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Plunging Dollar Hits Airbus  
User currently offlineJoni From , joined Dec 1969, posts, RR:
Posted (6 years 11 months 5 days 22 hours ago) and read 4516 times:

The federal reserve rate cut is weakening the dollar further, which is causing consternation at Airbus:

Quote:
"If the euro remained durably at $1.45, that would mean we had to find one billion euros in additional savings under Power 8," Fabrice Bregier told BFM radio on Friday.

http://www.reuters.com/article/marketsNews/idUKL214947120070921?rpc=44

On the balance Airbus is hurting from the strong euro, even though many of the raw materials they're using (aluminium etc) are priced in dollars, and they subcontract a lot to suppliers in the US. On the other hand if Airbus is forced to become leaner as a result of this, they should be in excellent shape when the dollar strengthend again.

12 replies: All unread, jump to last
 
User currently offlineLHSTR From Germany, joined Mar 2001, 226 posts, RR: 1
Reply 1, posted (6 years 11 months 5 days 22 hours ago) and read 4494 times:

Interesting asect to this:

As airlines buy their planes in USD, airlines in the EURO zone have a great exchange rate for buying planes


User currently onlinePanHAM From Germany, joined May 2005, 9276 posts, RR: 29
Reply 2, posted (6 years 11 months 5 days 21 hours ago) and read 4346 times:

Quoting LHSTR (Reply 1):

As airlines buy their planes in USD, airlines in the EURO zone have a great exchange rate for buying planes

That is a mixed blessing. Capital expenditure in relation to revenue is rather small. European airlines cannot raise their $$$ sales in relation to the devaluation of teh $$.

Clear advantage for US carriers. Mainly $$ cost based, they collect more $$ for their €€ sales.

..



E's passed on! That parrot is no more! He has ceased to be! E's expired and gone to meet 'is maker!
User currently offlineBaroque From Australia, joined Apr 2006, 15380 posts, RR: 59
Reply 3, posted (6 years 11 months 5 days 21 hours ago) and read 4315 times:

Quoting Joni (Thread starter):
when the dollar strengthened again.

Would you consider "if" rather than "when"?  angel   angel 

For those who have read Winnie the Pooh, will Roo take his strengthening medicine?


User currently offlineN1786b From United States of America, joined Sep 2005, 559 posts, RR: 17
Reply 4, posted (6 years 11 months 5 days 21 hours ago) and read 4242 times:

Considering they claim that some Airbus planes have more American content than some Boeing planes, you'd think Airbus would be happy. Why are they complaining?

 duck 

- n1786b

QUOTE:

According to Bischoff, the aerospace industry had become increasingly global, undermining the concept of national products.

"EADS is one of the largest customers of the US aerospace industry, buying $6 billion of equipment in the US, and Airbus products have more American content than some of Boeing's products," he said. "If you have an A-380 with a GE engine against a 777 with a Rolls-Royce engine, I bet you have more US content in ours."

http://www.caltradereport.com/eWebPages/front-page-1097401472.html


User currently offlineJoni From , joined Dec 1969, posts, RR:
Reply 5, posted (6 years 11 months 5 days 20 hours ago) and read 4169 times:

Quoting PanHAM (Reply 2):
Clear advantage for US carriers. Mainly $$ cost based, they collect more $$ for their €€ sales.

OTOH oil is priced in dollars and it's USD-price is likely to increase as the dollar loses value.

Quoting N1786b (Reply 4):
Considering they claim that some Airbus planes have more American content than some Boeing planes, you'd think Airbus would be happy. Why are they complaining?

Some and some, but on the balance of it not. And he also said "I bet", not that this was the case.


User currently onlinePanHAM From Germany, joined May 2005, 9276 posts, RR: 29
Reply 6, posted (6 years 11 months 5 days 20 hours ago) and read 4101 times:

Quoting N1786b (Reply 4):

"EADS is one of the largest customers of the US aerospace industry, buying $6 billion of equipment in the U

That is about 20% of the sales, leaves a big chunk which is not offset by $ purchases, even if that is bought somewhere in other $ zones.

.

Quoting Joni (Reply 5):

OTOH oil is priced in dollars and it's USD-price is likely to increase as the dollar loses value

It is a commodity traded in $$. The price is affected by market supply and demand, not by the $$ value.

For Airlines with a € cost base, the low $ exchange rate offsets somehow the high price of crude.



E's passed on! That parrot is no more! He has ceased to be! E's expired and gone to meet 'is maker!
User currently offlineN1786b From United States of America, joined Sep 2005, 559 posts, RR: 17
Reply 7, posted (6 years 11 months 5 days 20 hours ago) and read 4029 times:

Come on, Joni - he said I bet - yeah, so it was just a soundbite for the press.

According to their web site, 46% of their overseas procurement comes from North American companies (yeah, I know that includes Canada).

More precisley and I quote:

In 2006, Airbus spent $10.2 billion on parts, components, tooling and services with American companies. The United States is the largest single supplier country to Airbus, making Airbus the largest export customer for the U.S aerospace industry. A large part of this business is dedicated to the A380, so the supplier figures in terms of dollars and people, are set only to grow as the A380 becomes more commonplace at airports worldwide.

http://www.airbus.com/en/worldwide/n...erica/us_indus_partners/index.html

With the drop in the value of the dollar, they ought to be happy - the cost of doing business with the US is going down. As a matter of fact, if the value of the US dollar says around this level - they will be doing more work with the US. IMO the "dollar is causing Power8" is more or less a smokescreen to allow politicians and management to make tough and unpopular decisions. It is always easier to blame the USD or simply complain about the dollar and competitiveness. Their touch labor and cost base is in Euros and the exchange rate is not helping them. But look what other manufacturers (and Airbus itself is doing in China, and the US - Eurocopter) have done - establish a mfg presence in the US. Just look at the car makers in the US now.

I'm not saying the lower dollar isn't hurting them. However, you can't have it both ways - claiming, bragging, or saying that the US content is huge then complain that a lower dollar is really hurting you and causing such a vast and profound reorganization.

Interestingly enough this just hit the wires as I was writing my reply:

Bregier said Airbus' competitive disadvantage from the exchange rate "is starting to be realized at the political level, and that's very important."
Airbus will have to increase its purchasing from dollar-based suppliers, to the detriment of those in Europe, Bregier said. Another option would be to relocate production outside the euro zone, he said.

http://biz.yahoo.com/ap/070921/france_airbus_euro.html?.v=1

-n1786b

[Edited 2007-09-21 13:37:22]

[Edited 2007-09-21 13:45:01]

User currently offlineJoni From , joined Dec 1969, posts, RR:
Reply 8, posted (6 years 11 months 5 days 20 hours ago) and read 3995 times:

Quoting PanHAM (Reply 6):
It is a commodity traded in $$. The price is affected by market supply and demand, not by the $$ value.

True, but the oil-producing countries receive the dollars paid for the oil, and that the USD-price of oil tends to increase when USD is weak is a known phenomenon.

Quoting N1786b (Reply 7):
I'm not saying the lower dollar isn't hurting them. However, you can't have it both ways - claiming, bragging, or saying that the US content is huge then complain that a lower dollar is really hurting you and causing such a vast and profound reorganization.

You're comparing an offhand comment to the cost structure of a huge enterprise as if they're datapoints of equal credibility, which doesn't IMO make much sense.

Your own quote demonstrates this - the North American part (CA included) is less than half their overseas procurement, which again is less than 100% of the value they produce. Therefore it's impossible that more than half of their costs would be in USD.


User currently offlineN1786b From United States of America, joined Sep 2005, 559 posts, RR: 17
Reply 9, posted (6 years 11 months 5 days 19 hours ago) and read 3873 times:

Quoting Joni (Reply 8):
You're comparing an offhand comment to the cost structure of a huge enterprise as if they're datapoints of equal credibility, which doesn't IMO make much sense.

 checkmark  OK, I'll start ignoring "offhand" comments from Airbus senior executives. I should have learned my lesson when I took Leahy seriously.

Looks like I should have ignored Hertrich as well.

"(he) rose one last time when the subject of the Air Force tanker deal and U.S. jobs was raised again.

He said the commercial jet that would be modified for an EADS tanker, the Airbus A330, already has 40 percent U.S. content; the amount would grow to more than 50 percent for the tankers."

And we agree that if the amount of $10.2 billion per year is but part of their outsourcing. But to put it in perspective as to how important it is:

"In industrial cooperation with China, Airbus is not only committed to technology transfer, but also committed to increasing procurement and R & D. The value of procurement from China per annum, in respect of existing programmes, is projected to reach $ U.S. 120 million dollars by 2010, doubling the $ U.S. 60 million target for the year 2007."

http://www.airbus.com/en/presscentre...eases_items/22_Apr_05_WingBox.html

What I am trying to say is that by complaining about how bad the dollar is hurting them, the executive and marketing messages about American content of Airbus planes and programs have to be taken with a grain of salt.

- n1786b


User currently offlinePhilzh From Switzerland, joined May 2007, 146 posts, RR: 0
Reply 10, posted (6 years 11 months 5 days 19 hours ago) and read 3820 times:

Quoting Baroque (Reply 3):
Would you consider "if" rather than "when"?

 checkmark 
Betting on a rising US$ would appear to be a rather risky proposition, if I understood the Economist correctly.


User currently offlineJoni From , joined Dec 1969, posts, RR:
Reply 11, posted (6 years 11 months 5 days 19 hours ago) and read 3765 times:

Quoting N1786b (Reply 9):
OK, I'll start ignoring "offhand" comments from Airbus senior executives. I should have learned my lesson when I took Leahy seriously.

I'm sure you see my point, which isn't to ignore offhand comments in general.


User currently offlineLumberton From United States of America, joined Jul 2005, 4708 posts, RR: 20
Reply 12, posted (6 years 11 months 4 days 18 hours ago) and read 1286 times:

Another look:
US dollar's fall drives up Airbus costs

Quote:
Europe's plane maker, Airbus, has warned it may have to slash costs by €1bn and take drastic steps to shift production overseas as the dollar's fall shatters its business strategy. . . .

Airbus earns all its revenues in US dollars, with delivery contracts signed long ago worth over $200bn. Its labour costs are mostly euros. The company has been shielded until now by currency hedges but these will fall from $15.7bn in 2007 to just $1.1bn by 2011, leaving Airbus exposed

Norbert Walter, Deutsche Bank's chief economist, said the euro was now seriously overvalued. "Even at $1.35, the exchange rates was damaging European growth. Now the pain is going to be even worse," he said.

And BTW, a hedging strategy costs real money. If Power 8 was looking difficult before. . . .



"When all is said and done, more will be said than done".
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