Tariffs Could Spike Boeing's Plane Prices By $40 Million

The tariffs slated to be imposed by the Trump administration are expected to increase the price of new cars by 10%. While a dire outlook for the car market, the impending trade taxes also have the commercial aircraft market staring down a cataclysmic situation. Plane leasing's top executive projected on Wednesday that the price of an already-troubled Boeing 787 will increase by 40%, if a 25% tariff were in place. The American aerospace giant would be effectively sequestered within the country's borders.

Aengus Kelly, CEO of AerCap, spoke with CNBC on Wednesday. He said that tariffs imposed by Trump would unevenly split the global aircraft market, Boeing being left with just the United States, while Airbus would have the rest of the world:

"In an absolute worst case scenario, say, a 25% increase across the board on tariffs, a tit-for-tat from both sides — a Boeing 787, the price will go up by $40 million. No one's going to want to pay that."

Despite Delta, American, and United being the world's top three airlines in nearly every conceivable measure from revenue to fleet size, the United States still only accounts for 25% of the global market. 

Kelly then shot down notions held by CNBC's host that airlines would shift the added costs to their passengers, stating simply that carriers would go with the cheaper option. The list price for a Boeing 787-8 is $248.3 million, but buyers reportedly pay around $150 million for a new 787. The actual market value of an aircraft is lower than the list price, because buyers typically receive discounts for placing bulk orders. 

It's an experience that Kelly is extremely familiar with, since AerCap is the world's largest aircraft leaser. With ownership of over 1,480 planes, the Dublin-based company would be the world's largest airline by a margin of 400 aircraft, were it a carrier.

The Airbus-Boeing duopoly has its issues already, but splitting the two dominant manufacturers into a pair of tariffed-off monopolies wouldn't benefit anyone. Competition helps keep prices low, and it occasionally keeps manufacturers in check. In the wake of the Boeing 737 Max door plug blow-out, many airline passengers sought out Airbus flights out of fear that something terrible would happen on another Boeing plane. Tariffs could usher in an era where Boeing is the only option for US carriers. How does a massacred FAA try to regulate Boeing then?