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Why Are Airliners Sold In US$  
User currently offlineKennyK From United Kingdom, joined Apr 2005, 482 posts, RR: 0
Posted (9 years 2 months 5 days 7 hours ago) and read 3952 times:

Is it true that Airbus and Boeing sell their aircraft in US$?
If so, then why, and would it not be better for Airbus to sell its aircraft in Euros?

43 replies: All unread, showing first 25:
 
User currently offlineArrow From Canada, joined Jun 2002, 2676 posts, RR: 2
Reply 1, posted (9 years 2 months 5 days 7 hours ago) and read 3941 times:
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For the same reason that oil, gold, copper, and whole bunch of other things are sold in US dollars -- it's the world's strongest and most reliable currency. Or at least it was. If the US doesn't stop running it's debt up to the moon with billions in annual deficits, the world will make a switch. That will be a momentous day for the US economy, especially if it's triggered by Asian banks bailing out of US debt instruments. That's when the US will learn the real cost of the Iraq adventure.


Never let the facts get in the way of a good story.
User currently offlineLegacy135 From Switzerland, joined May 2005, 1052 posts, RR: 26
Reply 2, posted (9 years 2 months 5 days 7 hours ago) and read 3929 times:

It is for sure also because the US have by far the largest demand for aircrafts and many parts like avionics and engines are produced in the States as well.

User currently onlineStarlionblue From Greenland, joined Feb 2004, 17002 posts, RR: 67
Reply 3, posted (9 years 2 months 5 days 7 hours ago) and read 3895 times:

Quoting Arrow (Reply 1):
US dollars -- it's the world's strongest and most reliable currency

Really? That's in no way a given.

The reason for most trading currencies tends to be tradition.



"There are no stupid questions, but there are a lot of inquisitive idiots."
User currently offlineDutchjet From Netherlands, joined Oct 2000, 7864 posts, RR: 57
Reply 4, posted (9 years 2 months 5 days 6 hours ago) and read 3878 times:

Airliners have historically been priced in US dollars for several reasons - in the pre-Airbus days, a huge proportion of airliners were produced in the US by US manufacturers, in the pre-Euro days, the US dollar was considered the most stable widely traded currency for international transactions, and a good percentage of airliners produced by the manufacturers were sold to US carriers.

Of course, some of that has changed in recent times, Airbus, Embraer and Canadair sell lots of airliners, the Euro has come into existence, and the US carriers no longer dominate aircraft orders, but dollar pricing has remained. Reasons for this include, airlines (and sometimes the governments that support or finance them) have currency reserves in US dollars, many components of non-US airliners are produced in the US, many components of US built airliners are produced outside of the US, many worldwide currencies are directly or indirectly linked to the US dollar, historically, the US dollar has been much more stable than the South American currencies (think Brazil and Embarer) and for competitive reasons, its easier to price airliners in one currency. That being said, in the future, I would not be suprised to see Airbus price certain deals in the Euro for non-US customers....remember, the Euro has only been around for less than 5 years and its weak start did not help.

All of that being said, US dollar pricing can be a headache for the manufacturers....the very strong dollar was a major problem for Boeing at the beginning of this decade and, currently, the strong Euro does create some competitive problems for Airbus.


User currently offlineLegacy135 From Switzerland, joined May 2005, 1052 posts, RR: 26
Reply 5, posted (9 years 2 months 5 days 6 hours ago) and read 3869 times:

During a deal with Embraer lately we had in the contracts set up by the seller the price determined in US $ at the actual exchange rate. Anyhow, they included a formula that the final price was recalculated at the day of the transaction by the daily exchange rate.
So if the manufacturer is not US the prices for new aircrafts are more like an informational indication. For sure, on the used aircraft market someone can loose or earn a lot of money only by exchange rates.


User currently offlinePlaneSmart From New Zealand, joined Dec 2004, 871 posts, RR: 0
Reply 6, posted (9 years 2 months 5 days 6 hours ago) and read 3857 times:

A & B quoted prices are in USD. These price lists are for armchair execs.

A prices aircraft to customers in just about every currency under the sun, including multiple currencies.

Since late last year, B has become more willing to price in currencies other than the USD.

The USD is the currency of international settlement for airline seat sales in global alliances, and IATA.

Some airlines have considerable non-USD income streams, especially if they operate in their country's domestic market, or intra-Europe for example.

Some airlines with domestic and international operations prefer pricing based on the currency of revenue streams. For example, an A32 order for aircraft used domestically could be priced in a mix of local currency and USD (reflects some offshore bookings for domestic flights), while 777's used only for international flights would likely be priced in USD.

Remember engines are often purchased and financed separately. RR will price in other currencies, including for maintenance and power by the hour, PW tried it, and GE still prefers USD.


User currently offlineEMBQA From United States of America, joined Oct 2003, 9364 posts, RR: 11
Reply 7, posted (9 years 2 months 5 days 6 hours ago) and read 3825 times:

Really? That's in no way a given


Go anywhere in the world and drop a US $10 bill down and they'll take it for a purchase....you can't say that about any other currency.



"It's not the size of the dog in the fight, but the size of the fight in the dog"
User currently offlineUAalltheway From , joined Dec 1969, posts, RR:
Reply 8, posted (9 years 2 months 5 days 6 hours ago) and read 3794 times:

Why can't the whole world use the same currency?! It's so damn confusing.

User currently offlineB744F From Germany, joined Jan 2006, 0 posts, RR: 0
Reply 9, posted (9 years 2 months 5 days 6 hours ago) and read 3784 times:

Because every country involved in business has agreed to price their currency compared to the US dollar. This has been going on for many years. The US Dollar is currently the most stable but times are changing, the trade deficit is extremely high as well as the national debt, and the biggest owners of American debt are China and Japan, 2 countries that can cause havok on the American economic system in the future if they decide to cash in their bonds.

User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 10, posted (9 years 2 months 5 days 6 hours ago) and read 3771 times:

If AB priced it's wares in Euro's the price for one of their aircraft would have gone up by over 44% in just a couple of years as the Euro strengthened relative to the dollar.

This would have effectively priced AB out of the market for any country who doesn't have the Euro as its currency (with the possible exception of the UK whose currency has appreciated in relative lock step with the Euro).

One of the reasons why you don't see any real action by the US government to talk up the US$ is that a weak dollar makes US manufactured goods very attractive to foreign buyers.

Take China for example, if they float their yuan (which most people estimate to between 20% and 40% undervalued relative to the US$ right now) they can purchase Boeing aircraft at a sizable discount. Who do you think is going to win the next round of contracts with China when purchasing a Boeing product gives them a 20% to 40% discount relative to Airbus?


User currently offlineScott0305 From United Kingdom, joined May 2005, 196 posts, RR: 0
Reply 11, posted (9 years 2 months 5 days 5 hours ago) and read 3722 times:

Quoting EMBQA (reply 7)
"Go anywhere in the world and drop a US $10 bill down and they'll take it for a purchase....you can't say that about any other currency"

Proper quoting thing isn't working for some reason. Anyhow - this is typical American arrogance. Have you ever been outside the States? I'd like to see you take that US $10 bill and try and buy anything in any store in the UK. Not gonna happen, pal.


User currently onlineStarlionblue From Greenland, joined Feb 2004, 17002 posts, RR: 67
Reply 12, posted (9 years 2 months 5 days 5 hours ago) and read 3704 times:

Quoting EMBQA (Reply 7):
Really? That's in no way a given

Go anywhere in the world and drop a US $10 bill down and they'll take it for a purchase....you can't say that about any other currency.

I think the person behind the counter is about as likely to take British Pounds, Yen, Euro and Swiss Francs. It's somewhat regionalized too.

Quoting UAalltheway (Reply 8):
Why can't the whole world use the same currency?! It's so damn confusing.

Lol. Well if you're serious, it's because if you don't control your own currency, you give away a lot of the controls you can place on the economy through monetary policy. And therein lies one of the big anti-Euro arguments.



"There are no stupid questions, but there are a lot of inquisitive idiots."
User currently offlineZvezda From Lithuania, joined Aug 2004, 10511 posts, RR: 64
Reply 13, posted (9 years 2 months 5 days 4 hours ago) and read 3691 times:

Quoting Scott0305 (Reply 11):
Proper quoting thing isn't working for some reason. Anyhow - this is typical American arrogance. Have you ever been outside the States? I'd like to see you take that US $10 bill and try and buy anything in any store in the UK. Not gonna happen, pal.

Been there. Done that. Next.


User currently offlineRoseFlyer From United States of America, joined Feb 2004, 9508 posts, RR: 52
Reply 14, posted (9 years 2 months 5 days 4 hours ago) and read 3667 times:

Quoting Scott0305 (Reply 11):
Anyhow - this is typical American arrogance. Have you ever been outside the States? I'd like to see you take that US $10 bill and try and buy anything in any store in the UK. Not gonna happen, pal.

I am sorry, but things are not quoted in US dollars because of American arrogance. The dollar is the world international currency. It has been that way since WWII. Before that it used to be the British Pound.

The dollar is the international currency because:

  • The US economy is the largest in the world and the US economy consumes the most goods
  • The dollar is one of the lowest inflation currencies in the world
  • The world needs a common currency for big purchase items (like Gold, Oil, industrial products, agricultural products, and manufactured goods) so that price comparisons are easy


Large purchase items are often sold in dollars. Around 50% of trade within Asia is in dollars (there is a wall street journal article on this that has more specific info). The Yen picked up ground drastically in the 80s and 90s, but its usefulness as an international currency dwindled with the Asian Currency Crisis of the late 90s.

However the Euro is the new big player. The Euro has the potential to surpass the dollar since the EU is growing into a larger economy than the US. Also the European Central Bank is hard nosed monetary authority. They value a low inflation rate more than the dollar. The European economy is hurt by the strong value of the Euro because the dollar has been depreciated in order to stimulate the US economy. The strong devaluation is having effects on the use of the dollar, but only time will tell if the Euro does surpass the Dollar.

Overall a company like Embraer will benefit greatly by pricing its planes in dollars. The Brazilian Real is a weak currency that has a high inflation rate. By pricing its planes in dollars (just like Bombardier) it allows airlines to effectively compare the products on equal grounds. The same is true for Airbus and Boeing. Airbus has been hit by a devalued dollar. The company cannot be as aggressive with pricing since many of its costs are in Euros (around 50% with labor being the biggest factor) while its revenue is in dollars. This hurts the company as it is forced to use financial instruments such as hedging and futures contracts in order to protect itself from currency fluctuation. The order book shows this hit because as the value of the dollar went down, so did the number of orders that Airbus was securing.

But it is all a cycle. The Euro will probably depreciate as Europe faces a recession and the United States is in a growth cycle. Airbus benefited greatly when the Euro was first introduced since it was undervalued at the time. Airbus was aggressive with pricing and won a lot of orders, which is a major reason why it is delivering more planes than Boeing now. Yes Boeing and Airbus have product differentiation, but they are a classic duopoly that is studied in many macroeconomics courses.



If you have never designed an airplane part before, let the real designers do the work!
User currently onlineStarlionblue From Greenland, joined Feb 2004, 17002 posts, RR: 67
Reply 15, posted (9 years 2 months 5 days 4 hours ago) and read 3650 times:

Roseflyer has it right. It's about tradition and stability.


"There are no stupid questions, but there are a lot of inquisitive idiots."
User currently offlineN1120A From United States of America, joined Dec 2003, 26376 posts, RR: 76
Reply 16, posted (9 years 2 months 5 days 4 hours ago) and read 3640 times:

Quoting Arrow (Reply 1):
US dollars -- it's the world's strongest and most reliable currency.

Actually, it is neither currently. The US Dollar has severly weakened and taken been on an out of control roller coaster.

Quoting EMBQA (Reply 7):
Go anywhere in the world and drop a US $10 bill down and they'll take it for a purchase....you can't say that about any other currency.

Sure, Euros are often accepted in the same way.

BTW, the reason for trade in US Dollars is because according to all major trade treaties, the Dollar is the international reserve currency. This means that countries stockpile the Dollar for international purpose. With the attack on the dollar instigated by the Bush Administration, the world has taken a strong look at changing the international reserve currency to the Euro



Mangeons les French fries, mais surtout pratiquons avec fierte le French kiss
User currently offlineBennett123 From United Kingdom, joined Aug 2004, 7472 posts, RR: 3
Reply 17, posted (9 years 2 months 5 days 4 hours ago) and read 3640 times:

I doubt that UK shops would be happy to take dollars. I reckon that they would refuse.

Does anyone have experience about Non US shops accepting USD.


User currently offlineKennyK From United Kingdom, joined Apr 2005, 482 posts, RR: 0
Reply 18, posted (9 years 2 months 5 days 4 hours ago) and read 3640 times:

Glad I asked the question now  cry 

User currently offlineRoseFlyer From United States of America, joined Feb 2004, 9508 posts, RR: 52
Reply 19, posted (9 years 2 months 5 days 4 hours ago) and read 3626 times:

Quoting N1120A (Reply 16):
The US Dollar has severly weakened and taken been on an out of control roller coaster.

Sorry but that is a huge overexaggeration. The value of the dollar is strictly controlled. The Fed has intentionally devalued the currency so that US exports will be cheaper and imports will be more expensive. This will decrease the trade deficit, which is one of the government's goals as a lower current accout deficit means a lower government budget deficit. US exports are up and the economy is growing at a good rate because the currency has a low value. It is not an out of control roller coaster. However the US economic policy obviously favors the US economy which isn't neccessarily good for other countries that have dollarized (abandoned their own currencies like Ecuador etc) or pegged them to the dollar. This is the same method that China has used with its foreign exchange policy (by keeping the Chinese currency pegged to the dollar at an undervalued state, but there is pressure on China now to remove the peg and float their currency) to keep its export driven economy strong.

Quoting N1120A (Reply 16):
BTW, the reason for trade in US Dollars is because according to all major trade treaties, the Dollar is the international reserve currency. This means that countries stockpile the Dollar for international purpose.

I am not flaming, but just curious. What you said was true in the past, but the dollar is not the only currency that is held as a reserve. Foreign reserves are essential to every country's economy since it allows the governments to regulate the value of their currency by buying or selling it while using its foreign reserves. The only major treaty that required stock piling of US dollars was the Bretton Woods system. That is where European countries pegged their currency to the dollar after WWII. This was done because the dollar was one of the few currencies in the world pegged against the dollar. What huge treaties stipulate that foreign reserves must be in dollars and only dollars. From what I understand foreign reserves are usually a mixture of eight currencies in this order (Mexican Peso, Canadian Dollar, British Pound, Swiss Franc, Australian Dollar, Japanese Yen, Euro, US Dollar).

The IMF does require foreign reserves of member countries. However these are not strictly regulated to only dollars. While it is true that countries may be required to keep foreign reserves with some of them denominated as dollars, this is not a reason for why the dollar is an international currency. It is the other way around, reserves are kept in dollars because the dollar is the dollar is an international currency with strong demand. A country would easily be able to increase the value of its currency by selling dollars and buying its own currency back.

[Edited 2005-05-28 00:45:59]


If you have never designed an airplane part before, let the real designers do the work!
User currently offlineStirling From Italy, joined Jun 2004, 3943 posts, RR: 21
Reply 20, posted (9 years 2 months 5 days 4 hours ago) and read 3621 times:

Quoting Pope (Reply 10):
Take China for example, if they float their yuan (which most people estimate to between 20% and 40% undervalued relative to the US$ right now) they can purchase Boeing aircraft at a sizable discount. Who do you think is going to win the next round of contracts with China when purchasing a Boeing product gives them a 20% to 40% discount relative to Airbus?

This is a major trade issue at the moment between the US and China.
The Yuan is pegged to the dollar, which the US government wants it to change...it makes Chinese imports artificially cheaper.
The Chinese however see it as a way to catch up with the rest of the world. And a part of that is the purchasing of those things on the world market it needs to raise the standard of living for the 1.3 billion Chinese, who, beyond the major cities, live in a world not unlike that of centuries before.
Airplanes fall into this mix. A Yuan not tied to the Dollar, as the Pope has stated, makes them much more expensive. But also, Airbus products are marginally more expensive, and when talking in the quanities needed by the Chinese, it adds up, to billions.



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User currently offlineLightsaber From United States of America, joined Jan 2005, 12903 posts, RR: 100
Reply 21, posted (9 years 2 months 5 days 4 hours ago) and read 3608 times:
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Quoting Starlionblue (Reply 15):
Roseflyer has it right. It's about tradition and stability.

???? Traditon doesn't make a currency liquid. While the US deficit *must* be brought under control, the reality is so much business is done in dollars because its a very liquid currency. I was just in Mexico. They really preferred my dollars to pesos... I've had no trouble spending dollars in Candida... The Wall Street Journal had another article noting how 60% of the US paper currency is abroad! I've yet to hear of a country where there isn't a significant amount of trade in dollars.

Quoting Scott0305 (Reply 11):
I'd like to see you take that US $10 bill and try and buy anything in any store in the UK. Not gonna happen, pal.

With a bill? Probably not. But my visa was happily charged.  Smile As to "American Arrogance..." Its only because there hasn't been another currency to challenge the dollar since WWII. Oh, the Euro is rising to the challenge, but it really won't be a totally viable alternative until Britain and a few others join in.

Quoting B744F (Reply 9):
The US Dollar is currently the most stable but times are changing, the trade deficit is extremely high as well as the national debt, and the biggest owners of American debt are China and Japan, 2 countries that can cause havok on the American economic system in the future if they decide to cash in their bonds.

Alas, true that China and Japan could rock our boat. Although I'm not sure if a 20%+ drop is "the most stable" currency.

Quoting Legacy135 (Reply 2):
It is for sure also because the US have by far the largest demand for aircrafts and many parts like avionics and engines are produced in the States as well.

True true. Recall that about 40% of the value of an airbus is made is the US (Honeywell avionics, GE/Pratt engines, APUs, BF Goodrich nacelles, etc.)
Lightsaber



Societies that achieve a critical mass of ideas achieve self sustaining growth; others stagnate.
User currently offlineFlyAUA From Austria, joined May 2005, 4604 posts, RR: 56
Reply 22, posted (9 years 2 months 5 days 4 hours ago) and read 3599 times:

Quoting EMBQA (Reply 7):
Go anywhere in the world and drop a US $10 bill down and they'll take it for a purchase....you can't say that about any other currency.

 eyebrow  I've had less problems with the Euro than with the dollar.

This might have been the case 10 years ago, but not anymore buddy.

Boeing should stick to dollars where as Airbus should adopt the euro... after all the low dollar and high euro at the moment make airbus aircraft seem more expensive and this can not be an advantage to them.



Not drinking, also isn't a solution!
User currently offlineN1120A From United States of America, joined Dec 2003, 26376 posts, RR: 76
Reply 23, posted (9 years 2 months 5 days 4 hours ago) and read 3599 times:

Quoting RoseFlyer (Reply 19):
Sorry but that is a huge overexaggeration.

Wrong

Quoting RoseFlyer (Reply 19):
The Fed has intentionally devalued the currency so that US exports will be cheaper and imports will be more expensive.

Actually, the Fed did not devalue the currency. Irresponsible fiscal policy since 2000 did that

Quoting RoseFlyer (Reply 19):
This will decrease the trade deficit

It hasn't

Quoting RoseFlyer (Reply 19):
which is one of the government's goals as a lower current accout deficit means a lower government budget deficit

Wrong again. The current account deficit and budget deficit have grown exponentially through recent irresponsible fiscal policy. The reason for this is a decrease in government income and a major increase in government spending. That is a recipe for disaster

Quoting RoseFlyer (Reply 19):
US exports are up and the economy is growing at a good rate because the currency has a low value.

Actually, when the currency was strong in the 1990s, the economy was also at its strongest.



Mangeons les French fries, mais surtout pratiquons avec fierte le French kiss
User currently offlineSeamefly From United States of America, joined Jan 2004, 317 posts, RR: 0
Reply 24, posted (9 years 2 months 5 days 3 hours ago) and read 3584 times:

They could put it in Euro or Poundsterling, but then again the buyers would ask," What's that in US dollars?" Big grin

25 Atmx2000 : But they would wreak havoc on their economies as well, because their economies are geared towards exports. That's the reason why they accumulate doll
26 KL911 : You are so right, it was and never will be again...
27 Post contains images FlyAUA : Hehehe That would make sense if it were say JetBlue ordering A320s from Airbus. But if it were say, Austrian ordering them from Airbus, what makes yo
28 Sacflyer : I don't even like to think about how complicated the price of an aircraft gets when offsets become part of the deal. That just sounds like a huge head
29 PHXinterrupted : Ah, a typical anti-American statement from KL911. It's okay KL911, don't lose sleep over the fact that the US economy is larger than the euro zone an
30 Milemaster : Interesting.. Why do you say that? I'm assuming you had your crystal ball calibrated recently. I will be dumping my broker immediately because of thi
31 Post contains links and images B2707SST : According to the most broadly accepted theory of exchange rate determination, the uncovered interest parity theory, the decline in the value of the d
32 N1120A : Except that the USD is still in far too weak a position for economic equilibrium Yet still disasterously low Well, of course. Nearly 300 million cons
33 Atmx2000 : You really don't know what you are talking about: Trade Broad ECU Balance Dollar orYear $Bil %Chg Index %Chg EUR CAN JPN KOR MEX UK Events1992 -39 76
34 Post contains images Zoom1018 : I wonder what are Euros for if Airbus has to sell their planes in US Dollars? LOL
35 Ikramerica : I find it funny how Bush haters would honestly believe that a Republican administration would be worse for US business than a Democrat one. The tech b
36 Atmx2000 : Just as the strong dollar didn't instaneously result in a $600 billion trade deficit, a weaker dollar won't instaneously result in a smaller trade de
37 Post contains images CXYYZ : US$ are the base currency for many components of international aviation. Revenue and labour aside, landing fees, fuel and insurance are all costs that
38 Stirling : To those just checking in, may I defer to replies #31 and #33? Especially you #31...that was a real nice way of putting it in a way a caveman could un
39 Bill142 : If anyone comes into where I work with a US $10 bill I'm not going to accept it. I only accept Australian Currency, and I think you'll find alot of o
40 Ken777 : Actually Bill, IU worked in retail in Perth for 8 years and when a US Navy ship came to town the procedures were in place to take the money. Cashiers
41 Soaringadi : Its all about power.
42 KC135TopBoom : Yes, it does, I have done that in the UK, Germany, Japan, Spain, Canada (though they want to give you even exchange for Canadain dollars, then change
43 MotorHussy : I think you'll find that the deal will be done in whatever currency the purchasing customer wishes it to. List prices are in US$ and increasingly in t
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