AirCanada cancels orders, Southwest looks for bargains, MAX Tax…

Air Canada announced it was cancelling orders for twenty aircraft, 10 Airbus A220 and 10 more 737MAX.

With an ongoing crisis in air travel, the need to cut capital expenditure is paramount, and on top of that the airline just doesn’t see how it can use the aircraft in the medium-long term.

There’s also an easy way out of the situation if things do pick up – just order new ones, it’s not like either manufacturer is ever going to decline.

The Canadian government is also looking at financial aid for the airlines as the situation there is worsening. Porter Air recently delayed its service resumption for another month.

Southwest looks for bargains

Southwest is in discussions to buy up to 30 so called “white tails” – aircraft that have been cancelled but built, from Boeing. Southwest has a total of 249 737MAX on order and these would be taken from that order list, so its not a net gain for Boeing.

The MAX is due to be re-certified as soon as November 18th by the FAA, but Southwest has said it won’t be putting any back in service until the start of the summer season in 2021.

Tariffs Tax Max

The long running dispute between the EU and the US entered a new phase. The argument as ever, has been over which of the two manufacturers has receievd subsidies from their respective governments.

Boeing alleges that the EU – especially Germany and France, indirectly subsidised Airbus, which is true. The EU says that Boeing has been indirectly subsidised by the US Government and the State Government in Washington. Both are true, with much Boeing technology derived from DoD funded research and development, and the Washington State Government providing multi-billion dollar tax breaks to keep the company there.

Trump has never understood that a tariff is paid, not by the company who make the goods, but by the company or people buying them in the United States, and has used tariffs to push up the price of imports to favour local suppliers. Except in the modern complex supply chain world, none of this helps and it just means things cost more.

The EU didn’t want to get into the tit for tat tariff war, but felt it had no choice after Trump put up more tariffs on European goods.

As a result imported aircraft will now cost airlines and leasing companies 15% more payable to their countries governments.

This is, hopefully with a return to sanity under a new Biden administration, going to be a short lived exercise, but if it isn’t, it could put the UK in an interesting position.

The UK isn’t in the EU, and won’t be imposing the tariff. That leaves a loophole where the aircraft could be purchased into the UK, potentially operated from the UK, into the EU and avoid the tax. Likewise Airbus could export to the UK and re-export to the US after a qualifying period.

One of the airlines that you can guarantee will be looking closely at this is RyanAir, whose 737 only operations will benefit from any loophole.