With the European Union implementing a 15% tariff on aircraft and aircraft parts made in the United States, Boeing’s already beleaguered sales numbers may be in for a further battering. Planes worth US$71 billion are due to go out from Boeing to airlines and leasing companies in European Union member states over the next few years. The tariff will add another $10 billion to the price.
Tariff threaten to add $10 billion to bill for EU airlines
The tariff came into force yesterday, Tuesday, November 10. The tariff is a World Trade Organization approved response to what it calls “illegal US subsidies to aircraft maker Boeing.” Just twelve months ago, the United States slapped a tariff on Airbus aircraft sold into the United States.
It’s a tit for tat scenario that’s bad news for both Boeing and Airbus.
“It is disappointing and surprising that Airbus and the EU have decided to impose tariffs on US-headquartered companies,” a Boeing spokesperson told Simple Flying.
Boeing order data analyzed by Reuters indicates Boeing has orders for 439 passenger jets from airlines and airline leasing companies in the European Union. That’s in addition to the 85 planes ordered by UK airlines. The United Kingdom hasn’t yet decided whether it will apply the EU tariffs.
Of those Boeing planes ordered by airlines headquartered in European Union member countries, 166 are Boeing 737 MAXs. The United Kingdom’s TUI Airlines also has 57 Boeing 737 MAXs on order. All up, Reuters estimates these MAXs to be worth $27.1 billion to Boeing’s bottom line.
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Boeing sales flatline, tariff won’t help
In October, Boeing saw orders for 12 MAXs canceled. This occurred as the aircraft’s grounding dragged on and the travel environment continued to deteriorate. In the 10 months to October 31, Boeing has delivered just 111 aircraft worldwide. In comparison, 321 aircraft were delivered across the same ten months in 2019.
Ryanair is Boeing’s biggest European MAX customer. Headquartered in Dublin, Ryanair’s CEO Michael O’Leary isn’t impressed at the prospect of paying an additional 15% on the 135 MAXs he has on order.
He wants Boeing to absorb the tariff themselves. According to a report last month in Al Jazzera, Mr O’Leary is expected to go hard in further negotiations with Boeing. The airline boss is expected to use the tariff as leverage to negotiate a better deal.
While that might work for Ryanair, it isn’t great for Boeing. The aircraft manufacturer recently posted its fourth quarterly loss in a row. Boeing lost $466 million in the most recent quarter. Sales are down, and accordingly, revenue is also down.
All parties keen to resolve the dispute
The tariff represents further financial pain for Boeing down the track.
“Instead of escalating this any further, we hope that Airbus and the EU will take meaningful action to resolve this trade dispute,” Boeing’s spokesperson told Simple Flying.
Both Airbus and the European Union agree tariffs are more about punishment than benefits.
“Airbus supports all necessary actions to create a level-playing field and continues to support the EU’s commitment to finding a negotiated settlement of this long-standing dispute to avoid lose-lose tariffs,” an Airbus spokesperson said.
In a statement seen by Simple Flying, the European Commission said it stood ready to work with the United States to settle the long-running dispute. It was also opening to agreeing on long-term disciplines on aircraft subsidies.