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How American Taxes Affect the European Aircraft Industry (and ticket prices)

European Union


The French aircraft manufacturer Airbus has received nearly 7 billion euros in state aid from the European Union every year for years. The World Trade Organization ruled that yesterday, after 15 years of research. And that is why the US is allowed to introduce levies for the same amount on imports of goods from Europe.

Who will feel that? It is expected that the European economy as a whole will not be bothered by it. It does affect, among other things, European whiskey makers who export to the US, pig farmers whose hams are now taxed extra and cheese farmers, although Gouda and Edam regional cheese  are not taxed extra . 

Minister Kaag for Foreign Trade has to find out exactly which products are involved.
The European aircraft industry itself will also notice: a rate of 10 percent is being introduced on aircraft. How can that affect the aircraft industry and does that also affect the ticket price?

Timing

If, in the meantime, it is not abandoned, the levies will start on 18 October. This means that from then on the extra charge must be paid by the person who imports the product into the US, when it crosses the border. Products that have already been ordered before that time are exempt. The new levy does not apply to this.

For European aircraft, this means that the US cannot collect the charges for years. A popular aircraft such as the Airbus A320, of which the company still has to supply nearly 6,000, currently has a delivery time of 6 to 8 years, says Joris Melkert, aviation expert at TU Delft. A charge will then mainly influence the choice of airlines that still have to choose which device they want to order.

Half to half divided

The choice is not huge when it comes to passenger aircraft. The large passenger aircraft with 150 or more seats are actually only available in two flavors: the French Airbus or the American Boeing. That market is about half to half divided, says Melkert.

The idea behind the announced levy in the US is that proprietary products, insofar as they are also made in the US, become relatively cheaper and more attractive. Exporters in Europe are being hit.

Complicated to change device

However, it is not said that if a European Airbus aircraft will soon become ten percent more expensive for Americans, US companies would prefer to buy an American Boeing aircraft automatically. It is complicated for airlines to change the type of aircraft.

First, the long delivery time is a problem. "If you come to the competitor now, you probably have to join the back of the line and wait for years," says aviation economist Rogier Lieshout, SEO research firm.
 
 
In addition, airlines prefer not to fly with many different types of aircraft. Lieshout: "Pilots are all certified for a certain type. If another aircraft comes, they must follow a new training." In addition, you need more parts in stock and knowledge for maintenance if you have more different devices in your fleet.

And then there is the duopoly: if an Airbus aircraft becomes more expensive, you as a buyer can only go to Boeing. This also changes Boeing's negotiating position, which can take the opportunity to also raise the price.

More expensive tickets

If aircraft do indeed become more expensive, then the airlines will ultimately also pass this on to passengers, Lieshout expects. "There is a lot of competition. But if the costs go up for all providers, it will still have to be passed on to the customer left or right."

In addition, the World Trade Organization is currently also subject to a European Union proceeding against Boeing. The EU blames the US on the same thing, namely that the government has granted state aid to Boeing. If the EU is right, the union can also introduce import duties on American products such as airplanes. The WTO will make a ruling early next year.

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