A government shutdown averted, a stopgap spending bill signed (ensuring government operations through the end of September), government agency reductions in force, a 25% tariff on steel and aluminum imports from all countries and on imported goods from Mexico and Canada, all in the first quarter of 2025. Trade and reciprocal tariff uncertainties are causing volatility in the market and consumer confidence. The Administration’s long-term strategic goal (the “bigger picture”) is to attempt to ensure America’s competitive preeminence in the face of China’s global mercantilism by diverting production of goods to domestic factories, reducing deficit spending, and providing incentives to invest in America. The near-term impact, however, will be supply chain disruption, inflation, lost government jobs, reductions in entitlement spending, and the possibility of a lost ‘soft landing.’ Investment planning is becoming more challenging.

The choppy start of the first quarter has made air carriers’ capacity cautious. Delta, American, and Jet Blue have cut their first quarter guidance. United expects first-quarter earnings to come in at the ‘lower end’ of its forecast due to a 50% drop in government-related travel bookings. Scott Kirby announced early this month that United plans to retire 21 of its ‘most expensive’ aircraft early in 2025 and cut capacity to Canadian destinations. United’s mainline fleet comprises 1,010 aircraft, of which the oldest, on average, are the B767-300ERs (37, averaging 29.1 years), followed by the B757-200s (40, 28.2 years), the B777-200s (19, 28.1 years), and the B737-700s (40, 26 years). Kirby did not disclose which aircraft will be ‘retired.’^[1] Delta’s Ed Bastian commented on March 10: “We’re noticing the biggest pullback in demand right now in terms of bookings, and what they are saying about the macro environment and the uncertainty that’s out there right now. We know in a broad sense what the President wants to do, but we’re a long way from seeing things put in place.”

In Rail, the administration is looking for ways to revive coal plants that have closed and prevent others from shutting down. According to the Institute for Energy Economics and Financial Analysis, the U.S. had been on track to close half of its coal-fired generation capacity by 2026. But Doug Burgum, the new Secretary of the Interior, and other officials have said keeping plants online can help lower energy costs for U.S. consumers. The administration wants to cut through red tape and empower the nation to compete in an AI arms race against China. AI data centers require immense amounts of energy which need stable base load sources. The Interior Department approved a federal mining plan modification by the Office of Surface Mining Reclamation and Enforcement for the Spring Creek mine in Big Horn County, Montana, operated by Navajo Transitional Energy. The agency said the decision extends the mine’s operational life by 16 years and lays the path for the production of about 40 million tons of ‘federal’ coal.^[2] In 2024, coal units in Maryland, Indiana, Wisconsin, and Utah extended their retirement dates to 2036 or 2038 as generators aim to meet rising demand. CONSOL Energy CEO James Brock said, “If demand grows at even half the pace everyone is expecting, I think you’ll see these coal-fired plants run at least at a higher capacity, and they may even extend their retirements further.”

Focus on the bigger picture. Risk-adjusted hard asset cash flows with residual upside. Profit from the economics of uncertainty and grow your aero and rail investment. Call RESIDCO.

Glenn Davis 312-635-3161

davis@residco.com

^[1] CH-Aviation, First quarter softness may be a buying opportunity, March 21, 2025.

^[2] DOI, Interior Advances Energy Independence with Spring Creek Mine Expansion Approval, March 13, 2025.