US President Trump’s tariffs would barely raise Boeing’s prices, but could hurt sales

For Boeing’s newer 787, which uses carbon-fiber composite for wings and fuselage, the tariff impact is even less: it would increase Dreamliner costs only by about 0.09 percent. (Reuters)
Updated 07 March 2018
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US President Trump’s tariffs would barely raise Boeing’s prices, but could hurt sales

NEW YORK: President Donald Trump’s plan to slap tariffs on imported steel and aluminum would barely budge the price of a Boeing jetliner or fighter plane, belying fears of a big blow to US industry, aerospace analysts said.
What could have an impact is retaliation by countries such as China, one of Boeing’s biggest customers, if the US goes through with threats to tax imported steel by 25 percent and aluminum by 10 percent, they said.
As one of the world’s largest manufacturers, Boeing provides a window into how double-digit tariffs on raw materials would translate into just a fractional uptick in the cost of finished goods. Boeing makes its planes exclusively in the United States, but nearly 70 percent of the 763 jetliners delivered last year went to customers outside the United States and 22 percent went to China.
Aluminum makes up 80 percent of the weight of older model planes such as the 737 and 777 but only about 12 percent of the cost, according to several experts with direct knowledge of Boeing. The rest is labor, overhead and other expenses.
A 10 percent aluminum tariff would increase the cost of a plane by about 1.2 percent if all of the aluminum is imported. But most of the aluminum Boeing uses is domestically produced, experts said.
“These are big chunks of aluminum that are expensive to transport,” said Eric Redifer, a director in the aerospace practice of industry consulting firm AlixPartners.
He and others estimate only 25 percent to 30 percent is imported, leaving a net impact of about 0.3 percent of a plane’s cost.
Prices of domestic aluminum are likely to rise if tariffs are imposed, although it is unclear how much.
On a mid-sized 737, with a list price of $117.1 million, the cost increase could be less than $200,000, because airlines often receive discounts of 40 percent off list price, and Boeing’s profit margin is about 10 percent.
Boeing declined to comment.
The net effect for steel is similar, even though it makes up less of a typical Boeing plane, said Kevin Michaels, aerospace manufacturing expert at AeroDynamic Advisory, a consulting firm in Ann Arbor, Michigan.
He estimated Trump’s 25 percent tariff on relatively pricey steel would cost US aerospace companies less than $100 million, roughly on par with the overall impact on aluminum. That means the two tariffs would add $150 million to $200 million in cost, or at most about 0.2 percent of $100 billion worth of business jets, jetliners and military aircraft US companies make each year.
For Boeing’s newer 787, which uses carbon-fiber composite for wings and fuselage, the impact is even less. Aluminum makes up 10 percent of the cost, Redifer said. The result: Trump’s aluminum tariff would increase 787 costs about 0.09 percent.
“What will have a material impact is if China retaliates,” said Richard Aboulafia, aerospace analyst at the Teal Group in Fairfax, Virginia. “They are openly searching for ways to express their displeasure and apply leverage. And it doesn’t get any more obvious that going from Boeing to Airbus.”
The country’s thirst for jets is so great, however, that it likely will need planes from both Boeing and European rival Airbus to keep up with demand, analysts said.


Libya’s National Oil against paying ‘ransom’ to reopen El Sharara field

Updated 14 December 2018
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Libya’s National Oil against paying ‘ransom’ to reopen El Sharara field

  • Ransom payment would set dangerous precedent
  • NOC declared force majeure on exports on Monday

BENGHAZI: Libya’s state-owned National Oil Corp. (NOC) said it was against paying a ransom to an armed group that has halted crude production at the country’s largest oilfield.
“Any attempt to pay a ransom to the armed militia which shut down El Sharara (oilfield) would set a dangerous precedent that would threaten the recovery of the Libyan economy,” NOC Chairman Mustafa Sanalla said in a statement on the company’s website.
NOC on Monday declared force majeure on exports from the 315,000-barrels-per-day oilfield after it was seized at the weekend by a local militia group.
The nearby El-Feel oilfield, which uses the same power supply as El Sharara, was still producing normally, a spokesman for NOC said, without giving an output figure. The field usually pumps around 70,000 bpd.
Since 2013 Libya has faced a wave of blockages of oilfields and export terminals by armed groups and civilians trying to press the country’s weak state into concessions.
Officials have tended to end such action by paying off protesters who demand to be added to the public payroll.
At El Sharara, in southern Libya, a mix of state-paid guards, civilians and tribesmen have occupied the field, camping there since Saturday, protesters and oil workers said. The protesters work in shifts, with some going home at night.
NOC has evacuated some staff by plane, engineers at the oilfield said. A number of sub-stations away from the main field have been vacated and equipment removed.
The occupiers are divided, with members of the Petroleum Facilities Guard (PFG) indicating they would end the blockade in return for a quick cash payment, oil workers say. The PFG has demanded more men be added to the public payroll.
The tribesmen have asked for long-term development funds, which might take time.
Libya is run by two competing, weak governments. Armed groups, tribesmen and normal Libyans tend to vent their anger about high inflation and a lack of infrastructure on the NOC, which they see as a cash cow booking billions of dollars in oil and gas revenues annually.