A broad coalition of US aviation groups is urging the Trump administration to exempt the aerospace industry from harsh new import duties.
The move comes as airlines and aerospace manufacturers tackle new import duties and prepare for the escalation of the trade war.
For now, aircraft produced in Canada are exempt from the 25% US import duties that came into effect on March 4, several sources say.
Still, Aengus Kelly, chief executive of aircraft lender Aercap, warns that it is an increasingly militant trade battle that leads to “the worst case scenario,” a tariff that adds tens of millions of dollars to the cost of passenger jets.
This situation may never happen, but the outlook is conceivable.
On March 4, the Trump administration imposed a 25% duty on Mexico's imports and a 25% tax on all imported aluminum and steel. Canada is responding to 25% tariffs on US imports of $30 billion ($21 billion). Other countries are retaliating.
Trump is defending tariffs paid by importers to encourage more domestic US production. Stock indexes have recently been declining widely due to tariffs being taken into effect.
“We ask that you give us time to provide an aerospace exception from customs consideration and consider all relevant policies to enhance the competitiveness of the industry, and ensure that there are no unintended consequences,” the coalition of 15 aviation groups said in a letter from a US official on March 12.
Signatories include the Aircraft Owners and Pilot Association, Airlines for America (A4A), General Aviation Manufacturers Association, and the National Business Aviation Association (NBAA). They sent letters to the US Department of Commerce and Head of Transportation and to the US Trade Representative Jamieson Greer.
These agencies did not respond to requests for comment.
A4A, Boeing, DeHavilland Canada, Delta Air Lines, JetBlue Airways and RTX either declined to comment or did not respond to requests.
Sources say many industry players don't look upside down when speaking out.
However, Dak Hardwick, vice president of international affairs at the Aerospace Industries Association (AIA), said the industry is “are concerned about downward pressures that have already been stressed out on the stressful American supply chain.”
“We are investigating mitigation strategies that will minimize the impact of new tariffs on our industries. We would like to work with the Trump administration to highlight the important role we play in America's economic prosperity, defense and deterrence,” AIA adds.
Aircraft and engine imports
Aerospace manufacturers rely heavily on imported aluminum, with Delta and JetBlue acquiring the Canadian Airbus A220.
In particular, Trump suspended April 2nd tariffs on Canadian and Mexican products designated under the US-Mexico-Canada Agreement (USMCA). This was negotiated during Trump's first term.
This means that new aircraft and aircraft engines produced in Canada will be “qualified” as exemptions, Jonathan Epstein, partner at the law firm Holan & Knight, said at the NBAA webinar on March 12.
The USMCA requirements are so complicated that it is not clear whether the aircraft subassembly is exempt, he adds, saying manufacturers should provide the importers with the necessary documents to prove the exemption.
Since 1979, “most of the aircraft and aircraft parts have been tax-free,” Epstein says. “We didn't have to think about customs.”
There's no more.
“Bombardier products are USMCA-compliant. The Quebec-based business jet manufacturer said: “The Bombardier spare parts are also exempt, and many of these components are made by US companies, and Bombardier is paying attention to shipping from its Chicago facility to US customers.
Aercap CEO Kelly says the hypothetical 25% tariff on a new aircraft, for example, would add $40 million to the 787 costs. Buyers will also be able to line up behind either Airbus or Boeing.
“No one is going to pay for it,” Kelly said in a March 12 interview with CNBC. “Boeing will end in the United States, which is about 20-25% of the global market. Airbus will end in other parts of the world.”
Business jet buyers outside the US are also on the lookout. They fear retaliatory tariffs could make US construction aircraft prohibitively expensive, Harpermeyer's aircraft transaction lawyer Katie DeLuka said in a March 11 NBAA webinar.
She says some buyers are rushing to close deadlines and tariffs can “make the market more regional.”
Aluminum tax
US 25% aluminum tariffs raise concerns for aerospace manufacturers.
The United States stopped becoming a major aluminum producer long ago, and US companies now source most of their aluminum from elsewhere.
Canada has recently supplied about half of US imported aluminum, according to the Congressional Research Services report.
Analyst Kevin Michaels points out that aerospace manufacturers use aircraft-grade aluminum alloys to produce components including fuselages and wings, paying $3-4 per pound.
However, he says only about 30% of that cost is likely to be subject to the 25% U.S. obligation.
This is because Canadian companies mainly work on smelting bauxite (aluminum derived) to create “pure aluminum.” “This is what the customs duties apply.”
The pure aluminum will then be shipped to “cast homes” that include a large US business run by Arconic and Kaiser aluminum. There, “it's mixed with other elements to create the alloys used to manufacture aircraft,” says Michaels.
