Delta avoids US tariffs by sending new Airbus jets on a world tour

Factory-fresh Airbus planes take the scenic route before arriving at their new home.

By Bloomberg News, November 19 2020
Delta avoids US tariffs by sending new Airbus jets on a world tour

Delta Air Lines is sidestepping millions of dollars in U.S. tariffs on European jetliners by initially routing them far outside the country to such places as Amsterdam, Tokyo and El Salvador.

The U.S. carrier has taken delivery of seven European-built Airbus planes since President Donald Trump’s levies took effect in October 2019.

Rather than flying them home as it had in the past, Delta has based the aircraft overseas. The decision, coupled with the definition of new planes in the tariff rules, has kept the jets from being considered imports even though some of them regularly enter the U.S.

Avoiding the tariffs has saved Delta, Airbus’s biggest U.S. airline customer, precious cash while customs records show that rival carriers have been charged the duties.

Every dollar counts for an industry struggling to cut costs amid a collapse in demand caused by the coronavirus pandemic.

Like other major U.S. carriers, Delta has received billions of dollars in government aid while parking planes, reducing flights and trimming jobs as airlines steel themselves for a long slump.

“We have made the decision not to import any new aircraft from Europe while these tariffs are in effect,” Delta said in a statement to Bloomberg News

“Instead, we have opted to use the new aircraft exclusively for international service, which does not require importation.”

Circuitous route

The Delta strategy rests on language that classifies planes as used once they’ve flown for any reason other than testing and delivery. Tariffs on new-plane imports then don’t apply, even if the aircraft are soon flying to the U.S.

While Delta wouldn’t discuss the financial details, the savings are likely to be significant.

Based on aircraft list prices, the anti-tariff strategy has saved the company as much as US$270 million, although the true amount is surely much smaller given the steep discounts that are customary on jetliner sales.

The implications go far beyond Delta’s bottom line. The airline’s efforts also illustrate how the Trump trade wars have prompted U.S. companies to reconfigure their business practices to avoid tariffs, often in ways that make them less efficient.

Long-running dispute

The Trump administration imposed tariffs on US$7.5 billion of annual imports from the European Union after the World Trade Organization ruled in favor of the U.S. in a long-running case over subsidies to Airbus.

In addition to levies on French wine and Scotch whisky, large civil aircraft faced a 10% duty that was later increased to 15%.

If a major customer like Delta is able to continue buying planes without paying the tariffs, Trump’s attempted punishment loses impact. The U.S. also risks losing leverage in negotiations to resolve a trans-Atlantic dispute over aircraft subsidies that has hit Boeing as well as Airbus.

The EU won a WTO case of its own against subsidies for Boeing and this month announced tariffs on US$4 billion in U.S. goods.

Removing that irritant is one of the items high on the agenda for Joe Biden’s incoming administration as the next president tries to repair ties with European allies that were frayed under Trump.

Since the U.S. imposed the punitive tariffs in October 2019, it has sought to collect more than US$55 million on planes imported from France, Germany, the U.K. and Spain, the countries subject to the higher levies, according to data provided by U.S. Customs and Border Protection.

The CBP is barred from disclosing what it collects from individual companies, said Nathan Peeters, a spokesman for the agency.

A spokesman for U.S. Trade Representative Robert Lighthizer, who ordered the tariffs, didn’t respond to a request for comment.

U.S. loophole

In the case of the Airbus tariffs, the Trump administration appears to have created the very loophole Delta may be using.

The definition of a new plane – included in an annex attached to the original 2019 order that imposed the tariffs – doesn’t appear to have applied before that, said Jennifer Hillman, a former senior U.S. trade official now at the Council on Foreign Relations.

Nor was the definition changed in subsequent orders increasing the tariff rate, she said.

“If they had wanted to, they could have amended that definition,” Hillman said.

“So I don’t think the U.S. has much standing to complain if planes are coming in with more hours than just testing and delivery and not paying additional duties.”

According to the U.S. Trade Representative, a new aircraft is one with “no time in service or hours in flight other than for production testing” or for delivery to the U.S. That suggests the plane is no longer new once it’s flown a non-U.S. route for any other purpose.

“It might just be sloppy writing of the law, which would be consistent with the current administration’s aviation trade policies,” said Richard Aboulafia, an aerospace analyst at Teal Group.

Alternatively, he said, Delta “may just be running out the clock on the Trump administration, since the Biden administration is less likely to fight trade wars with allies.”

The scenic route

The Delta planes include a single-aisle Airbus A321 jet and six twin-aisle aircraft normally used for longer flights.

The A321 was built in Hamburg, Germany, and first sent to El Salvador – a hub for aircraft maintenance operations – where it stayed more than two weeks, according to Flightradar24.

The jet was then used on routes to Canada and parked in Mexico during the height of the virus lockdown. Since August, it has ferried passengers between Montego Bay, Jamaica, and Atlanta, where Delta is based.

The wide-body planes, assembled at an Airbus factory in Toulouse, France, were first sent to either Amsterdam or Japan, where some had Wi-Fi antennas installed at Tokyo’s Narita airport.

Two Airbus A350s delivered in September have been flying to cities including Detroit, Atlanta, Amsterdam, Paris and Seoul.

Of the four remaining A330s, three are parked in Tokyo and Nagoya, Japan. The other has traveled mainly between Seattle and either Seoul, Tokyo or Amsterdam.

While Delta says it isn’t importing planes from Europe, the tariffs collected by the U.S. indicate that other airlines have been charged.

Publicly available data on imports of European-built aircraft show that the operators include such major Airbus customers as American Airlines  and JetBlue Airways. Both carriers declined to comment, as did Airbus.

‘Remain competitive’

Last month, Delta delayed US$5 billion in Airbus deliveries until after 2022 as the carrier prepared for years of weak travel demand and lower revenue because of the pandemic. About US$2 billion of the planes had been scheduled to be handed over this year.

But for the jetliners it does want, Delta has made no secret of its aversion to Trump’s levies. The airline said in a February regulatory filing that it was pursuing strategies to minimize the impact.

In its statement to Bloomberg this month, the company said its actions enable its planes to be “treated the same as our foreign competitors’ aircraft, which allows us to remain competitive in the global markets we serve.”

This article is published under license from Bloomberg Media: the original article can be viewed here

Qantas - Qantas Frequent Flyer

01 May 2019

Total posts 37

Just goes to prove that for every government tax there is a smarter accountant! Good on them for avoiding the trade and tariff war.

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