Essential strategies for small aerospace suppliers in a tariff climate

At press time, a 90-day pause on triple-digit reciprocal tariffs between China and the United States was underway, lasting until mid-August. A 10% to 30% tariff on most imports from other countries remains in effect. The full impact of tariffs on aerospace parts and aircraft remains indeterminate, except one example: the recent U.S.-UK trade deal exempts from tariffs Rolls-Royce aircraft engines entering the U.S.

For some perspective on the effect tariffs are having on aerospace markets, I asked Scott Thompson, Global Aerospace and Defense leader, PwC US, to offer some insights.

“Tariffs are more significant for commercial aerospace than for defense,” Thompson notes. “Defense doesn’t rely on foreign suppliers for some of its most sensitive components. Also, many of the contracts allow defense companies to pass the costs along to the government.”

Commercial aerospace companies potentially can access the defense supply chain to ask for increased domestic output for their use. Thompson adds, “This would take time, but many things the aerospace industry relies on have domestic sources, making it possible to accelerate output in a shorter time frame.”

The threat of a recession figures in some economists’ predictions for the year, but Thompson downplays those fears for commercial aerospace. “Some airlines have reduced their forecasts for this year slightly after saying revenue passenger kilometers (RPKs) would grow 8%. If it turns out to be 5% or even 4%, it’s still growing.”

A dip in passenger traffic resulting in fewer flights could slow demand for aircraft aftermarket parts and services, but Thompson assures, “That’s been growing at double digits, so a slight pullback is still going to be high single-digit growth.”

He foresees negligible impact on new airliner production, “We have 12 years of backlog. Airlines can’t get new airplanes fast enough. That’s not going to slow down.”

Thompson says a recession wouldn’t have much if any impact on the defense market. “Defense spending is at record highs, and the Trump administration wants a $1 trillion annual budget, up from $850 billion last year. There’s plenty of demand on the defense side, irrespective of what happens with the economy.”

What advice does he have for smaller manufacturing operations?

“My advice for those companies is transparency up the supply chain. I like to say there are 10,000+ suppliers in the supply chain, and 9,900 of them are small businesses. I think the original equipment manufacturers (OEMs) want to help the smaller suppliers, but they can’t help if they don’t know what’s going on. Managing thousands of suppliers is very challenging, so I encourage these suppliers to be transparent about where they see potential weaknesses in their supply chain and identify those issues so they can get the help they need, either from the next tier up or ultimately through the OEMs.”

If tariffs are already impacting your aerospace business, please email me with any details you’d like to share with our audience. – Eric