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.


Davos organizer WEF warns of growing risk of cyberattacks in Gulf

Updated 16 January 2019
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Davos organizer WEF warns of growing risk of cyberattacks in Gulf

  • Critical infrastructure such as power centers and water plants at particular risk, says expert
  • Report finds that unemployment is a major concern in Bahrain, Egypt, Morocco, Oman and Tunisia

LONDON: The World Economic Forum (WEF) has warned of the growing possibility of cyberattacks in the Gulf — with Saudi Arabia, the UAE and Qatar particularly vulnerable.

Cyberattacks were ranked as the second most important risk — after an “energy shock” — in the three Gulf states, according to the WEF’s flagship Global Risks Report 2019.

The report was released ahead of the WEF’s annual forum in Davos, Switzerland, which starts on Tuesday.

In an interview with Arab News, John Drzik, president of global risk and digital at professional services firm Marsh & McLennan said: “The risk of cyberattacks on critical infrastructure such as power centers and water plants is moving up the agenda in the Middle East, and in the Gulf in particular.”

Drzik was speaking on the sidelines of a London summit where WEF unveiled the report, which was compiled in partnership with Marsh and Zurich Insurance.

“Cyberattacks are a growing concern as the regional economy becomes more sophisticated,” he said.

“Critical infrastructure means centers where disablement could affect an entire society — for instance an attack on an electric grid.”

Countries needed to “upgrade to reflect the change in the cyber risk environment,” he added.

The WEF report incorporated the results of a survey taken from about 1,000 experts and decision makers.

The top three risks for the Middle East and Africa as a whole were found to be an energy price shock, unemployment or underemployment, and terrorist attacks.

Worries about an oil price shock were said to be particularly pronounced in countries where government spending was rising, said WEF. This group includes Saudi Arabia, which the IMF estimated in May 2018 had seen its fiscal breakeven price for oil — that is, the price required to balance the national budget — rise to $88 a barrel, 26 percent above the IMF’s October 2017 estimate, and also higher than the country’s medium-term oil-price target of $70–$80.

But that disclosure needed to be balanced with the fact that risk of “fiscal crises” dropped sharply in the WEF survey rankings, from first position last year to fifth in 2018.

The report said: “Oil prices increased substantially between our 2017 and 2018 surveys, from around $50 to $75. This represents a significant fillip for the fiscal position of the region’s oil producers, with the IMF estimating that each $10 increase in oil prices should feed through to an improvement on the fiscal balance of 3 percentage points of GDP.”

At national level, this risk of “unemployment and underemployment” ranked highly in Bahrain, Egypt, Morocco, Oman and Tunisia.
“Unemployment is a pressing issue in the region, particularly for the rapidly expanding young population: Youth unemployment averages around 25 percent and is close to 50 percent in Oman,” said the report.

Other countries attaching high prominence to domestic and regional fractures in the survey were Tunisia, with “profound
social instability” ranked first, and Algeria, where respondents ranked “failure of regional and global governance” first.

Looking at the global picture, WEF warned that weakened international co-operation was damaging the collective will to confront key issues such as climate change and environmental degradation.