A provision would require contractors to submit a defense investment plan to increase production capacity or face restrictions on shareholder distributions.
The Senate Armed Services Committee adopted an amendment that would restrict stock buybacks for defense contractors that fail to meet Pentagon performance requirements, setting up a fight with industry that argue the measure would discourage investment in the defense industrial base.
Passed with bipartisan support, the amendment would require contractors to submit a “qualified defense investment plan” detailing how they will increase production capacity or face restrictions on shareholder distributions, according to a summary of the committee’s fiscal 2027 defense policy bill that was approved last week. The full legislative text has not yet been released.
The measure is partially based on the Prioritizing the Warfighter in Defense Contracting Act introduced by Sens. Elizabeth Warren (D-Mass.), Josh Hawley (R-Mo.) and Mike Lee (R-Utah), which seeks to codify President Donald Trump’s executive order that limits stock buybacks and executive pay for certain defense contractors.
“America’s defense contractors should be focused on expanding production, not padding their bottom lines,” Hawley said in March.
“Giant military contractors are cheating our government out of billions in taxpayer dollars and lining their executives’ and shareholders’ pockets instead of investing in our national defense. It’s time to stop these contractors from putting Wall Street over our national security,” Warren added.
Another measure in the committee’s version of the bill would prohibit the Pentagon from contracting with companies, “unless the contractor agrees to not purchase equity security, pay dividends, or make any other capital distribution with respect to equity securities unless the contractor has a waiver from the defense secretary.”
Meanwhile, the House Armed Services Committee did not include a provision to codify Trump’s executive order into its version of the authorization bill — Rep. Chris Deluzio (D-Pa.) offered an amendment that would have prohibited defense industry stock buybacks but withdrew it due to jurisdictional issues.
Industry groups immediately pushed back following Deluzio’s amendment introduction — the Aerospace Industries Association said stock buyback restrictions would weaken the very industrial base lawmakers are seeking to expand by discouraging investment and making it harder to attract new entrants into the defense market.
“The ultimate result of such a prohibition would be less capital in the defense industrial base available for companies to reinvest in enhancing production capacity and delivering at speed and scale. Put simply, limiting capital returns would weaken, not strengthen, America’s industrial capacity,” the Aerospace Industries Association said.
The U.S. Chamber of Commerce said it believes that “any legislative effort to codify the executive order’s provisions through stock buyback restrictions would significantly exceed the president’s stated intent and transform a targeted policy directive into a blunt and overreaching statutory mandate.”
“Reduced stock price volatility, enhanced market liquidity, lower transaction costs and greater stability for retail investors during periods of market turbulence are all proven benefits of stock buybacks. Since the executive order was published, the Chamber has observed companies voluntarily curtailing buyback activity. Legislating restrictions on this practice represents a flawed and unwarranted intrusion into free market mechanisms and would not address the underlying challenges the executive order seeks to remedy,” Keith Webster, president of the U.S. Chamber of Commerce’s Defense and Aerospace Council, said in a letter to the House Armed Services Committee leaders.
Following the Senate committee’s approval of the measure, AIA President and CEO Eric Fanning said the amendment would “put at risk all their good progress toward rebuilding the defense industrial base.”
The bill is now headed to the Senate floor for consideration.
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