Understanding customs requirements – an important key to unlocking success in the aerospace market

Managing Director UK Sales | FedEx Europe

The UK aerospace industry is one of the biggest in the world and accounts for nearly a quarter (22 per cent) of the global defence export market[1].  However that’s not to say that, as a sector, it doesn’t face challenges particularly given the nature of an industry when every second counts.

For example, keeping an aircraft grounded while it waits for a replacement part can cost an airline tens of thousands of pounds per day, once lost earnings and the need to accommodate (and perhaps compensate) over 300 passengers and/or freight customers are taken into account.  This means that the time needed to ship replacement parts in the event of a problem must be as short as possible – not only for shipping itself, but also for customs clearance.

A global race against time to ship aircraft parts

Aircraft parts have considerable intrinsic worth – from several thousand pounds for the smallest parts to several million for an aircraft engine.  Their high cost and extremely specific nature, including compatibility with only certain aircraft types, mean that these parts are also quite rare, and sourced from all over the world.  As a result, international transport is inevitably part of the equation.

The upshot is that replacement part manufacturers and maintenance firms serving the aerospace industry face very tight deadlines to ship the needed parts or have them repaired: each day of delay can generate penalties running into thousands of pounds.  Transport of parts therefore has to be as fast as possible.  The flow of replacement part distribution is also important due to the fact that defective parts are often sent to a repair facility and returned once mended.  Indeed, many will undergo several return trips during their life cycle.

Customs clearance for aerospace: a lot of specific rules

Customs clearance is a complex aspect of the aerospace industry.  If customs clearance documentation is incorrect or incomplete, the broker may not have the necessary information to correctly make entry, a consignment may be held by customs and the sender may lose precious time.  Indeed, a range of different customs regimes – a set of rules that govern how and when imported items may be used, and the levels of tax paid on them – may apply depending on the circumstances. This means it’s important for aircraft part manufacturers to choose the appropriate customs regime for their requirements.

Another consideration is that aircraft parts may be destined for a plane grounded in a location which is not in its normal country of residence.  If such parts are not made for local market consumption, specific rules will apply.  If, however, a part is to be stored within Europe in readiness for a future repair or for reshipment, it may be covered by a different regime.

About customs regimes

A regime is a singular customs process which may have several procedural aspects to it.  Most customs regimes directly related to the aviation industry relieve import duty.  VAT relief is applied to qualifying businesses, those ‘who operate aircraft chiefly for reward on international routes’ that is, most income comes from internationally-routed traffic.  Businesses undergo an Economic Test to ensure they qualify. This can be challenging for charter/private hire companies but even more so for those in the parts/accessories supply chain.

Not all customs regimes reflect duty and/or VAT relief, here are some other examples:
• Home Use. Entry for free circulation to the EU, generally with payment of duty and VAT, though other relief procedures exist here too, such as use of an airworthiness certificate.
• End-Use. Goods for specific industries (civil and military aerospace included) which are put to a prescribed use within three years. Duty relief applies to specific named parts.
• Inward Processing (Suspension). Duty/VAT relief for goods imported for processing and re-export outside the EU.
• Outward Processing. Goods sent outside the EU for processing and returned afterwards.
• Temporary Admission. Temporary Import, for future export.
• Warehousing. Placing goods in a customs warehouse with duty/VAT suspended whilst in storage.

Tips for aircraft part manufacturers
• For aircraft parts likely to undergo several return trips, it’s important to get advice as to the proper shipping regime (temporary or permanent) and to liaise with customs brokers who are properly up to speed with regulations in the field of aerospace.  Doing so can save precious time.
• Provide customs brokers with information well ahead of the shipment.
• To avoid any delays due to incomplete information, senders are strongly. recommended to provide a full description of the parts being shipped, with the right customs codes, as well as the price, origin and destination[2].
• Different customs regimes apply to civilian and military aircraft, so it’s important to specify the intended use of the part, to ensure the correct regime is applied.

Customs regulations are complex, but with the right preparation and support, firms can enter the buoyant aerospace market with confidence.

References
1. FT.com
2. http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=fr); http://ec.europa.eu/trade/policy/in-focus/ttip/index_fr.htm

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