Opinion: U.S. Tariffs Have Opened A Larger Pandora’s Box

A month in, and neither industry nor airline customers have clarity on the precise impact of the imposition of U.S. tariffs, let alone any retaliatory tariffs that U.S. trading partners might impose.

Delta Air Lines CEO Ed Bastian was clear on his company’s first-quarter earnings call that the airline will not pay tariffs on any Airbus deliveries in 2025, preferring instead to defer up to 43 aircraft originally planned for delivery this year. This clearly sets a strong precedent for all other Airbus customers in the U.S., although it remains unclear what effect the airframer’s Mobile, Alabama, production line might have in mitigating the impact on A320- and A220-family aircraft assembled there.

U.S. aerospace manufacturers were admirably front-leaning in trying at least to provide a range for the impact of tariffs on their earnings in the current year, from around $500 million each for Boeing and GE Aerospace to around $850 million for RTX, affecting equally its Collins and Pratt & Whitney businesses. But with no clear indication as yet of whether Europe, in particular, might impose counter-tariffs, even these numbers are only sighting shots.

Paradoxically, European aerospace companies, which might be expected to be more directly affected by U.S. tariffs, have so far been less specific than their U.S. counterparts. Safran, for example, eschewed copying partner GE’s guidance, declaring instead that it is “premature to quantify any financial impact.”

The bull case, certainly for investors, has been that the very highest threatened levels of tariffs look unlikely to be imposed, work-arounds can be devised (for instance, free ports could reduce the complexity of supply chains that cross the U.S. border multiple times before final delivery), and almost all will be well again. That is certainly a conclusion that can be drawn from the performance of European civil aerospace share prices, which are down an average of 8% since the start of April, only 5% worse than their broader domestic stock markets, having recovered at least half their initial “tariff losses.”

The debate among investors and increasingly industry and its political stakeholders is, however, rapidly evolving. An initial issue is that major U.S. airlines have suspended all financial guidance for the current year. This reflects a far broader range of issues than just tariffs but highlights the degree to which economic turmoil is damaging consumer and business confidence and hence a propensity to fly. It is starting to look like a real possibility that this could turn what has, for civil aerospace, been a supply-constrained upturn into a demand-driven downturn.

A broader problem is an emerging perception from America’s trading partners and allies that tariffs have become highly weaponized, to be used in a broader fight by the U.S. against China. The issue is less whether Europe, in particular, wants to be part of this fight. Rather, it is an emerging concern that this might be a new, and potentially more economically damaging, way of conducting trade negotiations, in which former political and cultural alliances carry little if any weight.

It might not be a surprise, but U.S. companies will undoubtedly suffer if the Chinese market now closes to Boeing. Chinese airlines are well-equipped, with a low average age of about 11 years, so they can afford to let their fleets age out. Agency Partners analysis shows that with low domestic growth, demand is for fewer than 150 new jets per year, most of which Airbus could supply in the near term. And we should expect the indigenous CJ-1000 turbofan, set to replace the CFM Leap-1C on the Comac C919 airliner, to see greatly increased national funding.

But the U.S. engine companies’ challenges might not stop in China. A U.S. government that can threaten to halt deliveries to one country might one day do this elsewhere. This is leading to an uncomfortable realization among some European politicians that it might not be sensible for Europe’s civil aerospace champion to be wholly dependent on U.S. engines to power all its narrowbody aircraft, constituting nearly 90% of Airbus’ output.

National sovereignty can be easy to talk about—in aerospace, it is invariably a long and expensive process to create or even maintain. And there has been no new European narrowbody engine since the rather niche Rolls-Royce Speys and Tays of the 1960s and 1980s. European engine collaboration occurs on the military side, but the troubled TP400M for the Airbus A400M airlifter has not been a good example of the ability of Rolls-Royce and Snecma, in particular, to collaborate. But Pandora’s box has been opened, and the contents cannot be put back in it.