The Trump Administration and other countries’ recent or threatened tariffs may increase private aircraft purchases and financing costs. On-and-off U.S. tariff activity has shaken financial markets, sparked retaliatory levies, scared airplane stakeholders, and spread global trade worry.
The Trump Administration has imposed, amended, or delayed tariffs on various countries to achieve foreign policy and economic aims. To prohibit huge fentanyl shipments into the US, the Administration has slapped tariffs on Mexico and Canada and a 20% tariff on Chinese commodities to make US products more competitive with cheaper non-U.S. metal dealers. These tariffs may influence airplane OEMs, repair facilities, and suppliers’ metals.
Transacting Procedure
Buying an aircraft without tariffs is impossible. Deal teams must use customs brokers, lawyers, and other import/export professionals to analyze prospective tariffs in real-time, including US, Canadian, and Mexican direct and retaliatory tariffs.
They should determine the tariff application, percentage, and effective dates on the purchased aircraft. Second, if tariffs apply, compute the tariff from the purchase price. The analysis should incorporate tariff-based factors such as aircraft origin, transformation, and HTSUS product codes. HTSUS is the primary source for US aircraft tariff rates. Third, import timing and terms should be optimized to reduce tariffs.
Tariffs increase transaction costs and processing delays compared to pre-tariff duty-free norms. The deal team will also negotiate purchase or financing documents and work with US Customs and Border Protection.
Complex Tariff Tests
Tariffs are incredibly complicated. The USMCA’s cumbersome product origin certification process adds to the legal and customs mess. USMCA policy allows duty-free aircraft imports. This exemption may expire on April 2, 2025. Repairs and aircraft tires, seats, components, and parts are duty-free listed.
Technically, import specialists should examine USMCA product-specific rules of origin to establish if a Canadian or Mexican article qualifies for duty-free treatment. This usually means experts use a “tariff shift test” (changing from steel to an aircraft hull to use the right tariff) or a “regional value content” test (calculating a product’s origin value in a producer’s region or country, such as a 35 percent Canada origin engine).
Define Tariffs
A tariff is a government charge on imported or exported products. US tariffs raise import prices to support local sectors like steelmakers. Tariffs may reduce the US trade deficit and create income.
Among the four tariffs, aircraft usually face an ad valorem levy. Ad valorum tariffs are customs duties computed as a percentage of the value of a commodity like a new or used aircraft, its engines, parts, or components using the HTSUS.
The US tariff depends on where the product is made or processed. Tariffs are not affected by the aircraft’s base or storage location, delivery destination, seller or buyer nationality, or registration country.
Significant transformation occurs when a product, like airplane components from outside Canada, changes fundamentally in shape, appearance, nature, or character to be fully incorporated into a Canadian-built aircraft. Without specifics, Canada should be the origin of the tariff.
Tariff Effect on New and Used Aircraft Sales
The transaction team should analyze product tariffs if someone plans to physically import an aircraft, engine, parts, or component into the US for sale, repair, overhaul, or upgrades. Back-to-back aircraft transfers may incur two tariffs: one on the intermediate transfer and one on the buyer sale.
Tariffs offer no free lunch. OEMs, buyers, sellers, customs brokers, and product suppliers may pay US and counter-tariff levies. Thus, tariffs affect consumers, firms, and exporters. Repair facilities, buyers, and sellers (including OEMs) should examine tariff exposure and devise cost minimization or cost-sharing solutions in airplane negotiations.
Tariffs may slow the import and export of affected aircraft into and out of the US, complicate the maintenance, repair, and sales supply chain, and change the marketing of new products and services until tariff guidance is written (and probably after that).
Tariff Effect on Aircraft Purchases
Without an exemption or transactional solution, tariffs will certainly raise used (and new) aircraft purchase prices to an untenable level for buyers. That could destroy the transaction at conception or due to APA purchaser default. Canada’s or Mexico’s retaliatory or reciprocal tariffs may likewise raise the price of a U.S.-made aircraft shipped into those nations.
OEMs may face profit margin compression on closed sale contracts and future new aircraft sales and cannot boost prices to recuperate higher tariffs. Tariff-related supply chain disruptions may cause supplier price increases and aircraft or part delivery delays for OEMs.
Tariff Effects on Aircraft Financing
Tariff changes may affect new and used private aircraft loans and leases. An owner/lessor who buys and leases an aircraft to a lessee/user and aviation lenders may face tariff concerns from lessees or borrowers. Higher tariffs may increase credit and aircraft valuation concerns even if the consumer passes credit requirements.
Tariff-related APA and financing contract issues
At the documentation level, the parties should amend the usual APA to incorporate more detailed tariff tax indemnities, termination provisions for importation delays (force majeure) or unexpectedly large tariff charges, and extra time to complete inspections and close.
The parties may need to recast the tariff burden. OEMs may need contract clauses to raise prices to pay all or part of tariffs for new aircraft (a tax legislation price escalation clause).
Buyers who use financing should lock rates for a maximum time to accommodate transaction timing. If a lender finances tariff charges, it may need stricter financial covenants, additional tariff representations and warranties, and tighter loan-to-value ratios to avoid diluting asset value.
