Tariff Turbulence: Aerospace Industry's High-Flying Headache

Published: 2025-04-08 04:08:00 ET HWM

By Justin Emerson

A storm is brewing in the aerospace industry after Howmet Aerospace's declaration of a "force majeure event" sent shockwaves through a sector accustomed to open skies and free trade. The company's strategic gambit to pause shipments amidst new tariffs has left airlines, planemakers, and suppliers in a costly game of hot potato, as they try to assess who should bear the brunt of these additional charges. The ripple effects of this trade squall threatens to elevate ticket prices and redefine the economics of air travel.

The aerospace industry is in a tizzy as planemakers, airlines, and suppliers sift through their contracts, trying to figure out who will foot the bill for new tariffs. This scramble was triggered by Howmet Aerospace, a major U.S. supplier, which recently declared a "force majeure event." This legal maneuver allows them to halt shipments if affected by tariffs, sparking a debate over who should shoulder the costs in this budding trade war.

Howmet, known for its engine parts and fuselage fasteners, has thrown a wrench into the works, claiming it can dodge contract obligations due to unavoidable circumstances. This move has intensified discussions about who should pay for the disruptions, including the new tariffs. So far, it's been passengers feeling the pinch, as costs trickle down the $800-billion-plus supply chain, ultimately leading to higher fares.

Trump's 20% tariffs on European Union products, including Airbus planes, and the anticipated EU retaliation against Boeing, are set to test this arrangement. Jefferies analyst Sheila Kahyaoglu noted, "Howmet has made a strategic move, declaring force majeure and threatening to halt shipments. We all know it takes just one nut or bolt to stop the supply chain."

While Howmet remains tight-lipped, the industry is bracing for impact. The aerospace sector has largely operated under a 1979 treaty on zero-duty trading, but this new tariff tangle could disrupt the status quo.

Aviation adviser Bertrand Grabowski told Reuters, "Aviation is a global market. Introducing friction for such large sums of money creates chaos, not just for airplanes but also for engines and spares."

European lawyers report that aerospace clients are already seeking ways to sidestep the tariff fallout. Although no one has yet triggered contractual provisions, it may only be a matter of time.

The Development Dilemma

For now, suppliers hold the upper hand due to shortages. However, planemakers have a trump card: the next generation of jets. How suppliers handle tariff negotiations could influence their role in future developments. Airbus and Boeing have yet to comment.

Meanwhile, airlines and jetmakers are locked in their own tug of war. During the 2020-2021 trade dispute, Ryanair's Michael O'Leary urged Boeing to absorb EU counter-tariffs. Other airlines, lacking such leverage, might have to defer deliveries. Aircraft contracts typically require buyers and sellers to pay their respective taxes.

Howmet's stance is being closely watched for signs that Trump's tariffs might be treated as a special case. Aircraft manufacturers are expected to argue otherwise. "Everyone will scrutinize this with a fine-tooth comb, contract by contract," Grabowski said.

Inflation-adjustment clauses offer little relief, as they are limited and slow to react. The industry also revolves around maintenance, with engines often crossing borders multiple times for trade and repair. Lessors, who rent to airlines and comprise half the world's fleet, are also scrambling to assess the implications. "Everyone is calling each other, looking for clarity," Grabowski said of the aviation industry as a whole.

Aerospace Sector Braces for Supply-Demand Imbalance

A new report from Jefferies shed light on the potential impact of tariffs global economic risks on aircraft supply and demand. With the US GDP projected to grow by 2.4% in 2025, the aerospace sector is expected to see a corresponding increase in air traffic, with revenue passenger kilometers (RPK) typically doubling that rate.

The report highlights that for every percentage point change in demand, aircraft deliveries could swing by 24 per month. This sensitivity to demand fluctuations underscores the precarious balance between supply and capacity in the industry. This sensitivity is particularly concerning for narrowbody aircraft, which are already predicted to experience a supply shortfall that could persist until 2028.

The tariffs introduce a layer of economic risk that could further complicate the industry's forecasted 7.5% RPK growth in 2025. The anticipated supply deficit, especially in the widebody segment, may extend throughout the decade, compelling airlines to delay retirements and maintain older fleets for longer periods.

Justin Emerson