Bloomberg Businessweek - USA (2020-11-23)

◼ BUSINESS Bloomberg Businessweek November 23, 2020

18

THEBOTTOMLINE TheU.S.put15%tariffsonnewjetsimported

from Europe. Delta dodged the fees by starting the planes’ service

in foreign nations—before using some in the U.S., duty free.

kept the jets from being considered imports

even though some of them regularly enter the U.S.

Avoiding the tariffs has saved Delta, Airbus’s

biggest U.S. airline customer, precious cash, while

customs records show that rival carriers have

been charged the duties. Every dollar counts in

an industry struggling to cut costs amid the col-

lapse in demand caused by the pandemic.

“We have made the decision not to import any

new aircraft from Europe while these tariffs are

in effect,” Delta said in a statement to Bloomberg.

“Instead, we have opted to use the new aircraft

exclusively for international service, which does

not require importation.”

The Delta strategy rests on language that clas-

sifies planes as used once they’ve flown for any

reason other than testing and delivery. Tariffs on

new-plane imports then don’t apply, even if the

aircraft eventually fly to the U.S.

Delta wouldn’t discuss the financial details, but

the savings are likely to be significant. Based on

aircraft list prices, the anti-tariff strategy may have

saved the carrier as much as $270 million, though

the true amount is surely much smaller given the

steep discounts customary on jetliner sales.

The airline’s efforts illustrate how Trump’s

trade wars have prompted U.S. companies to

reconfigure business practices to avoid tariffs,

often in ways that make them less efficient. The

administration imposed tariffs on $7.5 billion of

annual imports from the European Union after

the World Trade Organization ruled in favor of

the U.S. in a long-running case over subsidies to

Airbus. In addition to levies on French wine and

Scotch whisky, large civil aircraft faced a 10% duty

that was later increased to 15%.

Since the tariffs took effect, the U.S. has sought

to collect more than $55 million on planes imported

from France, Germany, Spain, and the U.K., coun-

tries subject to the higher levies, according to data

provided by U.S. Customs and Border Protection.

The CBP is barred from disclosing what it collects

from individual companies, said spokesman Nathan

Peeters. A spokesman for U.S. Trade Representative

Robert Lighthizer, who ordered the tariffs, didn’t

respond to a request for comment.

In the case of the Airbus tariffs, the adminis-

tration appears to have created the very loophole

Delta may be using. The definition of a new plane—

included in an annex attached to the original 2019

order imposing the tariffs—doesn’t appear to have

applied before that, says Jennifer Hillman, a for-

mer senior U.S. trade official now at the Council

on Foreign Relations. Nor was the definition

changed when the tariff rate went up, she says.

“Iftheyhadwantedto,theycouldhaveamended

thatdefinition,”Hillmansays.“SoI don’tthinkthe

U.S.hasmuchstandingtocomplainif planesare

cominginwithmorehoursthanjusttestingand

deliveryandnotpayingadditionalduties.”

AccordingtotheU.S.TradeRepresentative,

a newaircraftis onewith“notimeinserviceor

hoursinflightotherthanforproductiontesting”

ordeliverytotheU.S.Thatsuggeststheplaneis

nolongernewonceit’sflowna non-U.S.routefor

anyotherpurpose.“Itmightjustbesloppywrit-

ingofthelaw,whichwouldbeconsistentwiththe

currentadministration’saviationtradepolicies,”

saysRichardAboulafia,ananalystatTealGroup.

TheDeltaplanesincludea single-aisleAirbus

A321jetandsixtwin-aisleaircraftnormallyused

forlongerflights.TheA321wasbuiltinHamburg

andsentfirsttoElSalvador—ahubforaircraft

maintenance—whereitstayedmorethantwo

weeks,accordingtoFlightradar24.Thejetwas

thenusedonroutestoCanadaandparkedin

Mexicoattheheightoftheviruslockdown.Since

August,it’sferriedpassengersbetweenMontego

Bay,Jamaica,andAtlanta,Delta’shomebase.

Initsstatement,thecompanysaiditsactions

enableitsplanestobe“treatedthesameasour

foreigncompetitors’aircraft,whichallowsus

toremaincompetitiveintheglobalmarketswe

serve.”�SiddharthPhilip,MarySchlangenstein,

andShawn Donnan

Montego Bay,

Jamaica

San Salvador, El Salvador

Querétaro,

Mexico

Atlanta

Montreal

Toronto

Detr

One Plane’s Circuitous Route to Bypass Tariffs

European-made planes

are subject to duties if

flown directly from the

factory to the U.S. to

start service. So Delta

sent this Airbus A321 on

several runs from foreign

cities, to keep it from

being pegged an import

subjecttoTrump’s levies.

DATA: FLIGHTRADAR

Planetrips

February

March

April

July

August to present