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Airbus Worried About $ Vs €?  
User currently offlineDeltaDAWG From United States of America, joined May 2006, 751 posts, RR: 1
Posted (7 years 1 week 1 day 22 hours ago) and read 3264 times:

After yet another tailspin this morning of the $USD, got me to wondering about how Eads & Airbus are handling the drop in the value of the dollar vs. the euro.

Considering that a new a/c (say 738 vs. 320) is somewhere in the neighborhood of around $40-45 million list price depending upon options a 1% drop in value could result in a $400,000 dollar advantage to certain markets. On widebodies it seems this disparagy could be even wider. Of course, all this depends upon the market sold into but considering the dollar is dropping against all currencies except the yen it would seem that Boeing is at a better price advantage these days.

Is Airbus worried about this trend (any insiders?) and what if anything can they or could they do about it other than offering lower prices and maybe more attractive service agreements?

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46 replies: All unread, showing first 25:
 
User currently offlineDLPMMM From United States of America, joined Apr 2005, 3581 posts, RR: 10
Reply 1, posted (7 years 1 week 1 day 21 hours ago) and read 3223 times:

It is a long term problem for Airbus WRT their manufacturing costs verses Boeing. In the shorter term, I would doubt it would be a large problem. Even with much of the pricing of aircraft being done in $USD, I am sure that Airbus maintains a long term financial hedging program to lock-in their profit margins, regardless of currency fluctuations.

User currently offlineClickhappy From United States of America, joined Sep 2001, 9601 posts, RR: 69
Reply 2, posted (7 years 1 week 1 day 21 hours ago) and read 3202 times:
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It is a huge worry for Airbus...100% of their materials, and 95% of their equipment, is priced in US Dollars.

User currently offlineDLPMMM From United States of America, joined Apr 2005, 3581 posts, RR: 10
Reply 3, posted (7 years 1 week 1 day 21 hours ago) and read 3129 times:

Quoting Clickhappy (Reply 2):
It is a huge worry for Airbus...100% of their materials, and 95% of their equipment, is priced in US Dollars.

Source please?


User currently offlineDeltaDAWG From United States of America, joined May 2006, 751 posts, RR: 1
Reply 4, posted (7 years 1 week 1 day 21 hours ago) and read 3101 times:

Quoting Clickhappy (Reply 2):
It is a huge worry for Airbus...100% of their materials, and 95% of their equipment, is priced in US Dollars.

Why would they buy in $USD? And if they do, how long have they done this? Did they start off buying everything in $USD?



GO Dawgs, Sic' em, woof woof woof
User currently offlineArniePie From Belgium, joined Aug 2005, 1265 posts, RR: 1
Reply 5, posted (7 years 1 week 1 day 21 hours ago) and read 3088 times:

Quoting Clickhappy (Reply 2):
It is a huge worry for Airbus...100% of their materials, and 95% of their equipment, is priced in US Dollars.

I don't think the purchasing part would be the problem, au contraire it would make it cheaper.
The sales part however is more problematic as all planes are usually sold in US$ ,certainly outside the EU.
Also wages/energy and other overhead costs are almost all paid in € which has a big influence on net profit because it will be very hard to get these costs down while they get less for each plane sold.



[edit post]
User currently offlineAstuteman From United Kingdom, joined Jan 2005, 9841 posts, RR: 96
Reply 6, posted (7 years 1 week 1 day 21 hours ago) and read 3078 times:
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Quoting Clickhappy (Reply 2):
It is a huge worry for Airbus...100% of their materials, and 95% of their equipment, is priced in US Dollars.

If that's correct, then the price of said materials/equipments in $ will be nicely tied into the sale price of the aircraft, also in $.
No worries........  Smile

Regards


User currently offlineClickhappy From United States of America, joined Sep 2001, 9601 posts, RR: 69
Reply 7, posted (7 years 1 week 1 day 21 hours ago) and read 3067 times:
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Source please?

Here you go

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Assuming a 1 to 1 ratio, dollar to pound, 75% of the total cost of the A320 is in US Dollars, 70% for the A340.


User currently offlineOzGlobal From France, joined Nov 2004, 2701 posts, RR: 4
Reply 8, posted (7 years 1 week 1 day 21 hours ago) and read 3043 times:

Quoting Clickhappy (Reply 7):
Assuming a 1 to 1 ratio, dollar to pound, 75% of the total cost of the A320 is in US Dollars, 70% for the A340.

Ok. Good source. But why is that a 'worry' for them?? It should cancel out much of the pain of the strong Euro for sales, no?



When all's said and done, there'll be more said than done.
User currently offlineSemobeila From Austria, joined Jun 2006, 73 posts, RR: 0
Reply 9, posted (7 years 1 week 1 day 21 hours ago) and read 3036 times:

Quoting Clickhappy (Reply 2):
It is a huge worry for Airbus...100% of their materials, and 95% of their equipment, is priced in US Dollars.

This would be an advantage if it would be the case. The problem is that a large junk of their materials and parts have to be paid in EUR and the final product is sold in USD. Therefore they plan to build over 50% of A350XWB parts in "dollar countries".

Quoting DeltaDAWG (Thread starter):
Is Airbus worried about this trend (any insiders?) and what if anything can they or could they do about it other than offering lower prices and maybe more attractive service agreements?

Airbus is definitely worried about this problem. Besides the A380 problems it was the main reason for the "Power8" restructuring program.


User currently offlineClickhappy From United States of America, joined Sep 2001, 9601 posts, RR: 69
Reply 10, posted (7 years 1 week 1 day 21 hours ago) and read 3021 times:
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Because while they are paying dollars for equipment, and materials, their manufacturing costs are booked in Euros.

User currently offlineAbrelosojos From Venezuela, joined May 2005, 5014 posts, RR: 55
Reply 11, posted (7 years 1 week 1 day 21 hours ago) and read 3021 times:

Quoting Clickhappy (Reply 2):
It is a huge worry for Airbus...100% of their materials, and 95% of their equipment, is priced in US Dollars.

= Why would this be a "huge worry"? If its priced in dollars, wouldn't they now have cheaper access to supply?

-A.



Live, and let live.
User currently offlineLVHGEL From Puerto Rico, joined Apr 2007, 212 posts, RR: 0
Reply 12, posted (7 years 1 week 1 day 20 hours ago) and read 2978 times:

Labor in Euros
Taxes in Euros
Capital amortization in Euros
Sales costs in Euros
Other operating and manufacturing costs in Euros

It is obvious they should worry, but, also they should implement the necessary strategies to offset the issue.
Now Boeing is outsourcing parts of the 787 in the European Union and Japan, I do not know if their contract is in Euros or Dollars, in any case in this scenario, someone is worried also by the exchange rate fluctuation.


User currently offlineSacamojus From United States of America, joined Dec 2006, 228 posts, RR: 1
Reply 13, posted (7 years 1 week 1 day 20 hours ago) and read 2953 times:

Quoting Clickhappy (Reply 10):
Because while they are paying dollars for equipment, and materials, their manufacturing costs are booked in Euros.

I am sure their European investors will want euros. Anyway, they can hedge, but yes currency risk is associated with international business.


User currently offlineSllevin From United States of America, joined Jan 2002, 3376 posts, RR: 6
Reply 14, posted (7 years 1 week 1 day 20 hours ago) and read 2940 times:

I recall several years ago (when the Euro and the USD were near parity) that Airbus said a Euro value of over $1.10 would be a potential issue. With the Euro now having been ove $1.25 for three years now (and little sign that the current rate of ~$1.30 isn't the "new parity"), this has to be a major issue for Airbus.

Steve


User currently offlinePoitin From , joined Dec 1969, posts, RR:
Reply 15, posted (7 years 1 week 1 day 20 hours ago) and read 2919 times:

Quoting Sllevin (Reply 14):
I recall several years ago (when the Euro and the USD were near parity) that Airbus said a Euro value of over $1.10 would be a potential issue. With the Euro now having been ove $1.25 for three years now (and little sign that the current rate of ~$1.30 isn't the "new parity"), this has to be a major issue for Airbus.

Steve

It certainly is as the hedges Airbus has had for several years to offset the overpriced Euro are running out.

The big issue is the cost of labor in the Euro zone. With a 35% differential, that has got to hurt.


User currently offlineRedChili From Norway, joined Jul 2005, 2179 posts, RR: 4
Reply 16, posted (7 years 1 week 1 day 16 hours ago) and read 2746 times:

Quoting LVHGEL (Reply 12):
Taxes in Euros

Taxes are paid in percentage. Whether your company has a profit of 100 million euros or 130 million dollars, the taxes will be exactly the same.



Top 10 airplanes: B737, T154, B747, IL96, T134, IL62, A320, MD80, B757, DC10
User currently offlineClickhappy From United States of America, joined Sep 2001, 9601 posts, RR: 69
Reply 17, posted (7 years 1 week 1 day 16 hours ago) and read 2737 times:
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I think you miss the point Chili.

If you have a contract for something that was sold for 100 US dollars, or 125 Euros, but by the time you received the 100 dollars it was now worth 135 Euros you would be paying taxes on the other 10 Euros, that is to say you are now paying taxes on the 135, not the 125.


User currently offlineRedChili From Norway, joined Jul 2005, 2179 posts, RR: 4
Reply 18, posted (7 years 1 week 1 day 16 hours ago) and read 2700 times:

Quoting Clickhappy (Reply 17):
I think you miss the point Chili.

If you have a contract for something that was sold for 100 US dollars, or 125 Euros, but by the time you received the 100 dollars it was now worth 135 Euros you would be paying taxes on the other 10 Euros, that is to say you are now paying taxes on the 135, not the 125.

Well, this would apply if you're importing anything from abroad which is priced in US dollars, and which you have to pay import taxes for. I don't know how much Airbus is buying of that sort, so I cannot say whether this reaally is a problem for Airbus.

But your math is wrong. You're using the exchange rates the wrong way. If Airbus has a contract for something for 100 dollars, that means that the cost with a 1.25 exchange rate used to be 80 euros, but with today's exchange rate of 1.35 the cost is 74 euros.



Top 10 airplanes: B737, T154, B747, IL96, T134, IL62, A320, MD80, B757, DC10
User currently offlineClickhappy From United States of America, joined Sep 2001, 9601 posts, RR: 69
Reply 19, posted (7 years 1 week 1 day 15 hours ago) and read 2631 times:
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This thread is very interesting  Smile

I get the sense that some think a weak dollar is good for Airbus, yet it is probably the biggest challenge they face....if the dollar continues to drop Airbus will be in real trouble.

I miss quoted above..it is not the dollar makeup of the A320 family was not 75% US Dollars/25% British Pound, it was to the Euro.

So, in 2004, assuming a one to one exchange rate, that is to say a US Dollar was worth exactly the same as a Euro, 75% of the cost of an A320 was in US Dollars.

But we now know the exchange rate is 1.35 Euros for Every one dollar, which means that the breakdown for an A320 is now more along the line of a 50/50 split.

The A340 family has a slightly higher Euro to US Dollars cost, so it would suffer slightly more when compared to an airliner priced in all dollars.


User currently offlineAstuteman From United Kingdom, joined Jan 2005, 9841 posts, RR: 96
Reply 20, posted (7 years 1 week 1 day 11 hours ago) and read 2531 times:
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Quoting Clickhappy (Reply 19):
I get the sense that some think a weak dollar is good for Airbus, yet it is probably the biggest challenge they face....if the dollar continues to drop Airbus will be in real trouble.

Nobody (sensible) disputes that, Clickhappy.
But in the situation of a weak dollar, it's the costs which are felt in euro's that hurt.
Costs that are felt in dollars, such as the material costs you described in post No.2 are actually what Airbus need most, in order to mitigate the weak dollar.
If they buy in dollars, and sell in dollars, then the value of those dollars doesn't actually matter. It's cancelled out.

Quoting Clickhappy (Reply 10):
their manufacturing costs are booked in Euros

 checkmark 
This is the main issue.
If you design/build in Euro's, but sell in dollars, as the dollar weakens, your design/build costs rise.

Quoting Semobeila (Reply 9):
Airbus is definitely worried about this problem. Besides the A380 problems it was the main reason for the "Power8" restructuring program

 checkmark 

Regards


User currently offlineBaroque From Australia, joined Apr 2006, 15380 posts, RR: 59
Reply 21, posted (7 years 1 week 1 day 11 hours ago) and read 2500 times:

Quoting Clickhappy (Reply 7):
Assuming a 1 to 1 ratio, dollar to pound, 75% of the total cost of the A320 is in US Dollars, 70% for the A340.



Quoting Clickhappy (Reply 19):
I get the sense that some think a weak dollar is good for Airbus, yet it is probably the biggest challenge they face....if the dollar continues to drop Airbus will be in real trouble.

A weak dollar certainly benefits those parts that are buying in dollar denominated items. Perhaps a more interesting question is how does the effect of a weak dollar on the A32x compare with its effect on the B73x?
I think at one stage, there was more of the 32x made in the US (by value) than there was of the 73x. Of course currency realignments can change that overnight, but it could be a problem for both manufacturers. So far the Yen has been weakish, but if it becomes stronger, there might be some stresses in the 787 chain. Bouncy currencies can be a problem where companies are following the global world paradigm.

Quoting Astuteman (Reply 20):
If you design/build in Euro's, but sell in dollars, as the dollar weakens, your design/build costs rise.

 checkmark  And exchange rates will not remain immutable. Interesting too that nobody has mentioned the Pound Sterling, which is teetering towards heights not seen in a while - ~ 20% of Airbus, hope not!!  duck 


User currently offlineDeltaDAWG From United States of America, joined May 2006, 751 posts, RR: 1
Reply 22, posted (7 years 1 week 1 day 5 hours ago) and read 2354 times:

Quoting Baroque (Reply 21):
And exchange rates will not remain immutable. Interesting too that nobody has mentioned the Pound Sterling, which is teetering towards heights not seen in a while - ~ 20% of Airbus, hope not!!

Pound hit $2.00 today! Ouch!



GO Dawgs, Sic' em, woof woof woof
User currently offlineSebolino From France, joined May 2001, 3675 posts, RR: 4
Reply 23, posted (7 years 1 week 1 day 5 hours ago) and read 2344 times:

Quoting Clickhappy (Reply 2):
It is a huge worry for Airbus...100% of their materials, and 95% of their equipment, is priced in US Dollars.

This is not the problem.
The problem is the salaries, a part of the hardware and the energy paid in Euro and the competition by Boeing which pays (nearly) everything ni dollars.


User currently offlineGeorgiaAME From United States of America, joined Aug 2005, 926 posts, RR: 6
Reply 24, posted (7 years 1 week 1 day 3 hours ago) and read 2246 times:

Quoting DeltaDAWG (Reply 4):
Why would they buy in $USD?

The dollar just happens to be the international currency of choice. Preferred by terrorists, North Koreans, and a host of countries world wide for regular business, backed in full by the economic powerhouse called the USA. Perhaps one day the Euro will make it up there, but not too likely in the near future.

You have to realize that exchange rates float, and are not really backed by governments. And the US government really has no incentive to strengthen the US Dollar. Our economy is bursting at the seams, our national debt (which basically is the psychological driving force that weakens the dollar) though numerically high, is only a tiny percentage of our gross domestic product, we are at more than full employment, so we have plenty of cash sloshing around in our coffers and plenty of cheap, fun things to buy with that cash. That being said, it literally "pays" for us to be importing everything and anything which costs less to produce overseas (ie, countries with a "weak" currency). We can dump paper currency, and get real stuff in return, like toyotas, and Chinese made furniture, etc. Boeing I would guess is our biggest exporter of heavy equipment, and there is no shortage of demand for their products. Our farmers produce a hell of a lot of corn and wheat for export (or conversion into alcohol should we chose to do so). This keeps our workers employed, we pay them in dollars, and get some of those exported dollars back when we sell planes or grain. Because our economy is strong, and inflation low, productivity is high for what we do produce, those dollars go right back into circulation, improving the economic outlook of the local sellers. Now reverse the situation, and look at Europe and EADSs. Their Euro is "stronger" than our dollar. If I travel to Europe and want to eat, I get creamed. A hamburger I can get for lunch here costs $4, the same meal in London runs $10-15. So I don't go. On a larger scale, France is building a big airplane, that is delayed and delayed again, and with each passing month costs more to buy, (but not necessarily to build), because the contracts were in the international currency: the dollar. Who wants to buy a $500million aircraft (exaggeration, sorry) with limited functionality, when you can buy 2 787s for $250million, or half the price? Obviously I'm simplifying, but there is a reason that Airbus sales are going down, and Boeing can't keep up with the demand. This is very bad economic news for them, and it is not limited to aircraft. Having a "strong" currency may boost national ego, but it is not necessarily a good thing in the short run.



"Trust, but verify!" An old Russian proverb, quoted often by a modern American hero
25 Post contains images Poitin : Yes and no. If the customer is let's say LH, and in the Euro zone, using the Euro as its base currency, the Boeing aircraft is 35% cheaper but the Ai
26 Post contains links Baroque : Erm, well admittedly there are 34 other countries with higher debts as a percentage of GDP, but 4.9 trillion government debt and 64.7% of GDP (and up
27 Lumberton : Quite correct. And do what? Throw the international financial community into total disarray? Who will buy all their exports? Who owns who here?
28 BuyantUkhaa : It's actually at almost $1.36 today. Incorrect, Because if you are a US company and your contract was in USD, then you don't have to worry a second a
29 Ikramerica : But that assumes that at a 1:1 exchange rate, the cost of labor is equal. I think the cost of labor is already higher in the EU and the exchange rate
30 Post contains images Baroque : Oh indeed, it is a tricky circle with not large amounts of inherent virtue in it!! I guess it is best thought of as commensalism. Presumably the clos
31 Poitin : Probably more given that they work 30-35 hours a week, have dozens of holidays, and take the month of August off. Power8, should it happen, which I d
32 Post contains images N1786b : According to La Lettre de l'Expansion, Hans-Peter Ring admitted that only 50% of their backlog is hedged. - n1786b
33 Poitin : While I don't have a reference, I saw reports that much of their hedge money has gone to pay off the A380 claims. It would be interesting to read the
34 Ikramerica : Well, the reasons for why it's true doesn't matter, just the fact the cost of labor is higher. If you have to employ more people (jobs program) then
35 Post contains images Lumberton : Thank you for using this word! I haven't seen it since high school biology and that was quite a few years ago!
36 Post contains images Baroque : Not as long ago as me alas!! Apart from being close to a description of the relationship, commensalism also has a slightly sleazy sound to it which a
37 NAV20 : Until yesterday, Baroque, neither the $AUS nor the pound were 'going up' much at all, relative to world currencies other than the $US. Fact is, the $
38 Baroque : Yes, well if you look at his interest payments, you can see one reason why he is not keen to raise them. I suspect that part of the rise in the Aus $
39 Lumberton : I've opined in the past that this is one of the reasons for GE's success vis a vis RR lately and could explain why RR is looking to do more work in t
40 Post contains images Swissy : A "weak" US will hurt even Boeing in the long run with the out sourced parts, work...... I guess Mr. GB got himself in a nice little mud hole and it i
41 Baroque : Currency would be one reason, but I suspect that RR are also trying to have the best of both worlds and to use their holdings in the US to try to app
42 Lumberton : Only if the work is outsourced in the eurozone, or where the exchange rate is unfavorable.
43 Post contains images Swissy : Agree 100% Which will be the case "if" the US will loose more ground to other currencies like the Yen (787 program) or just have a look at the "might
44 Post contains images Swissy : Agree 100% Which will be the case "if" the US will loose more ground to other currencies like the Yen (787 program) or just have a look at the "might
45 Post contains images Swissy : Agree 100% Which will be the case "if" the US will loose more ground to other currencies like the Yen (787 program) or just have a look at the "might
46 BuyantUkhaa : Most places will have un unfavourable exchange rate. The fact that the dollar goes down against the euro does not say much about the euro; as the dol
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