As of April 2, new U.S. customs tariffs have come into effect, bringing an end to the 45-year-old duty-free trade regime in the global aviation industry and triggering a comprehensive restructuring process across the sector. The new regulations include a general 10% tariff on all imports to the U.S., with targeted tariffs of up to 20% on European Union (EU) goods and 34% on Chinese products.
WTO Exemption Removed: A New Era in Aviation
The customs duty exemption previously applied under the World Trade Organization’s (WTO) Agreement on Trade in Civil Aircraft is no longer in force. This change significantly impacts the cost structures and competitiveness of industry giants like Airbus, Boeing, Rolls-Royce, and GE.
A Double Threat for Boeing and Airbus
Boeing, one of the largest exporters in the U.S., has been hit hard, especially by China’s retaliatory 34% tariff. With China expected to need 9,000 new aircraft over the next 20 years, Boeing now faces a major disadvantage in this key market.
On the other hand, Airbus may benefit from Boeing’s challenges in China, but it now risks losing its competitive edge with major U.S. customers like Delta and United due to a 20% import tariff in the U.S. market.
Rising Costs and Uncertainty for Airlines
The tariffs affect not only manufacturers but also directly impact airlines. Shares of companies like Delta, United, and American Airlines have dropped significantly. Delta’s stock lost 9% in a single day.
With rising spare part costs, delivery delays, and fuel price volatility, airlines operating on transatlantic and transpacific routes are under increasing pressure. Lufthansa and Air France-KLM anticipate that rising operational costs will push up ticket prices and reduce passenger volumes.
Major Disruptions in the Supply Chain
Aircraft production relies on a global supply chain, with parts manufactured in various countries and assembled elsewhere. Customs tariffs are disrupting this system, leading to increased costs, production delays, and logistical challenges.
Manufacturers like GE Aviation and Rolls-Royce, along with smaller component suppliers, are being forced to restructure their supplier networks and strategic plans.
Financial Market Reaction: $6 Trillion Wiped Out
Following the announcement of the tariffs, more than $6 trillion was wiped off global financial markets. This decline reflects investor concerns about a potential recession and anticipated cuts in consumer spending. Airlines will need to develop rapid strategic responses to these market shifts.
Strategic Priorities for the Industry
Experts recommend the following steps for the aviation industry to adapt to this new era:
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Diversify supply chains: Increase regional sourcing and reduce risks in tariff-affected markets.
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Explore new markets: Seek growth opportunities in less affected regions like Southeast Asia and Latin America.
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Enhance operational efficiency: Balance rising costs with investments in digitalization and automation.
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Engage in policy advocacy: Collaborate closely with governments to push for favorable regulations.
