A broad coalition of US aviation groups are urging the Trump administration to exempt the aerospace industry from stiff new import tariffs.
The move comes as airlines and aerospace manufacturers grapple with new import duties and prepare for a possible escalating trade war.
For now, aircraft produced in Canada are exempt from 25% US import duties that took effect on 4 March, several sources say.
Still, Aengus Kelly, chief executive of aircraft lessor AerCap, has warned of a “worst-case scenario” – an increasingly combative trade battle leading to tariffs that add tens of millions of dollars to the cost of passenger jets.
Such a situation may never occur, but the prospect is being contemplated.
The Trump administration on 4 March also slapped 25% duties on Mexican imports, and 25% taxes on all imported aluminium and steel. Canada has responded with its own 25% tariffs on C$30 billion ($21 billion) of US imports. Other countries are retaliating.
Trump has defended the tariffs, which are paid by importers, as encouraging more domestic US production. Stock indexes have widely declined in recent days as the tariffs took effect.
“We ask that you provide an exception for aerospace from any tariff consideration, to give time to consider all relevant policies to bolster industry competitiveness and ensure there are no unintended consequences,” a coalition of 15 aviation groups said in a 12 March letter to top US officials.
Signatories include Aircraft Owners and Pilots Association, Airlines for America (A4A), General Aviation Manufacturers Association and National Business Aviation Association (NBAA). They sent the letter to the heads of the US departments of commerce and transportation and to US Trade Representative Jamieson Greer.
Those agencies did not respond to requests for comment.
A4A, Boeing, De Havilland Canada, Delta Air Lines, JetBlue Airways and RTX either declined to comment or did not respond to requests.
Sources say many industry players see little upside in speaking up.
But Dak Hardwick, vice-president of international affairs at Aerospace Industries Association (AIA), says the industry is “concerned about additional downward pressure on an already-stressed American supply chain”.
“We are investigating mitigation strategies that would minimise the impacts of new tariffs on our industry, and we hope to work with the Trump administration to highlight the critical role we play in America’s economic prosperity, national defence and deterrence,” AIA adds.
AIRCRAFT, ENGINE IMPORTS
Aerospace manufacturers rely heavily on imported aluminium, while Delta and JetBlue have been acquiring Canadian-made Airbus A220s.
Notably, Trump has suspended until 2 April tariffs on Canadian and Mexican products specified under the United States-Mexico-Canada Agreement (USMCA), a trade treaty negotiated during Trump’s first term.
That means new aircraft and aircraft engines produced in Canada “should qualify” as exempt, Jonathan Epstein, partner at law firm Holland & Knight, said during a 12 March NBAA webinar.
It is less clear whether aircraft sub-assemblies are exempt, as USMCA requirements are incredibly complex, he adds, saying manufacturers should provide importers with documentation required to certify exemptions.
Since 1979, “aircraft and aircraft parts have been largely duty free”, Epstein says. “Nobody has had to think about tariffs.”
Not anymore.
“Bombardier products are USMCA compliant. They are not subject to tariffs under the current executive orders,” the Quebec-based business jet maker says. Bombardier’s spare parts are also exempt, it adds, noting that many of those components are made by US companies and that Bombardier ships them to US customers from a Chicago facility.
AerCap CEO Kelly says a hypothetical 25% tariff on new aircraft would, for instance, add $40 million to the cost of a 787. It would also lead buyers to align behind either Airbus or Boeing.
“No one is going to pay that,” Kelly said during a 12 March interview on CNBC. “Boeing would end up with the United States, about 20-25% of the global market. Airbus would end up with the rest of the world.”
Business jet buyers outside the USA are also wary, fearing that retaliatory tariffs could make US-built aircraft prohibitively expensive, Katie DeLuca, an aircraft-transaction attorney with Harper Meyer, said during an 11 March NBAA webinar.
She says some buyers are rushing to close deals and that tariffs could make “markets become more regional”.
ALUMINIUM TAX
The USA’s 25% aluminium tariff poses concern to aerospace manufacturers.
The USA long ago stopped being a leading aluminium producer, and US firms now source most of their aluminium from elsewhere.
In recent years, Canada has supplied about half of the USA’s imported aluminium, according to a Congressional Research Service report.
Analyst Kevin Michaels with AeroDynamic Advisory notes that aerospace manufacturers use an aircraft-grade aluminium alloy to produce components including fuselages and wings, paying $3 to $4 per pound.
Only about 30% of that cost, however, is likely subject to the USA’s 25% duty, he says.
That is because Canadian firms primarily perform the work of smelting bauxite (from which aluminium is derived) to create “pure aluminium”, which costs about $1.30 per pound, Michael says. “This is what the tariff will be applied to.”
The pure aluminium is then shipped to “cast houses” – including large US operations run by Arconic and Kaiser Aluminum – where it is “mixed with other elements to create the alloy used to make aircraft, Michaels says.
