Large aircraft are included on the list of $7.5 billion worth of European imports that will be subject to new U.S. tariffs starting Oct. 18. That means U.S. airlines with orders for Airbus aircraft could pay more than expected.
During Thursday’s (Oct. 10) earnings call with analysts, Delta Airlines [NYSE: DAL] CEO Ed Bastian expressed concern the tariffs will retroactively apply to previous orders and said the company is working to blunt their impact, which wouldn’t be felt until next year or materially hurt finances in the near term.
“We’re examining our options . . . to mitigate any increase to the prices we already negotiated with Airbus,” he said.
Delta has 184 jetliners on order from the European aircraft maker, at least 43 of which are twin-aisle planes that face a 10% tariff upon delivery, according to Airbus data. The order book includes 95 regional jets being made at Airbus plants in Canada and Mobile, Alabama. Most of the 127 A321 neo narrow-body planes on order will be assembled in Mobile, but some planes could be made in Europe.
The tariffs represent meaningful money for airlines. List prices are about $129 million for an A321neo and $296 million for an A330-900, although airlines typically get better deals for multi-aircraft purchases. An A350-900 at current list prices goes for about $317.5 million.
The Trump administration got the go-ahead for the tariffs earlier this month from the World Trade Organization, which ruled that the U.S. can retaliate for illegal subsidies given by members of the 28-nation European Union to Airbus to help it compete against U.S. rival Boeing. The WTO twice ruled that decades of state aid greatly helped the Airbus consortium launch new aircraft models, but several European governments failed to comply with the order to end the subsidies.
The EU, which is waiting for a WTO ruling next year on allegations of U.S. aid to Boeing, has threatened to impose tariffs on U.S. goods, even though they would not be officially sanctioned by the WTO at this point.
“It’s unprecedented for the U.S. government to impose tariffs on aircraft, and it’s widely believed that any tariffs on aircraft could negatively impact the U.S. commercial aviation industry as well as the overall economy,” Airlines for America (A4A) said in a statement provided to FreightWaves. Spokesman Carter Yang would not provide any further details about the trade association’s position.
American Airlines [NYSE: AAL] also has 114 A321neo narrow-body jets still remaining to be delivered under an existing order with Airbus. United Airlines [NASDAQ: UAL] has 45 A350-900 twin-aisle planes still on order. Other airlines with smaller jets waiting to be built include JetBlue and Hawaiian Airlines, according to the latest Airbus data.
Alaska Airlines [NYSE: AAL] has one remaining Airbus delivery in 2019 – a carryover from its 2016 acquisition of Virgin America – which is not expected to be impacted by the tariffs, spokeswoman Emily Halverson said. Alaska executives have said they are evaluating future purchases and whether it makes sense to add single-aisle Airbus planes to a predominantly Boeing fleet.
American, Delta, United and JetBlue did not respond to questions about efforts to avoid the tariffs, but an international trade expert in Washington familiar with the political situation said A4A CEO Nicholas E. Calio, a powerful and experienced lobbyist who was a high-level legislative adviser to presidents George H. Bush and George W. Bush, has been working behind the scenes for months to forestall tariffs on the aviation sector.
“It’s one of the reasons why tariffs on aircraft are only 10% for now,” said the source, who asked not to be named so as not to jeopardize any business relationships.
Another source with close ties to Capitol Hill said significant lobbying by Dallas-based American Airlines, especially with the Texas delegation, helped keep the pending tariffs lower. Other European goods will be slapped with 25% tariffs. A Republican congressional aide, who is not allowed to make public comments, confirmed that American has been active in urging tariffs not be applied to planes it is set to receive soon.
Nearly three dozen Republican and Democratic lawmakers two weeks ago sent a letter to U.S. Trade Representative Robert Lighthizer stating opposition to the tariffs on imported airplanes and suggesting that if imposed they apply only to future orders, which would create an incentive to buy U.S.-made planes.
Otherwise, airlines are essentially being penalized for decisions taken years ago when information about tariffs couldn’t be factored into their decisions, critics of the action say.
“Our immediate goal is to seek all possible avenues with our airline partners to find a resolution to the dispute, to mitigate the situation and to find mutually workable paths forward with our customers,” Airbus spokesman Clay McConnell said.