a 2026 Sea Sparrow ramp, HII prioritizing shipyard investment, and Pentagon leaders expecting Lockheed to “step up.”