How will the implementation of tariffs impact Boeing?

How will tariffs impact Boeing? The incoming Trump 2.0 administration has spoken of implementing additional tariffs, including a potential 60% levy on Chinese goods and 25% on our North American trading partners Canada and Mexico. Most experts believe that if the US implements tariffs, other countries will retaliate. That will create a more chaotic situation for international trade. The potential impact of such tariffs on Boeing could significantly delay its recovery. They would impact the company in multiple ways. Boeing would see higher costs because of its international supply chain. The would also likely see delayed revenues due to the higher cost of Boeing aircraft versus those from Airbus in global markets.. In our opinion, tariffs could lead to further damage to Boeing’s nascent recovery. Aerospace is Complicated and InternationalAerospace is an international industry, with engines and components build both domestically and internationally. The most popular commercial aircraft engine, the CFM LEAP, is utilized on the Boeing 737 MAX, Airbus A320neo and COMAC C919 aircraft families. That engine is built by CFM International, a 50/50 joint venture of GE from the US and Safran from France. Would a 50/50 JV qualify as domestic or international for tariffs? Theoe engines contain parts made from both US and European suppliers. Having engine production on both continents and a global supply chain and service and support network, how would one classify it? When trade policy impacts joint ventures and technology development, the industry suffers. Similarly, the supply chain for the Pratt & Whitney GTF is international, with components from Japan Aero Engines, MTU in Germany, and others in addition to Pratt & Whitney’s US facilities. These engines are utilized by Airbus aircraft that are assembled in France, Germany, Canada, China, and the United States. Would a US built Airbus be taxed differently than on assembled in France, or China?What happens if retaliation occurs based on where parts are built, or even where raw materials were sourced. Some aircraft components are currently being built with raw materials purchased from China. Will they face a 60% tariff? Since suppliers have contracts to deliver components at a fixed price, who will eat the difference? If customers are expected to pay, international customers would switch to other OEMs, and Boeing would lose even more market share to Airbus, or potentially even COMAC .Since Airbus has a final assembly facility in the US, would its aircraft be subject to tariffs, or components of its aircraft be subject to tariffs? The devil is in the details, and the incoming administration has not provided specifics on their proposals that would enable industry participants to more accurately determine the impacts on their operations. A Fragile and Recovering Supply ChainThe aerospace supply chain is both complex and globally interconnected. Fortunately, the supply chain has largely recovered from the global pandemic, and suppliers that are still having difficulty are working closely with the OEMs to ensure continued availability of parts. Just as things are improving, the imposition of tariffs could take us back to untenable situations along the supply chain and the accompanying uncertainties until the details are known. As they say, the devil is in the details, and we don't yet know how much of Trump's rhetoric is posturing or likely to occur.Boeing and Airbus are still being impacted by supply chain issues, despite the significant progress made over the last three years. Adding the complication of tariffs to the mix will likely result in unexpected displacements, further delays to production, and reduce cash flow for Boeing as deliveries are likely to be delayed.Boeing is in a position in its turnaround that can make or break the company in 2025. Boeing needs to deliver airplanes. Anything that negatively impacts deliveries, including tariffs, could result in delaying the company’s recovery and cash flow crisis. The Bottom Line From a government and regulatory standpoint, Boeing would be better served through a maximum FAA certification effort for the 737 MAX 7 and 737 MAX 10. The last major issue, a nacelle modification, should be close to being approved after testing, and represents the last major hurdle for certification of the two new models. Boeing has 25 737 MAX 7 aircraft in inventory, which could quickly be delivered once certification is completed and generate significant positive cash flow for Boeing. Production of the MAX 10 would enable the company to generate cash from the 1,109 orders for that type and the 332 unfulfilled orders for the MAX 7.Our advice to the Trump administration would be to thoughtfully work with both the FAA and Boeing to meet the dual goals of delivering safe aircraft as quickly as feasible. The threat of tariffs as a negotiating tactic is one thing, but implementing them before thinking through the implications on our largest exporter, who participates in a global industry, could backfire. After the MAX crashes, the global pandemic, and a series of “quality escapes” Boeing has been through a chaotic period since 2018. The company is now working towards cultural change and normalcy, and is making slow progress in that regard. What Boeing needs today is less uncertainty, and a re-focusing on fundamentals, including FAA oversight, quality, and certification of the three pending aircraft, the 737-7, 737-10 and 777-X.

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