By the close of 2024, the aviation industry had begun to breathe a sigh of relief as the long disruptive wake of the COVID-19 pandemic steadily receded and gave way to the onset of a stabilizing new equilibrium across multiple segments. The full rejuvenation of passenger demand flows back to pre-pandemic levels and financial fruits borne from the fleet and corporate rationalization measures adopted at the height of the pandemic period saw carriers increasingly poised to begin reinvesting in rejuvenation and retrofit opportunities over the coming years in a response to the evolving dynamics of a now growing market.
However, the announcement of a comprehensive regime of global tariffs by the incumbent US Presidential Administration of Donald J. Trump on April 2nd 2025 represented a new black swan event with potentially dramatic, but unpredictable, consequences for both the aviation industry as a whole and MRO segment specifically. As has been the case with the wider market, the aviation sector expressed a sigh of relief upon the administration’s April 9th decision to adjust its tariff objectives for the coming 90 days in a move that will mitigate at least some of the previously projected effects on aviation supply chains and business flows.
Still, carriers and MRO enterprises in the United States and around the globe will still need to account for the retention of sectoral tariffs on relevant Canadian, Mexican and European supply chains, the escalation of trade disruption between the United States and People’s Republic of China (PRC) and the looming possibility of a generalized economic slowdown. In the coming weeks and months, uncertainty and caution will remain prevailing features of the MRO demand and supply chain environment as carriers and enterprises wait to see whether bilateral negotiations between relevant state actors and continuing industry pressure on key decision makers will eventually yield agreements conducive to continuing growth and expansion. The prospect that individual corporate entities could be granted exemptions further widens the potential range of outcomes across the industry. Collectively, these conditions which will incentivize the adoption of a restrained strategic posture across much of the industry, pending the emergence of greater clarity regarding the intermediate-to-long term market outlook.
As of the present moment, the Trump administration has levied tariffs amounting to 115 percent on most trade conducted with the People’s Republic of China (PRC). Conversely, the PRC has levied 125 percent tariff on US-made products. Sectoral tariffs on Canada and Mexico impacting aviation critical materials such as aluminum and steel have been retained under the most recent revision of the tariff regime. Across the rest of the globe, reciprocal tariff rates have been universally lowered to 10 percent per the guidance issued by the administration under its pause on April 9th.
Left at the currently assigned rates, aluminum and steel tariffs will generate significant downstream cost pressures across both the new-build manufacturing and MRO segments, particularly for parts suppliers, with both Canada and Mexico both being major loci of activity in both steel and aluminum generally as well as more directly in the supply of aviation parts. In 2022 for example, Mexico exported $8.0 billion in aviation materials to the United States. Canada is home to a host of major aerospace entities including Airbus and MTU facilities, Pratt & Whitney Canada, Bombardier and De Havilland Canada amongst a wider range of other suppliers and entities. An estimate advanced in March 2024 Reuters piece indicated that aluminum tariffs could impose costs of $500.0 million across the Canadian aerospace industry.
Over preceding periods of global trade friction commercial carriers have developed a wide range of mechanisms for reducing the exposure of their fleets to tariffs, and to varying extents individual carriers can depend on local hubs to mitigate at least some tariff impacts. Still, the deeply internationalized nature of both global fleet compositions and existing aviation supply chains nevertheless still presents significant points of friction via which operational and logistical disruptions can emerge and deepen if placed under stress. Impacts within different segments and sub-markets – such as commercial versus business jets – will also not be cleanly distributed and both manufacturers, suppliers and operators will need disentangle their unique levels of exposure accordingly.
Through 2024, over 6,000 Boeing 737 aircraft are recorded as being in active commercial and freight operation outside the United States. Amongst these are over 1,700 737 series aircraft spread out across the European Union and United Kingdom, over 1,500 in mainland China and over 280 in Canada. Conversely, there are over 1,600 Airbus A320s and over 700 Embraer 170 series aircraft operating in the United States at the time of publication. Hundreds of other Airbus, Boeing and Embraer aircraft of other types also collectively operate across these markets.
On the retrofit front, caution may become the norm. Over the post-pandemic period, many major airlines around the globe began pursuing renewed investments in cabin and seating rejuvenation efforts across their fleet as surging passenger demand incentivized them to introduce comfort improvements in a bid to capture a larger proportion of returning customers. The baseline execution and material costs of implementing passenger-oriented retrofits will rise for many carriers operating in core regions. Paired with the emerging potential of a broadly diminished revenue outlook across the industry, carriers may decelerate their current plans or be deterred from pursuing such initiatives further in order to contain costs for the intermediate term and steadily optimize and reorient their production flows for reduced risk.
Retrofit segments heavily connected to Asia-Pacific trade and e-commerce flows could be impacted particularly significantly both the direct and second-order effects of tariffs on China. Over the post-pandemic period, skyrocketing demand for e-commerce helped precipitate a major boom in demand for passenger to freighter (P2F) conversion activity across the industry. Recent industry estimates routinely projected that roughly 1,200-1,600 P2F conversions would be executed over the coming two decades. Although annual conversion demand was already cooling heading into 2025 as capacity requirements peaked and the trade environment stabilized, the imposition of 115-145 percent tariffs on China, and in particular new rules governing de minimis low-value imports, will produce significant ripples across global e-commerce, where the value of the ‘dropshipping’ trade had grown significantly over the past decade. Boeing operates 767 P2F conversion partnerships with a range of Asia-Pacific partners including mainland China’s Guangzhou Aircraft Maintenance Engineering Company Ltd (GAMECO), Singapore’s ST Engineering and Taiwan’s Evergreen Aviation Technologies Corp. Boeing partners for 737 conversions include GAMECO, Taikoo/Shandong Aircraft Engineering Company, Costa Rica’s COOPESA, GMR Aero Technica and ST Engineering. PEMCO World Air Services, another provider of 737 P2F conversions, likewise operates a conversion partnerships with providers in mainland China. In 2023, Aeronautical Engineers (AEI) likewise expanded its conversion and MRO network in mainland China. In this emerging market environment, generalized demand for new P2F conversions is liable to decline. In the intermediate term, conversion operators are liable to face significant pressure to accelerate burgeoning initiatives to develop new infrastructure in India and alternative markets while the loci of conversion activity may shift further in a range of regional external markets towards Airbus models.
Supply chain pressures may introduce contradictory pressures on commercial carrier fleets dependent on a wide range of operator and airframe specific factors. At the height of the pandemic era economic downturn, many carriers pursued fleet rationalization measures that pushed older airframes into retirement at an accelerated pace. At the same time, prospective tariff-induced supply chain snarls on new-build commercial aircraft production may in turn increase MRO pressures on existing airframes and at least in some cases also elongating the originally envisioned service lives of individual aircraft.
Given the uncertainties of the moment, industry groups and corporate leaders are adopting a mixed posture, actively lobbying the US government to reduce the aviation sector’s exposure but also exhibiting a deepening inclination towards fiscal caution, strategic retrenchment and emergency planning. On April 9th, Delta Airlines withdrew its broadly optimistic full-year financial guidance for 2025 and indicated it would pursue means of avoiding tariff payments on new Airbus deliveries in moves that encapsulated the emerging general mood across the industry, with the company citing growing indicators of a brewing economic downturn and corresponding reduction in traffic demand as the primary impetus for its decision to withdraw its annual guidance outlook. Over a month earlier, Canadian business jet giant Bombardier deferred the release of its own 2025 guidance, likewise suggesting that the greater clarity regarding how tariffs would come to shape the market environment over the coming year was needed. On April 4th, US-based aviation parts supplier Howmet Aerospace – which operates facilities around the globe – generated headlines with its reported contingency plans for the invocation of force majeure on existing obligations in the event that the costs associated with tariff pressures continued to escalate. Although it remains too early for most entities to commit to major production and supply chain reorientations, at least some companies also considering the prospect that tariffs will become the new norm and are assessing the prospects for relocating operations accordingly. In March, press reports emerged that Rolls-Royce was assessing contingency options for the relocation of some operations from the United Kingdom to United States in order to avoid tariff costs.
In the United States, the Aerospace Industries Association (AIA) has expressed a balanced approach towards tariffs, acknowledging their potential value towards achieving reshoring and national security objectives while also expressing concern about the potential for rising costs and calling for clarity and consistency with regards to rates and highlighting the industry’s positive trade balance with Canada and Mexico. The International Association of Machinists and Aerospace Workers (IAM) and General Aviation Manufacturers Association (GAMA) have previously advanced similar arguments. Canadian industry groups have warned that without counteraction US tariffs will complicate the acquisition of components such as electronics from the United States, raise the costs of powerplant maintenance and diminish the viability of Canadian aerospace exports. In the immediate term, tariffs appear certain to raise costs across much of the MRO and general aviation sectors, but much else remains contingent on the evolution of bilateral negotiations and industrial dynamics. As such, uncertainty and caution are liable to remain the prevailing features of the market landscape for some months to come.
