Tariffs & Air Travel
Welcome back to Brooke In The Air.
Today we’re discussing the impact of Trump’s tariffs on aviation, and the hardships to come. Tariffs are placing undue financial hardships on both customers and the aviation industry. Aviation manufacturers Boeing, Airbus, Bombardier, and Embraer are all very worried amidst rising production costs since they import 99% of their parts from overseas partners. The parts are not impossible to get but are financially unstable, meaning the airlines will pay a higher price to obtain aircraft and pass that cost onto consumers in the form of higher ticket prices.
The European Union for example, was hit by reciprocal 22-28% tariffs.
Every location Boeing uses to build parts for various aircraft
Boeing alone imports 42% of aircraft parts from factories in France, Germany, and the Netherlands.
New tariffs, particularly those impacting imports from Canada, Mexico, and China, are expected to significantly increase costs for the aviation industry, potentially leading to higher airplane prices and disruptions in the supply chain.
According to Reuters: “The Aerospace Industries Association and a coalition including U.S. airlines and business jet manufacturers have raised alarm over tariffs hitting the industry's supply chain, which produces critical parts.” …"It is essential that both government and industry work together to minimize cost and availability disruptions in the aviation supply chain, which in many cases cannot be easily or quickly addressed," the coalition (AIC) said.
Also keep in mind the aforementioned SCM, or Supply Chain Management. All the equipment and personnel used to move airplane parts from point A to point B. The personnel have been deported, and now the equipment is being levied tariffs which will put numerous companies out of business.
So, for everyone saying “just buy American,” no, it does not work that way. America does not produce; it consumes.
Aengus Kelly, CEO of the world's largest aircraft leasing company AerCap warned on Wednesday on CNBC that the price of a Boeing 787 Dreamliner could increase by $40 million in a worst-case scenario due to the tariffs.
Boeing primary factory in Renton, Washington outside Seattle
Boeing had no immediate comment to any of the above aside from the following; new Boeing CEO Kelly Ortberg just happened to be testifying at a Senate Commerce Committee hearing on Wednesday and diverted from the topic at hand (Boeing's progress on improving product quality control) to comment on the tariffs that will affect raw materials and parts it uses in its aircraft. “Free trade is very important to us,” Boeing’s Ortberg said at the Senate hearing. “We really are the ideal kind of an export company where we’re outselling internationally. It’s creating U.S. jobs, long-term high value U.S. jobs. So it’s important that we continue to have access to that market and that we don’t get in a situation where certain markets become closed to us.”
Boeing 737-700 landing at night in Minneapolis
Everyone loses from the application of tariffs in aviation/the aviation industry, as the Wall Street Journal reiterates.
We won’t know the effects for certain until the European Union (E.U.) decides on a collective response.
For now, Aerospace companies are apparently lining up to ask the White House to spare aviation and citing a 45-year-old trade agreement covering the import and export of civilian and military aircraft between 33 countries. The tariffs essentially negate the U.S.'s participation in that deal and the cost will be high. Add to that the 25% tariff on steel and aluminum, which is separate from the aerospace deal, and the U.S.'s dominance in the industry will be threatened, according to industry analyst Richard Aboulafia. “This is the one manufacturing sector where America has enjoyed a tremendous trade surplus,” Aboulafia, managing director at AeroDynamic Advisory, told CNBC. “So the idea of fighting a trade war for this industry, it’s living in a crystal palace hurling giant boulders.”
Emblem of the World Trade Organization (WTO) - where the agreement on civil aviation was drafted
If there is any upside at all to the tariffs, it is that they seem to have avoided hitting SAF or Sustainable Aviation Fuel, supplies.
I’ll let CNBC have the last word here, ‘Just who will pay the extra costs in the end is also in question. Manufacturers cannot keep up with demand for new airliners and the backlog continues to grow. Whether the airlines and leasing companies that are the main customers for airplanes are prepared to eat the extra costs is a major question. Although Boeing and some foreign-owned companies that have assembly plants in the U.S. and technically meet the White House definition of "Made In The U.S.," they use parts that come from all over the world and the rules are clear on those. “It doesn’t matter who owns the company. If an item crosses the border, it will have to be paid by importer of record,” said Dak Hardwick, vice president of international affairs at the Aerospace Industries Association.’ - CNBC
Sources: CNBC, Boeing, AerCap, Reuters, AvWeb
