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Optima Aero moves inventory to avoid potential US tariffs

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Aerospace industry fears disruption from tariffs

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Canada threatens retaliatory tariffs if targeted by Trump

By Allison Lampert

MONTREAL, Jan 24 (Reuters) - Canadian helicopter parts

supplier Optima Aero is already moving inventory south of the

border to minimize the risk from potential tariffs proposed by

U.S. President Donald Trump.

Optima, headquartered in Quebec, sends about $2 million worth of

parts each year to Texas, where its local division provides

maintenance services for local law enforcement and U.S. border

protection, a priority mission for Trump's administration.

"A tariff on Canada would make it tough to keep that

business," said Optima President Tony Gault, who estimates 6% of

the Montreal-area company's $32 million in annual revenue could

be subject to tariffs.

Trump is threatening 25% duties on imports from Canada and

Mexico starting on Feb. 1.

From repositioning parts to stocking up on materials such as

steel and lobbying for tariff exemptions, aerospace suppliers

are scrambling to limit tariff risk to their bottom lines. The

tariffs, if implemented, could raise costs for already-stressed

suppliers and their planemaking customers, such as U.S.-based

Boeing ( BA ).

GE Aerospace CEO Larry Culp said on Thursday the company

is doing contingency planning and has been in frequent contact

with the Trump administration.

Some aerospace and defense executives have proactively

sought tariff exemptions from the administration, according to

one aerospace industry source and one source in Trump's

transition team.

Reuters contacted nine aerospace suppliers in Canada and the

United States, seven of which said they could be harmed if

tariffs are imposed, adding that they have limited options

without passing costs on to customers.

The White House was not immediately available for comment.

COMPLEX WEB

The aerospace industry consists of a sprawling network of

global suppliers, making targeted tariffs difficult to implement

without major disruptions to plane and helicopter makers.

Canada is the U.S.' top import country and third-largest

export country for aerospace by dollar value, according to the

Aerospace Industries Association. Canadian manufacturers produce

engines for General Dynamics Corp's ( GD ) Gulfstream and

Textron ( TXT ), as well as landing gear for Boeing ( BA ) and Airbus

.

Boeing ( BA ) and suppliers Honeywell ( HON ) and Pratt Canada

parent RTX declined comment. Textron's ( TXT ) CEO and Airbus'

Canadian division said they are waiting for tariff specifics.

Canada exported C$12.8 billion ($8.91 billion) of aerospace and

defense-related products to the U.S. and imported C$10.2 billion

worth, according to 2023 government data. Canada has threatened

retaliatory tariffs if targeted by Trump.

Some analysts and industry executives doubt Trump will

impose blanket tariffs on Canada given the negative economic

impact on the U.S. Even if tariffs are imposed, aerospace may

not be a top priority, analysts say.

"It would be incredibly complicated," said Alex Krutz,

managing director of aerospace advisory Patriot Industrial

Partners, who does not believe the sector will be affected.

Mexico, also threatened by U.S. tariffs, has fast-growing

aerospace hubs in Queretaro and Chihuahua, attracting large

suppliers including Honeywell ( HON ).

Industry executives have warned that slapping tariffs on

aerospace parts, now sold duty-free under a global agreement,

would create fresh headaches for money-losing Boeing ( BA ), but also

for the company's suppliers that have struggled due to the

pandemic and the planemaker's recent lower output.

The financial pressures limit small suppliers' ability to

defend against tariffs.

In Washington state, family-run supplier TNT Aerospace is

trying to negotiate lower steel prices but cannot easily stock

up due to inventory costs. President Aaron Theisen fears tariffs

could raise prices of the metal.

"It doesn't take a large piece of steel to cost a lot,"

Theisen said.

US-CANADA TRADE

In Western Canada, heat treatment specialist Pyrotek

regularly sends trucks from its British Columbia factory to

Boeing's ( BA ) planemaking hub near Seattle to pick up parts from

suppliers.

The trucks return to Pyrotek's Canadian factory near the

border, where the company heat-treats the aluminum parts that it

then returns to its mostly U.S. clientele.

"(Tariffs) would have an enormous effect," said President

Jim Matheson. "There's no one who can build a plane alone from

the ground up."

Mitchell Aerospace, a Montreal-area supplier of aircraft

parts, sends sand castings to the U.S. for hot isostatic

pressing, a manufacturing step that the company cannot carry out

in Canada, President Guillermo Alonso said.

The castings then return to Canada before Mitchell ships

them to customers around the world, including U.S. enginemaker

Pratt & Whitney.

Warren Maruyama, a former Republican general counsel of the

U.S. trade representative, sees the introduction of tariffs as a

real possibility since they were a core Trump campaign promise

and could be introduced easily using presidential powers.

In 2021, the United States and European Union agreed on a

five-year truce in a transatlantic tariff war triggered by a

record trade dispute over aircraft subsidies at the World Trade

Organization.

U.S.-made planes are likely targets for retaliation by

foreign countries, Maruyama added.

"Aircraft is an iconic American product."

($1 = 1.4362 Canadian dollars)