How Trump's second term will impact Airbus-Boeing rivalry & Europe's aviation industry

Incentivizing business, deregulation and tariffs: just a few of the keywords President-Elect Donald Trump’s rhetoric has orbited around throughout his campaign. While each of these broadly impact the economy, the impact on aviation is not insignificant even though he has not explicitly referenced the sector in his promises. We take a look at the possible outcomes of a Trump presidency for the European Union and the Airbus-Boeing divide.

Trump has been unconventionally clear about his intentions regarding tariffs on international players, including on China and the European Union. Specifically, he anticipates a 60-100% tariff on imports of Chinese goods, while a blanket 10-20% tariff would be imposed on all US imports more generally. This latter levy would have an impact on the European Union, an important trading partner for the United States.

The EU 27 collectively come second in the list in the US’ largest suppliers of US goods in 2022 with a total value of $553.3 billion representing 16.5% of total imports, according to the Office of the United States Trade Representative. Individually, the list looks as follows:

1. China: $536.3 billion
2. Mexico: $454.8 billion
3. Canada: $436.6 billion
4. Japan: $148.1 billion
5. Germany: $146.6 billion

Trump hopes to incentivize growth in the local economy through his protectionist measures. These tariffs will likely lead to a retaliating trade war with the country’s biggest partners. Several large companies have already warned that this could lead to higher prices for consumers in the US.

One of the consequences that these tariffs might have is that it could hinder Boeing’s competitiveness on the global stage in the passenger market. Higher prices for part imports – which represent an important percentage – may have unintended consequences on the company. In addition, retaliatory tariffs imposed on the United States by the European Union, will also hinder the company’s competitiveness.

Speaking to my, an aviation economist at the University of Antwerp, Prof. Wouter Dewulf, warned that Boeing may be worse off than Airbus should these tariffs go ahead.

“Airbus will, of course, feel the impact, but it's important to note that Airbus operates a production facility in Mobile, Alabama in the US, where it assembles around 60 Airbus A320 family and 20 Airbus A220 aircraft annually. Unlike Boeing, which lacks a similar facility in Europe, Airbus can avoid import taxes by supplying American-made aircraft directly to American airlines."

Boeing has a facility in China, but it is not a final assembly line. Instead, it is used to complete interior and painting work on 737 MAX planes, before delivery to Chinese airlines. This step follows assembly in the United States.

"Tariffs are never beneficial for trade. Economic theory consistently shows that import taxes do not generate wealth; instead, they may offer short-term benefits for American companies. However, in the long run, tariffs lead to higher prices, not only from import duties but also because domestic companies can raise their prices, further driving up inflation on consumer goods.”

Airbus’ Mobile final assembly line (FAL) was built in an attempt to circumvent tariffs imposed on imports to the US. In fact, the plan was actually initiated by Bombardier with its C Series jet, a program that Airbus later acquired. The Canadian manufacturer was facing 292% duties on the jet after a complaint lodged by Boeing encouraged the US Department of Commerce to rule in its favor, reaffirming the “America First” policy. This was part of the reason Bombardier had to sell its program to Airbus in the first place. The tariffs were withdrawn in January 2018.

There are currently two FALs on the facility, including one for the A220 and another for the A320 family, used “for customers in North America.” A second of the latter is expected to open next year. Talk about perfect timing.

Beyond its Mobile, Toulouse and Hamburg facilities, Airbus also hosts an A320 final assembly line in Tianjin, China. There is also an A220 FAL in Mirabel, Quebec, which serves as the type’s primary facility.

It is worth noting that should tariffs be extended to other specific products such as wings and other parts, Airbus would also be affected.

Disincentivized trade between the EU and the United States could mark a shift for the former towards China. Relations between the two are not as strained, allowing for a continued rapprochement trade-wise should the United States decide to impose heavy tariffs.

However, relations between the two have not been thriving in recent times.

Although China represents the EU’s second largest trading partner, things have not been going great. The EU recently voted to impose tariffs of up to 45.3% on Chinese electric vehicle imports. Beijing has also been upping tariffs on goods such as on EU-made brandy.

Whether these tensions will be eased post-US imposed tariffs is another question altogether. Regardless, Dewulf is optimistic.

“The potential trade war will not be between Europe and China; the trade tensions are primarily between the US and China, and the US and Europe. This situation could reduce trade among these three regions. However, it might also prompt China to redirect more goods to Europe and vice-versa, potentially boosting trade between them. If China and Europe face a similarly challenging environment from the US, it could even bring them closer together economically.”

European passenger airlines have recently struggled to compete with Chinese carriers on the market connecting the two regions. Significant capacity cuts have been undertaken continent-wide. Should trade between the two increase, cargo airlines and maritime shipping lines will be the ones who serve to benefit, according to Dewulf.

“I anticipate a potential rise in cargo flights between China and Europe. If China’s exports to the US decrease, especially in e-commerce as Trump is likely to remove the $800 tax-free threshold on e-commerce imports from China, they may increasingly redirect shipments to Europe. With its large market and strategic importance, Europe could be the next logical focus. While Latin America and Africa present alternatives, their markets are comparatively smaller. This is where we might see a significant shift if the EU does not change its current stance on e-commerce imports from China.”

Reduced regulations on airlines in the United States could mean that they face lower domestic costs. On the transatlantic end, however, Trump’s presidency will likely have a limited impact in the context of competition. The larger airlines in Europe already have agreements with carriers in North America on transatlantic operations. These joint ventures are listed below.

The benefit of such agreements is that revenue is shared across the carriers. In other words, the European airlines involved in the agreement are not directly at a disadvantage due to higher regulation. However, independent airlines like Norse Atlantic Airways and JetBlue might not be so lucky. Dewulf believes that the impact will nevertheless be limited, as their model is inherently risky in such a competitive sector.

“These airlines will face challenges. They lack the frequency, network and premium comfort options essential for this route, which has significant business travel demand. Profitability here relies heavily on year-round premium traffic, as cargo rates between Europe and the US are quite low. They will struggle without premium travelers, particularly because they aren’t part of an alliance, which means no frequent flyer benefits. They are already under pressure, so I don’t anticipate any major change in their current positions.”

While seemingly unrelated to the aviation industry, should Trump’s promised intervention in the Russia-Ukraine war lead to its cessation, low-cost airlines in Europe will expand significantly. Trump has promised to end the war in Ukraine, despite not revealing how exactly he plans to do so.

“LCC’s Ryanair and Wizzair will put a massive capacity in routes to/from Ukraine to claim the VFR [visiting friends and relatives] market. There is a vast Ukrainian expat community in Europe now, and both airlines are already preparing for a full-scale return.”

In July last year, Ryanair committed to investing $3 billion into Ukraine’s aviation industry, basing up to 30 aircraft to facilitate 10 million passengers per year in the country. The company has said that it will return within eight weeks of the reopening of Ukraine airspace. It hopes to introduce 600 weekly flights on domestic and international routes. CEO Michael O’Leary said at the time:

“Ukraine is a country of 40 million people, many of whom have been dispersed across Europe over the past year. We look forward to being able to reunite these families using Ryanair low fare services to the main Ukrainian airports as soon as it is safe to do so."