Trump Targets Defense Contractors with Executive Order

Defense contractors confront legal uncertainties after President Trump's executive order connects executive pay and investor returns to weapons deliveries. The policy aims to prioritize military readiness but raises concerns over enforceability and potential contract penalties. Industry response reflects a cautious stance amid increased budget proposals.

In a move that has rattled defense contractors, President Donald Trump signed an executive order linking share buybacks, dividends, and executive pay to weapons delivery schedules, according to three sources. The order, titled 'Prioritizing the Warfighter in Defense Contracting,' aims to shift contractor focus from investor returns to military readiness.

Analysts say the order's enforceability may be questionable, but its potential impact on corporate decisions is significant. Contractors are advised to legal consultations to anticipate possible contract terminations and penalties, although such threats could face lengthy legal battles.

The executive order quickly impacted defense stocks, causing a dip before rebounding with news of the proposed fiscal year 2027 defense budget increase to $1.5 trillion. This development underscores the dual approach of incentives and restrictions as contractors assess the long-term implications.

(With inputs from agencies.)