The U.S. on Wednesday announced tariffs on Airbus planes after winning a World Trade Organization dispute over subsidies received by the aircraft manufacturer, and travelers may end up paying higher airfare as a result.
The tariffs stem from a 15-year-old dispute between the U.S. and Europe over government subsidies paid to aircraft manufacturers Boeing and Airbus, respectively.
“It just raises the cost for everybody,” said Jeff Windau, an industrials analyst at Edward Jones. “Of course those prices get pushed onto customers, ultimately.”
The WTO on Wednesday authorized the U.S. to impose tariffs on $7.5 billion of European imports, opening the possibility of a rapidly escalating tit-for-tat trade war between the EU and the U.S. The WTO is expected to determine in the coming months the value of U.S. goods that the European bloc can apply tariffs on due to the dispute over Boeing subsidies, meaning European airlines may have to soon pay more for new Boeing planes.
Airlines balked after the U.S. said it would implement 10% tariffs on Airbus planes starting Oct. 18 as it would drive up their costs. Airlines for America, a trade group that represents airlines including Airbus customer American Airlines and JetBlue Airways called the tariffs “unprecedented” and added that they “would negatively impact the U.S. commercial aviation industry as well as the overall economy.”
Airlines purchase planes years in advance, and sometimes order models that are still in development, so switching contracts to another supplier would be extremely difficult.
“They will have to try and recoup through higher fares,” said Savanthi Syth, airlines analyst at Raymond James. “It is like fuel or labor cost increases.”
Delta Air Lines, which has purchased European-made Airbus A350 planes to revamp its long-haul, wide-body fleet, as well scores of smaller Airbus jets for shorter trips, said the decision would “inflict serious harm on U.S. airlines, the millions of Americans they employ and the traveling public.” The Atlanta-based airline has about 170 Airbus jets on order, according to a spokeswoman.
“We are concerned about the detrimental impact aircraft tariffs will have on the ability for low-cost carriers like JetBlue to grow and compete, which will harm customers who rely on us to offer competitive, low fares,” JetBlue said.
Airlines will have to negotiate with manufacturers, whether it’s Boeing or Airbus, over which party will pay the tariffs. Duties are usually paid by the customer but because Boeing and Airbus are directly involved in the subsidy dispute, some airlines may urge the manufacturers to pay.
Airbus produces its wide-body planes in Europe, while it’s single-aisle jets are made in Europe and at a factory it has recently expanded in Mobile, Alabama. Airlines take delivery from various facilities.