Airlines scramble for Airbus jets made in Alabama

Airlines scramble for Airbus jets made in Alabama
An Airbus Group, Inc. A321 airplane destined for service with JetBlue Airways Corp. is pictured while being assembled at the Airbus Final Assembly Line facility in Mobile. (Luke Sharrett/Bloomberg)

For U.S. airlines, the phrase “Made in America” comes with a whole new financial imperative thanks to the trade fight between the Trump administration and Europe.

In October, the White House levied a 10% tariff on European-built aircraft as part of a broader conflict over aviation industry subsidies. The move followed a World Trade Organization ruling that EU assistance to Europe-based Airbus had damaged Chicago-based Boeing, the latest chapter in a 15-year dispute over government support for the world’s two largest aircraft manufacturers.

American carriers who buy from Airbus are now facing the prospect of millions of dollars in additional costs they would rather avoid. So they’ve been asking that their planes come from Airbus’s sole U.S. plant, in Mobile, where the tariffs don’t apply.

But there’s a hitch: The Mobile plant turns out only five A320s each month with plans to move up to six early next year. That’s not enough to satisfy the robust demand, which includes pending orders from a half dozen U.S. carriers. (The company also builds A320s in Hamburg, Germany; Toulouse, France; and Tianjin, China.)

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Carriers including Delta Air Lines Inc., Airbus’s largest customer by orders, are trying to find a way around this expensive hurdle, negotiating with the manufacturer to mitigate the tariff burden for any planes built outside the U.S.

Delta has almost 250 Airbus jets in its order log, including 100 A321neos that begin arriving next year—along with options for 100 more.

“We do not believe any responsibility for the tariffs belong to Delta,” the airline’s chief executive officer, Ed Bastian, told Bloomberg News Dec. 11. “We’re working collaboratively with Airbus to make that happen.” He said the airline will need to get some of its new planes from Europe – which includes A330neo and A350 widebodies next year – but Delta “is not expecting to pay those costs.”

An A321 for Delta Air Lines is shown during a pre-delivery test flight at the Airbus manufacturing facility in Mobile. (Airbus)

Airbus declined to reveal which airlines have production slots in the Mobile factory in the coming months.

The company is discussing its deliveries from Europe with U.S. customers “on a case by case basis regarding the effects of these tariffs,” Airbus spokesman Clay McConnell said in an email. The Trump administration levies “will hurt the traveling public at large by reducing flight options and raising their cost of travel.”

American Airlines Group Inc. is “doing everything we can to talk to Airbus to try to get [jets] out of Mobile … instead of Hamburg,” Chief Financial Officer Derek Kerr told investors in October. American took delivery of its newest A321neo from Mobile on Dec. 4 and has two additional planes of that model scheduled to come from Hamburg by year-end.

The airline continues to negotiate with Airbus on the deliveries from Germany, American spokeswoman Andrea Koos said.

Airbus may decide to absorb the added cost for any aircraft it delivers from Europe, Bank of America analysts said in an October note.

Spectators watch as an Airbus A320neo aircraft manufactured by Airbus Group NV takes off on its debut flight at Toulouse-Blagnac airport in Toulouse, France, on Thursday, Sept. 25, 2014. (Balint Porneczi/Bloomberg)

Among wide-body aircraft, 18% of Boeing’s backlog is for European customers, compared with 12% for Airbus, Bank of America noted.

“However,” the analysts wrote, “we believe the likely outcome is a negotiated settlement before we get to this point.”

Smaller airlines are caught up in the international dispute as well. Scott Haralson, chief financial officer at Spirit Airlines Inc., told investors in October that his airline is working with Airbus to “mitigate” the tariff impact. Spirit has two Airbus A320s scheduled from Hamburg in the first half of 2020, with nine others from Mobile. The Florida-based carrier expects to take 48 Airbus A320-family jets over the next two years and recently ordered 100 more.

“We remain in regular communication with our trade representatives and believe that, over time, it will get resolved,” Haralson said. “However, until then, it does remain a concern.”

 

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