Gulfstream Business-Jet Lead in China at Risk in Trade Spat

(Bloomberg) -- Gulfstream, the maker of the G650 business jet, is at risk of losing its dominance in China because of a worsening trade spat with the U.S.

China’s proposed 25 percent tariff on U.S.-made aircraft would leave Gulfstream at a disadvantage against competitors from Canada and France. Of the 431 private aircraft based in the country, Gulfstream jets account for 42 percent followed by 24 percent for Montreal-based Bombardier Inc. and 9 percent made by France’s Dassault Aviation SA, said consultant Rolland Vincent.

“They have been the most successful of the manufacturers in penetrating the Chinese market with new aircraft,” Vincent said of Gulfstream, a unit of General Dynamics Corp. “There’s potentially a market-share benefit for Dassault and Bombardier if this tariff goes in.”

The tariffs, outlined by China as part of a $50 billion retaliation against duties on Chinese goods proposed by U.S. President Donald Trump, would add to the hurdles of selling private jets in an already sputtering market. Sales have been under pressure in China in the last couple years after President Xi Jinping began an anticorruption campaign, said Richard Aboulafia, an aerospace analyst with Teal Group.

“People said, ‘wrong time for a business jet,’ ” Aboulafia said.

Escalating Tensions

The new restrictions on U.S. aircraft have yet to take effect, and there’s a chance they never will if the U.S. and China reach a truce. But tensions escalated Friday as the nations traded more threats. Trump ordered his administration to consider another $100 billion tariffs against China, which prompted the Asian nation to vow it would defend its interests "to the end, and at any cost."

China already has a 17 percent value-added tax on private aircraft plus a 5 percent duty on foreign jets, according to the International Trade Administration. The 25 percent tariff on large Gulfstream models would probably be added to that, said Vincent, who puts out a widely read industry forecast with partner Jetnet called Jetnet iQ.

Weight Range

The duties would be applied to U.S. aircraft weighing between 15,000 kilograms (33,000 pounds) and 45,000 kilograms. All Gulfstream models except for its smallest aircraft, the G280, fit in that weight range. Some models of the Boeing Co. 737 would also be affected.

China deliveries made up 10 percent of the 80 large aircraft that Gulfstream shipped last year, Vincent said. The company has an even bigger share of planes hit by the tariff. Gulfstream accounts for 112 of those jets, including the G650 and G550, compared with 41 Bombardier jets in the same category and 28 for Dassault.

Gulfstream is expected to begin deliveries this year of two new large aircraft -- the G500 and the G600 -- that fall in the weight range for the tariff. Heidi Fedak, a spokeswoman for Gulfstream, declined to comment.

The extra levy “would have an immediate effect of curtailing potential sales,” said Steve Varsano, founder of the corporate aircraft brokerage The Jet Business. Although private jets can be registered in one country and used in another, operators in China discovered that authorities frowned on attempts to circumvent the existing 22 percent tax-and-tariff combination.

“It was a hardship to pay,” Varsano said in an email. “But if you didn’t and were a regular user in China, they made life difficult to get landing slots and parking availability.”

Business-jet manufacturers will be in Shanghai less than two weeks from now for the annual Asian Business Aviation Conference & Exhibition.

©2018 Bloomberg L.P.