Delta Air Lines (NYSE: DAL) was the first major company to report results since the tariff war kicked off in early April. What its management said had significant implications for the aerospace sector, particularly for Boeing (NYSE: BA).
Here’s what happened and why it matters so much for Boeing investors.
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First, here’s a brief recap of the key takeaways from Delta’s first-quarter earnings call:
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Revenue increased by 3.3% year over year, behind management’s previous estimate for “closer to 4%” — a figure already lowered from guidance for 7%-9% given on the fourth-quarter earnings call in January.
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The uncertainty around global growth created by tariff skirmishes hit Delta’s bookings in the first quarter, and management declined to update full-year guidance in response to current market conditions.
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Management also announced it would reduce “expected capacity growth” in the second half in response to the slowdown and try to protect margins
Frankly, much of this was expected, as Delta’s management had already told investors of a tariff-induced slowdown in March, and the escalation in the trade conflict since then is unlikely to have caused optimism among investors.
The numbers and lack of full-year guidance are one thing, but management said something else that should concern Boeing investors. Quoting Delta CEO Ed Bastian on the earnings call, “We will not be paying tariffs on any aircraft deliveries we take,” and “If you start to put a 20% incremental cost on top of an aircraft, it gets very difficult to make that math work.”
Bastian is talking about Airbus here (it’s the only airplane manufacturer Delta is expecting deliveries from this year).
The implication is clear: Either Airbus will have to at least share part of the tariff cost (in this case, tariffs applied by the U.S. tariffs on European products), or there’s a risk the order will be delayed or cancelled.
While Delta is responding to U.S.-imposed tariffs, the message to Boeing is that non-U.S. airlines could take the same approach to any tariffs imposed by other countries and the E.U. on U.S. products sold in those countries.
It gets worse. Airbus and Boeing are subject to increased costs due to tariffs, either directly from an increase in costs from products sourced from the U.S. and the E.U., or from an increase in suppliers’ costs due to tariffs.