Airlines cut flights as industry pushes for tariff relief amid declining demand
Airlines cut flights as industry pushes for tariff relief amid declining demand
The U.S. aviation industry, reeling from President听's trade war and a slump in travel demand, is lobbying the White House for exemptions from听tariffs.
Industry officials have held meetings with senior members of the Trump administration including the President, asking them to restore the tariff-free regime under the 1979 Civil Aircraft Agreement, under which the sector enjoyed a $75 billion annual trade surplus. Trump's tariffs have ended its decades-old duty-free status.
"Our government affairs team is hard at work on it to make the case as to why there should be a carve-out," American Airlines听AAL.O听CFO Devon May told Reuters.
The aviation industry expects the exemption to help companies keep costs down during a sharp pullback in travel spending by consumers worried about slower economic growth and higher inflation.
Airlines听have been cutting听flights in response to softening bookings. They have also been听scrapping听their financial forecasts and trying to control costs in a bid to protect margins.听They are also pushing back against price increases for aircraft and parts as planemakers and engine makers seek to pass along the tariff costs.
Airline executives听have even raised听the possibility of returning leased planes and deferring aircraft deliveries.
"It's really difficult for us to wrap our heads around paying tariffs on those airplanes," May said. "It just doesn't make economic sense."
Boeing expects a tariff hit of less than $500 million a year. Jet-engine maker听GE Aerospace GE.N听has estimated its tariff bill would exceed $500 million. Its rival听RTX RTX.N听expects about $850 million in additional annual costs.
All three companies are counting on cost-mitigation strategies including price increases and a large order backlog.
GE Aerospace CEO Larry Culp cautioned airlines against deferring deliveries. "There are plenty of other people who will step up in line and take their place," he told Reuters.
At the end of March, American had 14 planes scheduled for delivery this year from European planemaker Airbus听AIR.PA听and Brazil's Embraer听EMBR3.SA. The company expects some of those jets including Airbus' A321 XLR, which is built in Europe, would face tariffs.
Rival听Delta Air Lines DAL.N听is also unwilling to pay tariffs on aircraft deliveries, saying the duties would upset its math.
Even planes assembled in the U.S. are not immune, as aircraft makers must pay levies on imported parts.
Faltering demand
One airline executive said carriers could have taken the tariffs in stride if travel demand was booming. But bookings have softened in the past two months, weakening their pricing power.
Airline fares in March posted their steepest month-on-month decline since September 2021, according to data from the U.S. Labor Department. Carriers have been lowering fares to stimulate demand.
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In an interview, Alaska Airlines听ALK.N听Chief Financial Officer Shane Tackett told Reuters bookings are mostly coming at lower fare levels. "That is something that we believe every airline has ultimately been dealing with," he said.
American last week said it does not expect customers to accept higher fares as a result of tariffs.
The company听said a slowdown in departures tends to start having an effect on its business in about four quarters.
Lobbying for a carve-out
The White House听has said large and persistent trade deficits have led to the hollowing out of the nation's manufacturing base and undermined critical supply chains.听Trump听has said his tariffs would force companies to move manufacturing to the U.S., creating jobs for American workers.
Aerospace industry officials say their situation differs from other industries, as their sector exports more than $135 billion of products each year. Most of its manufacturing base and employees are also based in the U.S., they say.
Culp said he recently met with Trump and explained to him how the industry's decades-old duty-free status helped听it produce the highest trade balance of any sector. He said his company's position was "understood" by the administration, but added "it's not the only item they're solving for."
Reporting by Rajesh Kumar Singh; Editing by David Gregorio