Decline in Aircraft Purchases Due to Uncertainty Surrounding U.S. Tariff Policies
Grounded Orders: The aerospace industry took a hit last month as Donald Trump's trade tariffs grinded the wheels of commercial aircraft orders.April saw a paltry 19 orders, a staggering 75% decline year-on-year, marking the worst April since the pandemic.
Data from ADS, the UK trade association, offers the first glimpse since the tariffs took effect. Deliveries climbed 20% to 102 for the month, pushing the aircraft backlog to an impressive 15,871. This backlog equates to around £248 billion in economic value.
Aimie Stone, ADS' chief economist, believes that the uncertainty created by tariffs is delaying order decisions. Manufacturers are reportedly reallocating aircraft to bypass immediate custom duties.
Trump's independence day proclamation turned the sector upside down, disrupting an industry that had been untouched by trade barriers for nearly four decades. ADS has held back making forecasts for the year until at least June due to the uncertainty.
Clarity Call on Aerospace Tariffs
The UK-US trade agreement hinted at exemptions for some engine and plane parts from tariffs. However, the specifics remain hazy. Stone pleads for "clarity" from the UK government regarding the exemption of engines and aerospace components from the levies. This would bolster the UK's competitiveness in the global aerospace market and rekindle the momentum seen in the first quarter.
ADS stated that while the recently agreed UK-US bilateral trade deal should exempt US-bound aerospace parts, trade will still be hamstrung by increased customs activity and escalating costs from additional paperwork and material costs due to the international nature of aerospace supply chains, thereby hindering growth.
There's an ongoing argument between airlines and aircraft manufacturers regarding who should shoulder the costs of additional tariffs. Airbus has informed its US-based customers that they won't cover the fees, a stance met with equal sternness from the airlines.
[3][5]: Rolls-Royce engines, integral to various US defense platforms like aircraft and naval vessels, are exempt from the baseline 10% tariff.
[1][2]: The agreement also offers tariff-free entry for other UK aerospace components, enriching the US aerospace supply chain's competitiveness and security.
[4]: Despite the exemptions being part of the agreement, the final deal terms are still under negotiation, with the possibility of further evolutions.
- The uncertainties surrounding the exemption of engines and aerospace components from the tariffs, as urged by Aimie Stone, could have a significant impact on the economy's competitiveness in the global aerospace market and potentially stall the momentum witnessed in the first quarter.
- The ongoing debate between airlines and aircraft manufacturers on who should bear the additional tariff costs contributes to the uncertainty in the transport sector, particularly in the aerospace industry, which relies heavily on technology for the manufacturing of engines and airframes.
