Tariffs To Create Turbulence for Cargo and Passenger Airlines

Significant uncertainty looms around the Trump administration's announced tariffs on goods imported from Canada and Mexico and the possible retaliatory measures taken by these countries. We assessed the likely impact these tariffs could have on the credit profiles of cargo and passenger airlines in North America.

-- We expect tariffs to affect freight activity in North America, resulting in weaker air cargo sector volumes and yields. The credit profiles of cargo airlines in the region that focus on international trade and deal in spot markets could come under pressure.
-- While passenger airlines receive only a small portion of their revenues from cargo, tariffs could have a material indirect impact, particularly if they remain in effect for a long time.
-- Smaller, low-cost carriers with weaker balance sheets and/or more exposure to U.S. Canada Mexico routes could see their credit profiles worsen more significantly than carriers with stronger balance sheets and more global operations.

"Depending on how long the tariffs last and the severity of their economic impact, this could have a material negative impact on airline issuers in North America," said Rohit Kumar, Assistant Vice President, Corporate Ratings.