Aviation sector set for clearer skies

The anticipated "un-grounding" of Boeing's 737-Max jet offers hope to an aviation industry battered by Covid-19 restrictions. Picture: PA

After much delay, the World Trade Organisation (WTO) finally, last month, approved the EU to raise tariffs of €4bn (€3.4bn) worth of imports from the US as a countermeasure for illegal subsidies to the American aircraft maker Boeing.

The decision enables the EU to slap a 25% import tariff on US whiskey, tobacco, milk concentrates, and agricultural tractors and other machinery. In addition, a 15% import tariff has been listed to apply to aviation parts imports from the US.

Ireland’s dairy industry — caught in the firing line of the parallel WTO case against Airbus for receiving illegal EU subsidies that awarded the US the right to impose 25% tariffs on a similar range of products from October last year — was hoping for a settlement in the dispute.

Kerry Group and Glanbia are currently taking the tariff hit, with Ornua — which exported 3m packs of Dairygold butter to the US last year — perhaps most exposed. It reported that the 25% import tariff on its butter sales into the US would cost it an added €40m on shipments to the market.

Valdis Dombrovskis, EU Commissioner for Trade, has been offering the US an olive branch, stating last week: “This long-awaited decision allows the European Union to impose tariffs on American products entering Europe. I would much prefer not to do so — additional duties are not in the economic interest of either side, particularly as we strive to recover from the Covid-19 recession. I have been engaging with my American counterpart, Ambassador Lighthizer, and it is my hope that the US will now drop the tariffs imposed on EU exports last year.’’ It is highly unlikely that the Trump administration will offer a settlement before leaving office in January, and it is hoped that this week’s video conference summit of EU leaders will not push for the EU tariffs to be implemented.

Marking time until the Biden administration gets its feet under the desk offers the best hope for both the dairy industry caught in the crosshairs of this global aviation dispute as well as the beleaguered travel and tourism industry.

Meanwhile, the devastated airline industry has seen some light at the end of the Covid-19-induced horror story of thousands of grounded aircraft, as Boeing’s top-selling 737-Max aircraft reportedly has cleared the US Federal Aviation Administration’s review of its various safety issues and could be released from the "no-fly" restriction by November 18. The “un-grounding” of the aircraft will give a welcome boost to both Boeing and the various airlines that have taken delivery of the aircraft, but which have been prevented from flying for the past 19 months since the fatal crashes by Lion Air and Ethiopian Airlines.

In the midst of a pandemic, which wipes out economic growth and leaves scores of scattered bankruptcies, it takes brave minds to produce a fresh 20-year forecast.

However, that is exactly what Boeing has just released, forecasting an accelerated economic growth overcoming the current chill brought on by Covid-19. In particular, it is forecasting a robust 20-year growth track for the Chinese commercial aviation sector.

Despite the gutting of global commercial aviation demand by the pandemic and the changes it has forced on personal and business travel, Boeing claims this does not alter the long-term potential for expansion; particularly in the Chinese market.

Not only has China’s recovery from Covid-19 outpaced the rest of the world, but also continued government investments toward improving and expanding its transportation infrastructure, large regional traffic flows, and a flourishing domestic market mean this region of the world will thrive.

These hopeful projections do, of course, bring into focus the escalating trade war that the Trump administration has been waging against China.

It is increasingly looking more likely that China may be the kingmaker, not only in determining the future of the aviation industry, but also the dictator of the wider terms of trade with both the EU and the US and beyond.

John Whelan is managing partner of trade consultancy The Linkage Partnership