How a border tax could divide Boeing and its suppliers

Author: Alwyn ScottSun, 2017-03-26ID: 1490465141193094600SEATTLE: A US tax overhaul proposed by Republican leaders in Congress would deepen divisions between big manufacturers like Boeing Co. and the thousands of smaller companies that supply them, according to suppliers and tax and trade experts.US automakers and other manufacturers that rely on imported components also would be affected by the proposals, which would tax imports at a 20 percent rate, and could split these sectors into winners and losers.The revamp would heighten existing tensions in the aerospace industry, where Boeing’s aggressive cost-cutting driven by fierce competition with European rival Airbus has pushed suppliers to lower prices and source more parts and materials abroad.Aerospace components often zigzag through multiple countries and companies before reaching Boeing’s factories in Washington and South Carolina. US-based suppliers to Boeing would face a tax on their imports of these parts. Boeing, the top exporter among US manufacturers, would export its jetliners without paying any tax.Boeing and some of its largest suppliers, such as United Technologies Corp., General Electric Co., and Honeywell International Inc., which also have substantial exports, favor the Republican tax package.The plans, laid out in a blueprint last year and which President Donald Trump has spoken about favorably, aim to boost US manufacturing, and include cutting the corporate tax rate to 20 percent from 35 percent and making capital investments immediately deductible.Lawmakers already are at work drafting a tax bill to introduce by early summer, but it could be delayed if health care changes take longer than expected, according to congressional staff.If the proposed 20 percent tax on imported goods had been in effect last year, Norfil Complex Machining — a 40-employee company in Pacific, Washington — would have paid more for titanium it imports from Russia. The metal goes into parts Norfil makes for Boeing landing gear that is assembled in Japan.“A lot of Russian titanium goes into planes,” said Doren Spinner, Norfil’s CEO. His purchase contracts have pricing that adjusts if costs go up, so the tax “would end up affecting what the plane would cost,” he says.Other companies said it would be tough to pass higher costs on, and some might move production to low-cost locations abroad.“If the taxes are ridiculous, we would just have to think of something creative,” said Paul Doran, a sales manager at Mifa, a subsidiary of Netherlands-based Aalberts Industries NV that makes precision aluminum parts for aerospace, autos and other industries. “I think most companies would be in the same boat.”Colin Frost, chief operating officer (COO) at parts and tooling supplier Carr Lane Manufacturing Co. in St. Louis, Missouri, said he would consider manufacturing overseas if the tax plan were passed. “We would end up splitting up the company and I do not think that is necessarily good for the US economy,” he said.Boeing said it was too soon to judge the plan’s effects on suppliers and so far it appeared likely to benefit the industry as a whole rather than disrupt the supply chain.“These assessments will vary by company, and it is premature to speculate or generalize,” Boeing spokeswoman Kate Bernard said.Boeing was among about 90 companies, which signed a letter this month from the Aerospace Industries Association (AIA) urging Congress to overhaul the US tax system. Boeing also is part of the American Made Coalition (AMC), an industry group that backs Republican tax proposals.Proponents say tax reform also would strengthen the dollar, offsetting the impact of the import tax for suppliers, and would encourage companies to invest in the US.The tax overhaul could have cut Boeing’s taxable income by an estimated $44.5 billion last year, according to tax experts and a Reuters analysis of Boeing’s 2016 deliveries. Two-thirds of Boeing’s jetliners were delivered overseas and would be tax exempt. Worth about $89 billion at list prices, they were likely sold at discounts of about 50 percent typical in the industry. Boeing declined to comment on the estimate.Boeing would face import taxes, too. Its 787 Dreamliner, for example, uses major parts from Japan’s Mitsubishi Heavy Industries Ltd., Fuji Heavy Industries Ltd., Kawasaki Heavy Industries Ltd. and Italy’s Leonardo SpA.
Main category: Business & Economy

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