More tariff concerns, few answers

 

 

 

Amid a volatile political environment and the unknowns surrounding newly announced U.S. tariffs and then a sudden pullback, airlines, lessors, and Maintenance, Repair and Overhaul (MRO) providers find themselves in a “wait and see” position.

The topic has dominated industry events over recent weeks, where general consensus is fairly consistent: the impact to aviation stakeholders and any cascading effects are yet to be fully understood. It’s a curveball thrown at a critical time, as the industry appeared to be approaching an inflection point on stubborn supply chain challenges.

“About a week ago, I would have probably said we were stable and getting better,” said Ken Herbert, MD of RBC Capital Markets at Aviation Week Network’s MRO Americas on April 9, citing turnaround times in heavy shops, availability of spare parts, and conversations with distributors. With recent tariff announcements “it’s hard at this point to see how that fully transpires … hopefully the current situation is short-lived in nature and doesn’t disrupt what was looking to be a year of stability-to-improvement.”

Air Canada, among the airlines to pull down some transborder capacity due to lower demand in the wake of geopolitical backlash, voiced similar impressions of supply chain progress. Though slow, “we were hopeful in 2025,” said Grace Regillo, Air Canada senior director, Strategic Procurement ACM and Technical Services, at the MRO event in Atlanta. “Now, with the current situation, maybe there’s some uncertainty in that area.”

For now, the element of the unknown is creating a certain degree of anxiety. If the obstacle isn’t clear, neither is a path forward.

“The supply chain is a hard fact; the problems with the engines are a hard fact; the problems with Boeing are a hard fact; and those are being worked,” said Manuel Cordero, president and CEO of lessor Cusco Aviation. “Tariffs are something that can change from one day to another. I feel a lot of anxiety in the atmosphere during these two days at MRO [Americas] which I did not feel, for example, at the [Aero] Engines conference [in Fort Worth in late January], where everybody was just focused on supply chain, OEMs, and Boeing deliveries.”

New tariffs were detailed on April 2—U.S. President Donald Trump’s “Liberation Day”—roiling world markets as various countries sought a reprieve, and a back-and-forth with China ensued. By 1:18 p.m. on April 9 tariffs charged to China had escalated to 125 per cent in response to retaliatory duties, while a 90-day reprieve to a 10 per cent baseline was granted for others. The White House later clarified China’s hike was on top of 20 per cent tariffs previously imposed, bringing the total to 145 per cent.

Just after Liberation Day, a cross-section of carriers from the Caribbean, Latin America and North America gathered at the CAPA Airline Leader Summit in Grand Cayman, where April 3-4 sessions were peppered with questions on tariff impacts, as industry stakeholders sought any measure of clarity on what to expect. Separated by borders, models, and scale, responses were aligned: we don’t know, yet.

 

Eye of the storm

At the start of 2025, North American airline outlooks were fairly bullish. Demand remained strong, and premium and loyalty revenues continued to bolster financial performance. A week before Inauguration Day, Delta Air Lines CEO Ed Bastian told investors 2025 was “off to a great start,” with the carrier “on track to deliver the best financial year in our history.” Soon, factors including the fatal crash at Washington National, severe weather, and economic uncertainty prompted Delta and fellow majors to revise first quarter (Q1) expectations.

First to report those results, Delta pulled its guidance for the full year 2025. Citing “broad economic uncertainty around global trade,” Bastian told investors growth had largely stalled, with impacts most pronounced in its domestic main cabin and softness in both consumer and corporate travel. International proved more resilient, on strong cash sales for long-haul travel. Delta’s first quarter call came roughly three hours before the latest tariff measures were announced on April 9, 2025.

“The airline sector is in the eye of the storm,” observed TD Cowen analyst Thomas Fitzgerald.

Queried on its plan to manage tariffs risks, Delta valued its procured supply base at about $20 billion, approximately 85 precent of which is services-related, while goods-related items are only in the mid-teens and predominantly “sourced in the U.S. directly,” Delta CFO Dan Janki said on the earnings call. Prepared to actively manage second- and third-tier supply bases, there is one thing the industry giant is not prepared to do—pay tariff on Airbus deliveries in 2025.

“We will defer any deliveries that have a tariff on it,” Bastian said. Delta has 185 Airbus aircraft on order, according to the Aviation Week Network Fleet Discovery Database, plus options. Other U.S. airlines with large Airbus orderbooks are United Airlines (221), Frontier Airlines (168), and American Airlines (146), Fleet Discovery shows.

Citing the many unknowns on stage in Atlanta, the MRO arm of Delta’s business voiced hopes turmoil would be short-lived, “and that cooler heads prevail in the coming weeks,” said Justin Bevington, Delta TechOps director of strategy and planning, anticipating potential impacts. Fellow MRO provider Lufthansa Technik described concerns not only with global production networks, but also drivers of airline profitability such as corporate travel.

Airline uncertainty would “start to affect the demand for our services,” said David Doyle, Lufthansa Technik VP corporate strategy. “We’ve already seen the first engine deferrals,” he added, nodding to an engine that was due to come in this week from a North American customer. “Nervous airlines are not a good thing for the MRO industry.”

 

The show must go on

With more moderate demand growth, Delta is now planning for capacity to be flat, year-over-year, in the back half of 2025, to optimize margins and align supply with demand in the current environment. Ten or fewer incremental aircraft will join its fleet this year. Bastian voiced confidence: “we’re good when trouble hits,” he told investors. “It’s hard to know how this is going to play out, given that this is somewhat self-imposed … but we’re prepared.”

Still a fluid situation, the show—as they say—must go on. MRO Holdings (MROH) is working to better understand what may be ahead, while keeping aircraft moving through its hangars. “What we’re looking for is transparency from our supply base, but we also want to provide transparency to the airlines,” MROH CEO Greg Colgan said. “What do you do with tariff charges, is it a line item, is it put into the part price? For my supply chain, I want it identified, I want as much transparency from that as possible, because we’re all going through it, and when I get to the end of the fiscal quarter, the fiscal year, I want a specific number of what impacts we estimate that this is driving to the business.”

Similarly, Hong Kong Aircraft Engineering Company (HAECO) described efforts to flush out information on impacts, vendor-by-vendor. A real concern is checks getting held up because of parts not coming through. “We have started to see a few holds at customs, which is definitely concerning,” shared Todd Navin, President-MRO Services HAECO Americas.

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While many unknowns remain, becoming clearer is a picture that commercial aviation, making progress on certain post-pandemic headwinds, could be approaching the next period poised to test industry resilience, and the fates of its players.

“I’m a lessor by training and background, but I have a very soft spot in my heart right now for Boeing, Airbus, Pratt [& Whitney], Rolls [Royce]—and airline CEOs,” Tailwinds Aviation Chairman and CEO Raymond Sisson said. “I don’t have the faintest idea how I would run an airline, not knowing what my supply of parts is, what my cost of fuel is, what my availability of aircraft is, and then costing it out over a three-year period, much less a 10-year period. I’d love to have a crystal ball … it’s so profoundly complex.”