Air France-KLM Reviews Impact of MRO Tariffs

Air France-KLM Reviews Impact of MRO Tariffs

Vigilance Amid Rising Trade Tensions

Air France-KLM is closely monitoring the potential effects of escalating tariffs on its maintenance, repair, and overhaul (MRO) operations, as intensifying global trade tensions threaten to increase costs across the aviation industry. CEO Ben Smith emphasized the group’s readiness to respond “aggressively” to any suppliers attempting to raise prices for parts and materials in response to tariffs, reaffirming the company’s commitment to stringent cost control and operational resilience.

During a recent earnings call, Smith acknowledged the uncertainty surrounding the persistence of tariffs in the aviation sector on both sides of the Atlantic. He noted that the United States, a major exporter of aviation products, risks harming its own interests by maintaining such tariffs. “It all depends for us more on the retaliation from Europe,” Smith remarked, underscoring the unpredictable nature of future trade policies and their potential repercussions.

Smith further highlighted that Air France-KLM’s predominantly Airbus fleet provides a measure of insulation from tariff impacts, as the group is “not very dependent on all the deliveries of Boeing.” Even for its Boeing aircraft, some components are sourced from Europe, which helps mitigate exposure. He added that while contracts generally do not allow exceptions for import tariffs, the company is carefully monitoring the situation and will respond firmly to any suppliers seeking to increase fees.

Financial Performance and Strategic Significance of MRO Division

The group’s vigilance comes as competitors across the aviation sector contemplate adjusting strategies or scaling back expansion plans in response to the evolving tariff environment. Despite these challenges, Air France-KLM reported robust first-quarter results, supported by lower fuel costs and strong revenue performance.

In the first quarter of 2025, Air France KLM Engineering & Maintenance (AFI KLM E&M) more than doubled its operating profit year-on-year, reaching €65 million ($73.5 million). Third-party sales increased by 12% to €591 million, driven by heightened demand at its engine shops in France and the Netherlands. Nevertheless, the division continues to face difficulties in its component business due to ongoing supply chain disruptions.

Notably, AFI KLM E&M was the only profitable segment within the group for the quarter ending March 2025, as both Air France’s network and low-cost operations recorded losses. This contrast underscores the critical role of the engineering and maintenance division in sustaining the group’s stability amid market volatility and operational challenges.

Outlook and Industry Implications

The resilience demonstrated by AFI KLM E&M highlights its operational excellence and strategic importance, positioning it as a cornerstone of Air France-KLM’s long-term sustainability and growth. With the global MRO market projected to expand significantly despite tariff pressures, the division’s strong performance offers a positive outlook for the group’s recovery and future prospects.

Amid ongoing economic uncertainties and supply chain challenges, Air France-KLM’s proactive approach to managing tariff risks and maintaining competitiveness in MRO services sets a benchmark within the aviation industry.