The tax war is the last thing Boeing wants right now, as it has been reeling from a series of incidents over the past six years.
The problems Boeing has faced in recent years have been very serious. From the safety crisis that caused many aircraft models to be grounded, the plummeting demand for aircraft during the pandemic to the two-month strike at the end of last year. With its position as the leading exporter in the US, President Donald Trump's import tax policy could be the next blow to the company and the world's largest economy.
Boeing's planes could cost millions of dollars more if other countries impose retaliatory tariffs on US goods. Meanwhile, the tariffs that the US has applied could sharply increase domestic production costs, as Boeing relies heavily on foreign suppliers.
"The tax war is the last thing Boeing wants right now," said Ron Epstein, an aerospace analyst at Bank of America.
Observers have begun to worry about the possibility of a US economic recession. If tariffs on aircraft and components are imposed, production at many factories in the aerospace industry and supply chains will be affected. This will push the economy closer to the brink of recession. "If you want to have a manufacturing industry that is a net exporter, why punish them?" Epstein said.
Boeing executives said they believe the Trump administration will ease concerns related to tariffs. "We talk to officials every day, from ministers to the president of the United States. The situation is very dynamic," Boeing CEO Kelly Ortberg told investors on April 23.
During the conversations, he found that the Trump administration understood “the importance of the aerospace industry to the U.S. economy and Boeing’s role as a leading exporter.” Despite the challenges, Boeing estimates that it supports 1.6 million direct and indirect jobs, including nearly 150,000 in the United States.
The first signs of trouble came over the weekend, when two planes at a Boeing factory in China were returned to Seattle instead of being delivered to customers there. This came as China imposed a 125% import tariff on all U.S. goods in retaliation for the 145% tariff imposed by the United States. Ortberg confirmed that two planes were returned and said a third was on its way back due to the tariffs.
The return of these planes could be just the beginning of Boeing’s trade troubles. China is now the largest and fastest-growing market for commercial aircraft. According to a recent analysis by Boeing, Chinese airlines are expected to buy 8,830 new planes over the next 20 years. That represents about 10-15% of global demand, said Richard Aboulafia, CEO of AeroDynamic Advisory.
However, trade tensions between the US and China are causing Boeing to lose market share to its rivals. Chinese customers ordered 122 Boeing planes in 2017 and 2018. Last year, that number dropped to 28, mostly cargo planes or purchased by Chinese aircraft leasing companies. Boeing has not recorded any passenger plane orders from Chinese airlines since 2019.
On April 23, Boeing announced a first-quarter loss of $31 million, lower than expected. In his letter to employees, Ortberg cited several indicators that operations are improving but acknowledged that trade issues could weigh on results in the near term.
Boeing still has a large backlog of orders from China, with 195 planes, according to Epstein's analysis. It also has 678 orders from unnamed carriers, many of which Epstein said could come from China.
In theory, even if orders from China are canceled, Boeing could still find replacement customers, given its large backlog of orders spanning multiple years. Ortberg said the company expects to deliver about 50 planes to China this year. If China's tariffs remain in place, the company could shift those planes to other customers.
"There are still a lot of customers looking to buy the Max," Ortberg said.
However, if other countries also impose tariffs on US aircraft, finding outlets for orders will be more difficult. Currently, only China has retaliatory tariffs on all US goods, but other countries may follow suit. As a major exporter, Boeing could become a victim of the global trade war. This could also cause difficulties for international airlines that need to buy aircraft.
Besides, selling and delivering aircraft is only part of the problem. Production could also be severely affected because about 80% of Boeing's aircraft components are made overseas, Ortberg said in a recent hearing before Congress.
For example, the wings of the 787 Dreamliner - Boeing's most expensive aircraft - are made in Japan. The air The 737 Max’s doors come from a company in Malaysia.
Finding a domestic replacement supplier won’t be easy. Each new supplier needs to be certified by the US Federal Aviation Administration (FAA), a process that can take more than a year.
That would force Boeing to continue relying on imported parts — which means paying more tariffs. When the price of a plane already ranges from $50 million to $100 million, adding millions more to the cost is no small matter.
Boeing hasn’t posted an annual profit since 2018, and its cumulative operating losses now stand at $51 billion.
The situation for suppliers is even worse. Spirit AeroSystems, the company Boeing is in the process of acquiring, has warned investors that it has “doubts” about its ability to continue operating.
Still, Ortberg believes they can manage the cost of tariffs on imported components, in part thanks to the tax rebate mechanism if the aircraft is exported. He estimates the net cost of tariffs on imported components will be less than $500 million per year - a level that CFO Brian West considers "manageable".
(according to Reuters, CNN)