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.


Crisis at India’s Jet worsens as it grounds planes, faces strike

The debt-laden carrier has delayed payments to banks, suppliers, pilots and lessors. (Reuters)
Updated 20 March 2019
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Crisis at India’s Jet worsens as it grounds planes, faces strike

  • More than 20,000 people are employed in the company
  • The company had to stop more than 50% of their aircraft due to insufficient funds

MUMBAI: India's Jet Airways was fighting multiple crises Wednesday after grounding six planes, leaving it with only a third of its fleet flying, while pilots have threatened to walk out and a major shareholder is reportedly looking to offload its huge stake.

The problems at India's number-two carrier come as other airlines struggle to turn a profit despite the sector rapidly expanding in the country over recent years.

Jet, which employs more than 20,000 people, is gasping under debts of more than $1 billion and has now been forced to ground a total of 78 of its 119 aircraft after failing to pay lenders and aircraft lessors.

In a statement late Tuesday announcing its latest grounding, the firm it said it was "actively engaging" with lenders to secure fresh liquidity and wanted to "minimise disruption".

But with hundreds of customers left stranded, Jet's social media accounts have been flooded with often suddenly stranded passengers demanding information, new flight tickets and refunds.

"@jetairways We book our flights in advance so that we save on travel cost and you are sending cancellation (message) now?", read one irate tweet on Wednesday.

"I have sent a DM (direct message) regarding my ticket details. Please respond!", said Sachin Deshpande, according to his Twitter profile a design engineer.

Another, Ankit Maloo, wrote: "Received an email for all together cancellation of flight days before departure without any prior intimation or communication over phone!"

The firm is also facing pressure from its many pilots who have not been paid on time, with unions threatening they will walk off the job if salaries do not arrive soon.

"Pilots will stop flying jet planes from 1st April 2019 if the company does not disburse due salaries and take concrete decisions," a spokesperson for the National Aviator's Guild, a pilots union, told AFP.

India's aviation regulator on Tuesday warned Jet Airways to ensure that staffers facing stress are not forced to operate flights.

Meanwhile, Bloomberg reported that Etihad Airways of the United Arab Emirates has offered to sell its 24 percent stake in Jet to State Bank of India (SBI).

A collapse would deal a blow to Prime Minister Narendra Modi's pragmatic pro-business reputation ahead of elections starting on April 11.

India's passenger numbers have rocketed six-fold over the past decade with its middle-class taking advantage of better connectivity and cheaper flights.

The country's aviation sector is projected to become the world's third-largest by 2025.

But like other carries, Mumbai-based Jet has been badly hit by fluctuating global crude prices, a weak rupee and fierce competition from budget rivals.

Alarm bells for Jet first rang in August when it failed to report its quarterly earnings or pay its staff, including pilots, on time. It then later reported a loss of $85 million.

In February, it secured a $1.19 billion bailout from lenders including SBI to bridge a funding gap, but the crisis has since deepened.

"Jet Airways is rapidly reaching a point of no return and running out of assets to keep itself afloat," Devesh Agarwal, editor of the Bangalore Aviation website, told AFP.

"The only solution is equity expansion by diluting its stakes but Jet is just trying to cut losses and running out of options," Agarwal said.

Shares in Jet Airways were down more than five percent on Wednesday.