Wednesday , December 2 2020

Delta Air sends Airbus jets on world tour to skirt US tariffs

Bloomberg

Delta Air Lines Inc is sidestepping millions of dollars in US tariffs on European jetliners by initially routing them far outside the country to such places as Amsterdam, Tokyo and El Salvador.
The US carrier has taken delivery of seven European-built Airbus SE 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 US.
Avoiding the tariffs has saved Delta, Airbus’s biggest US 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 US 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.”
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 US.
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 $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 the company’s bottom line. Delta’s efforts also illustrate how the Trump trade
wars have prompted US companies to reconfigure their business practices to avoid tariffs, often in ways that make them less efficient.
The Trump administration imposed tariffs on $7.5 billion of annual imports from the European Union after the World Trade Organization ruled in favour of the US in a long-running case over subsidies to Airbus. If a major customer like Delta is able to continue buying planes without paying the tariffs, Trump’s attempted punishment loses impact. The US 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 $4 billion in US 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 US imposed the punitive tariffs in October 2019, it has sought to collect more than $55 million on planes imported from France, Germany, the UK and Spain, the countries subject to the higher levies, according to data provided by US Customs and Border Protection (CBP). The CBP is barred from disclosing what it collects
from individual companies, said Nathan Peeters, a spokesman for the agency. A spokesman for US Trade Representative Robert Lighthizer, who ordered the tariffs, didn’t respond to a request for comment.

US 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 US 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 US has much standing to complain if planes are coming in with more hours than just testing and delivery and not paying additional duties.”
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. Delta delayed $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.

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