Reported by Tim Hepher, Joanna Plucinska, and Allison Lampert, there is a thorough review underway within the aviation industry to assess potential impacts of tariffs on contracts worth billions of dollars. This evaluation comes after a key U.S. supplier, Howmet Aerospace, triggered discussion on responsibility for covering costs in the midst of a looming trade conflict, as per industry insiders.
The recent declaration of "force majeure" by Howmet raised concerns, allowing the supplier to potentially pause shipments in the face of U.S. President Donald Trump's tariff implementations. Howmet specializes in producing engine components, fuselage fasteners, and related parts. This unexpected invocation of force majeure, giving Howmet the ability to deviate from contract obligations due to unforeseen circumstances, has brought attention to the ongoing argument over who should absorb the financial strain caused by continuous disruptions in the supply chain, particularly attributed to new tariffs.
Historically, the burden of these additional expenses has fallen on passengers as price hikes cascade through the substantial $800 billion supply network encompassing aircraft, parts, and airlines, leading to elevated fares. The imposition of Trump's 20% tariffs on Airbus planes from the European Union, along with potential retaliatory actions from the EU towards U.S.-based Boeing, adds complexity to the cost-sharing predicament.
Analysts foresee significant implications following Howmet's force majeure declaration, which can potentially halt deliveries and influence ongoing negotiations between suppliers and customers regarding increased input costs. This strategic maneuver could sway the balance of power towards Howmet by wielding the threat of shipment suspension, although it hinges on customers' willingness to yield.
Aside from the extended tariff disputes between the U.S. and the EU over subsidies provided to Airbus and Boeing in recent years, the industry has generally adhered to a 1979 agreement promoting duty-free trade in aerospace between the U.S. and Canada, with Mexico excluded from the pact. The interconnected nature of aviation as a global marketplace for both buyers and sellers raises concerns about disrupting such a vast financial ecosystem through friction caused by tariffs, impacting a multitude of components from aircraft to various spare parts.
Industry experts highlight the urgency surrounding potential repercussions of tariffs as they observe aerospace clients seeking advice on minimizing tariff-related fallout. While there is a reluctance among these clients to utilize contractual clauses at this point, the situation may evolve rapidly, underscoring the need for careful consideration and swift action in navigating the tariff landscape in the aviation sector.