At the recent World Economic Forum held in Davos, Switzerland, Treasury Secretary Scott Bessent expressed strong criticism of prominent American defense contractors concerning performance issues and financial management. In an interview with Maria Bartiromo of Fox Business, Bessent highlighted significant delays in contract completions, pointing out that these companies are currently running five to seven years behind schedule on fulfilling their government contracts.
"These defense contractors have let down the American people," Bessent remarked, drawing attention to the operational inefficiencies undermining national defense capabilities. He underscored the dependency that these firms have on the U.S. government, arguing that with such reliance comes a responsibility to accelerate production and optimize resource use.
Bessent further criticized the companies’ financial practices, noting that large sums are being allocated to stock buybacks rather than investments in factory capacity expansion. He suggested that enhancing production infrastructure should be a priority to meet defense needs effectively. Additionally, the Treasury Secretary called out the substantial executive compensation packages, with chief executives reportedly earning between $30 million and $50 million annually despite these delays and operational setbacks.
To address these concerns, Bessent proposed the imposition of certain constraints on stock repurchases and mandated prioritization of factory development. He indicated that such measures would persist until backlog levels reach a normalized range, which he defined as approximately two to three years, reducing from the current five to seven-year lag.
These comments align with earlier actions taken by President Donald Trump in January, who mandated defense contractors to pause dividend payments and stock buybacks. The President accused these companies of underinvesting in manufacturing capabilities while simultaneously compensating their executives excessively. This directive had immediate market consequences, triggering a decline in stocks of major defense firms including Lockheed Martin (NYSE: LMT), General Dynamics Corporation (NYSE: GD), and Boeing (NYSE: BA).
Trump was particularly vocal in his critique of Raytheon Technologies Corp (NYSE: RTX), labeling it the least responsive defense contractor and urging the company to significantly increase upfront investments in plant facilities and equipment. Failure to comply, he warned, could result in loss of contracts with the Department of War.
Despite these criticisms and market reactions, Trump advocated for a robust $1.5 trillion military budget, reflecting heightened national security priorities. This substantial funding proposal effectively shone a spotlight on the defense manufacturing sector's performance and accountability standards.
Examining stock performance over the previous year reveals mixed outcomes. Raytheon’s shares appreciated by 56.15%, while Boeing, General Dynamics, and Lockheed Martin experienced gains of 41.83%, 32.23%, and 13.78%, respectively, according to data compiled by Benzinga Pro.
These developments illustrate a complex landscape where defense companies face pressure to improve operational efficiency and align financial decisions with national security objectives. The ongoing scrutiny of production backlogs, executive remuneration, and shareholder returns suggests sustained oversight from governmental authorities until fundamental issues are resolved.