Behind Trump’s Diatribe Against Defense Contractors

Donald Trump's broadside against the defense industry might sound like a populist cry targeting wealthy CEOs.

But the president's tirade was actually building for months, according to industry executives and administration officials, as top Pentagon officials grew frustrated with an industry that's failed to deliver vital weapons’ systems on time and on budget.

His chastising of major contractors’ slow production has resonated with lawmakers in both parties and in emerging tech companies, who have decried the plodding, calcified nature of the process — even if Trump's anger can do little to change the system. If he wants better performance, industry insiders say, he needs to stop jawboning about CEO pay and let the Pentagon reform government contracting to allow more flexible purchases and start-ups.

“Those guys make money when there's more cost, when there's more time, more materials going to the thing they're building,” said a defense industry executive. “The president is just observing symptoms that prove that. We don't need senior leaders getting into all the details of acquisition reform.”

So-called prime defense contractors such as Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and RTX (formerly Raytheon) — which Trump called out by name in his extended missives Wednesday on TruthSocial — often operate on slimmer margins than other publicly traded companies and can profit from projects going over budget. Those companies have also used stock buybacks that can drive up their value and profits.

An executive order released Wednesday — which threatens to nix Pentagon contracts for companies that can’t speed up production and cut bonuses to executives and shareholders — has been in the works since the fall. It builds on the first Trump administration’s frustrations about the defense industry’s tepid pace and a risk-averse, bureaucratic contracting process that can cause yearslong delays.

The order didn’t entail how it would suddenly transform a complex, specialized production process system, which has bedeviled numerous administrations. And any attempts to supersede shareholders or ditch billion-dollar contracts with companies are bound to trigger lawsuits.

But the president’s comments, and the subsequent order, reinforce the Pentagon’s campaign to press the defense industry to build faster. Defense Department officials, in recent months, have pushed quicker weapons production to replace weapons sent to Ukraine or burned up by the U.S. strike campaigns against Yemen’s Houthi group.

And it has made Trump some interesting bedfellows.

“This is all part of trying to put the pressure on,” said Sen. Jack Reed (D-R.I.), the top Democrat on the Armed Services committee. “It represents a realization that, you know, these companies have done extraordinarily well, and yet we're behind in so many different systems.”

Most of the industry’s mainstays avoided responding directly to Trump’s attacks.

“Lockheed Martin shares President Trump’s and the Department of War’s focus on speed, accountability, and results, and will continue to invest and innovate at scale to ensure our warfighters maintain a decisive advantage and are never sent into a fair fight,” Lockheed Martin said in a statement. The company agreed to a deal with the Pentagon to more than triple the number of Patriot interceptor missiles it produces just days before Trump launched his missive.

RTX did not respond to a request for comment.

So far, the defense industry has weathered Trump’s rhetorical storm. Defense stocks for the five prime companies nosedived on Wednesday after the president’s initial TruthSocial post. But they rebounded on Thursday after Trump said that he had negotiated a $1.5 trillion Pentagon budget, which would be the highest increase in defense spending since the Korean War.

“Federal policies should encourage continued private investment in defense manufacturing,” Aerospace Industries Association President CEO Eric Fanning said in a statement. “When investment flows, companies can build capacity, modernize plants, and accelerate delivery — all of which directly benefit the warfighter and support America’s leadership in defense technology.”

But insurgents and startups looking to uproot established companies celebrated Trump’s move.

“The system’s pretty broken, and that’s what Trump’s trying to fix,” said Hal Lambert, a Republican donor who founded the investment management firm Point Bridge Capital and was an early investor in defense contractor Anduril. “You have a system where the incentive on the other side is not to deliver products as quickly or cheaply as possible.”

Trump’s actions likely also carry political overtones.

Loren Monroe, a principal at Washington lobbying firm BGR Group, said other industries need to be on the alert for similar attacks "during an election year where neither party will cede an inch on issues that resonate with voters” — namely, the “populist temptation” to scapegoat major corporations.

"Businesses need to be vigilant for new policy threats that can metastasize quickly," he said, pointing to California Gov. Gavin Newsom's recent endorsement of Trump's move to limit institutional investors in the housing market. "Strange bedfellows will continue to come together throughout the year. The best defense will always be going on offense to emphasize investments in the U.S. economy.”

And it’s unlikely prime contractors will cede their dominant role in defense production, despite Trump’s anger. The primes have ruled since the end of the Cold War, when the defense industry consolidated into five major companies as the Pentagon reined in decades of high spending.

“You can't swap Joint Strike Fighter out of Lockheed and in short order, right?” said George Ferguson, a senior aerospace and defense analyst at Bloomberg Intelligence. “They like to pick on the primes, but as much as you want to pick on the primes, they do a pretty good job of building weapon systems, integrating components from a lot of other small suppliers overnight. You can't swap them out.”

And lawmakers note Trump needs their help. “It's not enough for Donald Trump to wave his magic wand and believe that he's going to change compensation in the defense industry,” said Sen. Elizabeth Warren (D-Mass.), who has long argued that defense industry stock buybacks pump up stock prices and shortchange taxpayers. “The way to make real change is to come to Congress and help us get it into laws.”

Rather than cancel big contracts and risk lawsuits, the Pentagon may increase its use of flexible contracting rules to allow companies to develop rapid prototypes. Officials have used this method for costly weapons such as the F-35 fighter jet, ballistic missiles and the Ford class of nuclear-powered aircraft carriers.

But some industry executives and lobbyists, who like others interviewed — were granted anonymity to speak about internal discussions — are watching to see if Trump’s urging could draw more competitors.

“They're not saying Anduril’s the way, they're not saying Palantir’s the way, but they're saying your current, existing set of large companies needs to change, or else we're going to move on,” a defense lobbyist said. “If I were a startup company, there'd be no better time to be in defense, because you're the target audience for what they're looking for.”

Victoria Guida, Declan Harty and Caitlin Oprysko contributed to this report.