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Airbus And The Falling Dollar  
User currently offlineR2rho From Germany, joined Feb 2007, 2771 posts, RR: 1
Posted (7 years 2 weeks 2 days 23 hours ago) and read 4405 times:

We had a (highly interesting) thread about this two weeks ago, but it was more about macroeconomics. Let's focus more on the global Airbus industrial and business strategy for this one. The falling dollar and its effects on the European aerospace industry have been in the news almost daily this past week, and even Dassault has now begun to cry out loud.

- Both Thomas Enders and Louis Gallois have sent out very frank and direct messages, to the press and towards their employees, about the damage that the low dollar is doing, and the need for bigger sacrifices than Power8 (desigend for 1.35$ per euro) demands.

- The Power8 plant sales program seems to be in a deadlock. Indeed, the possible candidates would be taking upon the entire currency risk and Airbus is not giving them any real guarantees that they will continue to buy their parts from these sites, but rather quite the opposite. Under these conditions, nobody seems to want to buy those plants. In fact, the whole plant sale scheme is rendered useless: why sell off euro-zone plants to euro-zone suppliers, ultimately keeping everything just as it is?

- EADS has hinted about the possibility of having FULL assembly of the KC-30 in Alabama, should the contract be awarded. A bluff or a real possibility?

- It has been announced that 5% of the A350 airframe will be produced in China. Russia will likely get a similar or even higher share, and will be doing part of the A320F conversions as well. This may be just the beginning?

- However, I read in Aviation Week last week that EADS is hedged at 1.15$ per euro in 2008 and 1.24$ in 2009. This contradicts the apparent sense of urgency that Enders and Gallois are showing. It would seem that EADS still has a safety cushion and can restructure progressively. Are Enders & Gallois just using this to exert pressure on unions and EU governments?

What strategy do you think Airbus should follow?

56 replies: All unread, showing first 25:
 
User currently offlineScouseflyer From United Kingdom, joined Apr 2006, 3401 posts, RR: 9
Reply 1, posted (7 years 2 weeks 2 days 23 hours ago) and read 4394 times:



Quoting R2rho (Thread starter):
Are Enders & Gallois just using this to exert pressure on unions and EU governments?

I think that there's some of that yes, but my take on this is that this low dollar is seen as a "trough" rather than the new norm so in 3,4,5 years time the orders that they are taking now will be paid in dollars that are worth more.

It's also worth remembering that Boeing will be suffering too as although it's sale prices are more competitive under the junk $, it's costs will be rising as the $ doesn't buy as much imported parts as before.


User currently offlineCurmudgeon From Australia, joined Oct 2006, 695 posts, RR: 22
Reply 2, posted (7 years 2 weeks 2 days 22 hours ago) and read 4326 times:

But where exactly is the upside for the dollar in either the medium or long view? Many of the more sober pundits that I am reading are suggesting a new reality for the dollar, and America in general. It may be that we will see a general move away from pricing in dollars, but it is unclear which currency will become the new standard, as the Euro may itself come under pressure in coming years.

2008 will be interesting in so many ways, not least of which will be the extent of the sub-prime problem becoming manifest, and the attendant tightening of credit and further erosion of the dollar. I can't imagine that Airbus is fully hedged in 2007 or 2008, as a year ago Streiff suggested that their positions would all expire in 2008. Don't forget that the bulk of the order book is for post 2008 delivery. Well after, in fact.

I note that the IMF said last week that the world's economies may soon be facing a "perfect storm". Exchange rates may yet prove to be only the most recent of Airbus' woes if that is true.



Jets are for kids
User currently offlineArt From United Kingdom, joined Feb 2005, 3398 posts, RR: 1
Reply 3, posted (7 years 2 weeks 2 days 20 hours ago) and read 4250 times:

One possible form of mitigation: forget about hedging - contract to supply product stipulating multi-currency payment on delivery. How would that work? If a manufacturer knows its cost breakdown in terms of currency, there is nothing to stop that manufacturer making a sales contract for future payment in both dollars and euros.

To greatly oversimplify the process, imagine that the only cost in producing an aircraft is the cost of the parts. If the parts costs are $40 million and 40 million euros and the manufacturer marks up 25% on those costs, the aircraft could be sold for $50 million + 50 million euros.

In essence the manufacturer is completely covered against currency movements and the buyer is partially covered. If only 1 party has to hedge, that is an improvement over the current position where all non-US dollar customers (the majority) and non-US dollar manufacturers have to hedge.

[Edited 2007-12-04 04:58:10]

User currently offlineZvezda From Lithuania, joined Aug 2004, 10511 posts, RR: 64
Reply 4, posted (7 years 2 weeks 2 days 20 hours ago) and read 4231 times:

Airbus would prefer to sell aircraft for euro rather than for dollars. The reason why most of the contracts are in dollars is because the customers want to pay dollars and Boeing are happy to accept dollars. As soon as airlines are willing to buy aircraft in euro, then Airbus will sell them in euro.

User currently offlineStitch From United States of America, joined Jul 2005, 31387 posts, RR: 85
Reply 5, posted (7 years 2 weeks 2 days 20 hours ago) and read 4204 times:
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Quoting R2rho (Thread starter):
The Power8 plant sales program seems to be in a deadlock...In fact, the whole plant sale scheme is rendered useless: why sell off euro-zone plants to euro-zone suppliers, ultimately keeping everything just as it is?

Airbus might be trying to shift the risk to their suppliers as Boeing has done with the 787. Of course, Boeing has seen some risks from doing that.  Wink

Quoting R2rho (Thread starter):
EADS has hinted about the possibility of having FULL assembly of the KC-30 in Alabama, should the contract be awarded. A bluff or a real possibility?



Quoting R2rho (Thread starter):
It has been announced that 5% of the A350 airframe will be produced in China. Russia will likely get a similar or even higher share, and will be doing part of the A320F conversions as well. This may be just the beginning?

A recent article hypothesized that the real reason Boeing is fighting the KC-30 so hard is to not protect the 767, but the 737. Northrup-Grumman could become the second US commercial airline manufacturer, building the A320RS for Airbus at Mobile.

Quoting R2rho (Thread starter):
However, I read in Aviation Week last week that EADS is hedged at 1.15$ per euro in 2008 and 1.24$ in 2009. This contradicts the apparent sense of urgency that Enders and Gallois are showing. It would seem that EADS still has a safety cushion and can restructure progressively. Are Enders & Gallois just using this to exert pressure on unions and EU governments?

Those hedges certainly help, but EADS has a good deal of expenses coming up that might exceed the value of those hedges and would be billed at the "current market rate".

Also, those 1500+ orders booked this year won't be built until 2010 or later, when the hedge will be even less effective should the dollar remain in the $1.50 realm.


User currently offlineGsosbee From United States of America, joined Jan 2005, 825 posts, RR: 0
Reply 6, posted (7 years 2 weeks 2 days 19 hours ago) and read 4159 times:



Quoting Curmudgeon (Reply 2):
Many of the more sober pundits that I am reading are suggesting a new reality for the dollar, and America in general.

Remember exchange rates are all about interest rates and speculation. The dollar is low v. the pound and Euro because interest rates in the US are lower than in Europe. People tend to move their investment funds to areas with the higher interest rates. This drives down the "price" of the dollar.

Don't believe everything you read about the American economy. It is still the strongest and most productive. As long as the basic economic fundamentals are in balance with full employment, the American economic machine will keep churning.


User currently offlineFlysherwood From United States of America, joined Jul 2006, 1115 posts, RR: 0
Reply 7, posted (7 years 2 weeks 2 days 16 hours ago) and read 4012 times:



Quoting Scouseflyer (Reply 1):
It's also worth remembering that Boeing will be suffering too as although it's sale prices are more competitive under the junk $, it's costs will be rising as the $ doesn't buy as much imported parts as before.

The imported parts are purchased in dollars as well. These parts are on long term contracts, so it actually helps Boeing if the dollar keeps dropping.


User currently offlineFlysherwood From United States of America, joined Jul 2006, 1115 posts, RR: 0
Reply 8, posted (7 years 2 weeks 2 days 16 hours ago) and read 3999 times:



Quoting Art (Reply 3):
To greatly oversimplify the process, imagine that the only cost in producing an aircraft is the cost of the parts. If the parts costs are $40 million and 40 million euros and the manufacturer marks up 25% on those costs, the aircraft could be sold for $50 million + 50 million euros.

I don't know that you could find an airline willing to pay in Euros right now.


User currently offlineAtmx2000 From United States of America, joined Oct 2004, 4576 posts, RR: 37
Reply 9, posted (7 years 2 weeks 2 days 15 hours ago) and read 3955 times:



Quoting Scouseflyer (Reply 1):
It's also worth remembering that Boeing will be suffering too as although it's sale prices are more competitive under the junk $, it's costs will be rising as the $ doesn't buy as much imported parts as before.

I would say the concern is more for raw materials. Parts that were outsourced may have been in response to the strong dollar.

Quoting Art (Reply 3):
One possible form of mitigation: forget about hedging - contract to supply product stipulating multi-currency payment on delivery. How would that work? If a manufacturer knows its cost breakdown in terms of currency, there is nothing to stop that manufacturer making a sales contract for future payment in both dollars and euros.

Would the customer like that level of complexity? It will make them jump through added hoops to make comparisons between competing offers.

Quoting Stitch (Reply 5):
Airbus might be trying to shift the risk to their suppliers as Boeing has done with the 787. Of course, Boeing has seen some risks from doing that.

True, but Boeing was trying to shift development risk more than currency risk. It remains to be seen whether Airbus will transfer critical tasks out of the company.



ConcordeBoy is a twin supremacist!! He supports quadicide!!
User currently offlineIAHFLYER From United States of America, joined Dec 2006, 321 posts, RR: 0
Reply 10, posted (7 years 2 weeks 2 days 15 hours ago) and read 3953 times:



Quoting R2rho (Thread starter):
EADS has hinted about the possibility of having FULL assembly of the KC-30 in Alabama, should the contract be awarded. A bluff or a real possibility?

Does anyone have an idea about when this contract is to be awarded?



Little airports with the big jets are the best!! Floyd
User currently offlineR2rho From Germany, joined Feb 2007, 2771 posts, RR: 1
Reply 11, posted (7 years 2 weeks 2 days 14 hours ago) and read 3865 times:

A relatively "easy" solution (because it's half done) would be to expand the A320 FAL currently under construction in China. I think it will make 6 A320s per month. You could have China take a bigger share than that and reduce the output of the TLS FAL.

As for fully assembling the KC-30 in Mobile, I see a problem with Airbus logistics. The Beluga can't ferry all those fuselage sections across the Atlantic. Even with intermediate technical stops, it would stretch the Beluga fleet beyond its capacity. I doubt shipping would be fast enough, and I don't see Airbus buying a B-747LCF  Wink Would creating new manufacturing plants for A330 fuselage sections in the US make sense economically for an aircraft that would just be produced as tankers and possibly also freighters? I don't think so given the potential numbers involved. Would winning their first major US Defense contract be worth some sacrifices? Definitely yes.

But in any case... the FAL is but a fraction of the total cost of the aircraft. If you want to cut costs, it is better to offshore other things like structural components etc. I see a real possibility in outsourcing to Russia. They have very good technical know-how, low labor costs, and geographical proximity. But if US Defense contracts are their real target, they could follow the BAE path and offshore to the US.

Quoting IAHFLYER (Reply 10):

Does anyone have an idea about when this contract is to be awarded?

It's been pushed back so many times that I don't believe any date they give anymore. Last thing I heard, I think, was jan or feb 2008.


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 12, posted (7 years 2 weeks 1 day 20 hours ago) and read 3699 times:

Quoting R2rho (Thread starter):
What strategy do you think Airbus should follow?

I don't think that there IS a strategy that Airbus can follow - or, rather, that they will be ALLOWED by the two governments that are in virtual control of them to follow - that will do anything constructive about the problems they face.

First of all, the problem is not so much a falling dollar as it is a rising Euro. The Euro has appreciated roughly twice as fast against the $US as any other major currency. This is no accident, it is fundamental EU strategy. A high Euro means lower import costs, and therefore lower inflation within the EU, which in turn means political popularity in the short term. Unfortunately it ALSO means uncompetitive export industries in the medium term. But how much that worries Europoliticians - particularly French ones - is amply shown by these classic quotes from a Eurocrat (who also happens to be the current head of the World Trade Organisation):-

"PARIS, Dec 5 (Reuters) - Firms such as Airbus-maker EADS should look beyond the short term when taking decisions about whether to move production abroad to cope with the strength of the euro, WTO chief Pascal Lamy said on Wednesday.

"The head of the World Trade Organisation told France's i-Tele television that competitiveness was the key to job creation in the globalised economy and noted that German firms had managed to adapt to the euro, which recently hit record highs of about $1.4965.

"His comments come two days after EADS boss Louis Gallois said the firm would have to move production outside the euro zone if it were to survive the dollar's weakness.

"Gallois is not only one to issue such warnings. Dassault Aviation's chief said in a weekend interview that his company could move some production abroad to shield the French jet maker from the dollar's sharp fall against the euro.

"I don't think that these are things that one can decide on in the short-term," Lamy, a Frenchman, told iTele. "Today, compared to five years ago, the euro is a lot stronger and the dollar a lot weaker, but it will come back."

"The euro hit record lows of $0.8225 in 2000.

"If I take the case of EADS and Dassault (Aviation) ... my feeling is that they also have a lot of costs in dollars. So I don't think these are issues that can be looked at in the short term," Lamy said."


http://www.guardian.co.uk/feedarticle?id=7128052

Furthermore, not content with telling Airbus that they must somehow magically find a way of becoming competitive regardless of the Euro's uncontrolled appreciation, the two governments that effectively run EADs (French and German) continue to prevent the company from doing anything constructive. The original strategy, first put forward by Streiff (at the cost of his job) and further promoted by Enders and Gallois, was to reduce the workforce by at least 10,000 and sell off a number of plants to raise cash. So far EADS employment figures have gone UP, not down - and it is becoming perfectly clear that government-supported guarantees to the unions have meant that EADS can only sell factories to people who will undertake to maintain the full existing labour force after purchase.

Not surprisingly, this means that there are very few takers for the offered plants; and those that there are are not offering much money for them. For this reason EADS is STILL not sure if any sell-off deals will actually be finalised: and there remain doubts as to whether some of the plants earmarked for sale will ever actually be sold off:-

"PARIS, Dec. 5, 2007 (Thomson Financial delivered by Newstex) -- EADS is rethinking its plans to sell subsidiary Airbus's plant in Augsburg, Financial Times Deutschland reported, citing industry sources.

"Although the plant is still officially up for sale, EADS now prefers to keep the site while selling the Varel and Nordenham plants to US investor Spirit Aerosystems Holdings Inc (NYSE:SPR) , the paper added.

"A separate tender process is running for the site in Laupheim.

'There are no new developments,' a company spokesman told Thomson Financial News. 'We are currently in talks with all bidders and we intend to reach a solution until the end of the year.'


http://money.cnn.com/news/newsfeeds/...cles/newstex/AFX-0013-21438037.htm

I would submit that the (only) solutions to EADS/Airbus' developing longterm problems are (as they have always been):-

1. The EU should 'manage' the value of the Euro in the same way that all other nations do - seeking a balance between short-term internal prosperity and long-term external competitiveness.

2. The company should be freed from day-to-day political influence, and allowed to concentrate on doing whatever it takes to produce competitive products and return to profitability.

3. The best managers should be appointed to run the whole show - regardless of nationality or political 'acceptability.'

[Edited 2007-12-05 05:33:58]


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineR2rho From Germany, joined Feb 2007, 2771 posts, RR: 1
Reply 13, posted (7 years 2 weeks 1 day 12 hours ago) and read 3634 times:

The losses suffered from the A380 delay and the failure of the first A350 are purely due to internal problems and wrong decisions, not to currency rates. And a portion of Airbus suppliers are already payed in dollars (I'd like to find a reliable source with the exact percentage, but can't). The impact of the dollar on Airbus's revenue can't be that direct. Changing a company's global strategy based on today's currency rate (that is unpredictable in either direction for the future) does not seem a good long-term strategy, although it may bring some short-term gains.

I'm currently very skeptical of Airbus management. I think there's something else behind this, and they are only using the currency rate as a perfect excuse. Something fishy is going on.

Quoting NAV20 (Reply 12):

1. The EU should 'manage' the value of the Euro in the same way that all other nations do - seeking a balance between short-term internal prosperity and long-term external competitiveness.

Well, the ECB was trying to make the newborn Euro a strong currency that would establish a firm position in the world economy. It is apparently succeeding in it, but could not predict that the US would let the dollar go into free-fall.

Quoting NAV20 (Reply 12):
2. The company should be freed from day-to-day political influence, and allowed to concentrate on doing whatever it takes to produce competitive products and return to profitability.

3. The best managers should be appointed to run the whole show - regardless of nationality or political 'acceptability.'

 checkmark  I must agree to that. The day a portuguese becomes CEO of EADS, all its problems will be solved.


User currently offlineLumberton From United States of America, joined Jul 2005, 4708 posts, RR: 20
Reply 14, posted (7 years 2 weeks 1 day 10 hours ago) and read 3565 times:



Quoting R2rho (Reply 13):
I think there's something else behind this, and they are only using the currency rate as a perfect excuse. Something fishy is going on.

 checkmark I believe the expression goes like this: "strike while the iron is hot". EADS' management may not get another opportunity like this for a long time. Of course, they may have to open up there books to convince the unions that they are not making enough to keep everyone employed. And that could mean having to address the unions' concerns that they are not pricing their aircraft sufficiently. And that could mean disclosing the real selling prices. And those prices could leak to the press. And management could have to defend themselves from the press, politicos, and labor, that they pursuing a "market share" strategy and that the fact that EADS is not making enought money is their fault! Just a scenario, but I can't see even the relatively docile unions at EADS rolling over and accepting these cuts without a fight.



"When all is said and done, more will be said than done".
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 15, posted (7 years 2 weeks 1 day 9 hours ago) and read 3537 times:



Quoting Lumberton (Reply 14):
EADS' management may not get another opportunity like this for a long time.

Looks like the EU government 'cavalry' is already charging to the rescue - of the Indians!

"PARIS (Thomson Financial) - France's finance minister Christine Lagarde is due to meet EADS chief executive Louis Gallois this afternoon to ask for more details of his plans to shift some Airbus production to the dollar zone.

'I am meeting Mr Gallois at 1730 to ask him exactly how his Power8 plan will be organised in the context of the rising euro,' Lagarde told the French national assembly."


http://www.forbes.com/markets/feeds/afx/2007/12/05/afx4407283.html

"PARIS (Thomson Financial) - Spanish Economy Minister Pedro Solbes warned aerospace giant EADS against making major cuts at its Spanish plants after the company reiterated plans to move some of its Airbus production to dollar-zone countries, the daily Le Parisien said."

http://www.forbes.com/markets/feeds/afx/2007/12/05/afx4405836.html

And we already knew that someone (presumably the German government) is casting doubt on whether the Augsburg plant should be sold.

Given that the politicians seem to be determined not to allow management to fire anyone, OR sell anything off on sensible terms, OR shift any production overseas, the company is virtually certain to go on making a loss. Which means that the only remaining option would appear to be big injections of government cash to keep the wheels turning. Which will presumably take the form of the 'A350 launch aid' recently suggested by some EADS 'company spokesmen.'

The difference this time, however, is that launch aid is currently the subject of an ongoing dispute at the WTO. So any EADS/Airbus rescue will depend on a deal being struck between the EU and the US government. Prospects for pulling off such a deal do not look good.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineLumberton From United States of America, joined Jul 2005, 4708 posts, RR: 20
Reply 16, posted (7 years 2 weeks 1 day 9 hours ago) and read 3499 times:



Quoting NAV20 (Reply 15):
...the only remaining option would appear to be big injections of government cash to keep the wheels turning. Which will presumably take the form of the 'A350 launch aid' recently suggested by some EADS 'company spokesmen.'

Perhaps that's been the agenda all along?  duck 

This thread had promise, but died a sudden death after a few posts. Another alternative to coping with the rising dollar.
Story: "Airbus May Move Production To US..." (by WestWing Dec 3 2007 in Civil Aviation)



"When all is said and done, more will be said than done".
User currently offlineOsiris30 From Barbados, joined Sep 2006, 3192 posts, RR: 25
Reply 17, posted (7 years 2 weeks 1 day 8 hours ago) and read 3462 times:

Well some of us said way back when Power8 came out that the Airbus positioning of the Euro exchange rate was likely 'questionable' at best. Some of the same people stated that things like factory sales and layoffs, while 'easy' to talk about would be difficult to enact in reality.

Airbus's problem is not the Euro, it's not the goverments of Europe, it's not the unions, the politicians, their choice of products to bring to market, the 380 delays or any ONE of those issues. It's all of those combined with the real curse, politcally appointment management who lack any real power to do anything.

The unfortunate truth of the matter is that, while Airbus is a first-rate aircraft builder, and has engineers of unquestionable talent, the entire premise upon which the company was built is doomed to mediocraty. It would be important to note that it was rumoured that Airbus was originally created as a way for Europe to capture x% of the civ-av marketplace. As such Airbus has been a stunning success.

We (the A.net community) are trying to measure the company against a goal they never had as a core objective, and that is profitability. The governments of Europe who back EADS have more than enough money to keep Airbus afloat indefinitely and the people of Europe seem to be more than happy to have tax dollars spent in this fashion. We can all sit here and debate whether or not profitability should be the core goal of a company created in this cauldron, but the reality is, at least from my prespective, being profitable was always an after thought for Airbus when compared to market share.

Will Airbus go broke? Not a chance. The various governments won't allow their egos to be dismantled by a true free-market. Will Airbus ever lay-off a significant portion of their current employees, also very unlikely IMHO. Just look at some of the quotes in this thread alone. Will anything ever truly change at Airbus, probably not.

The only real risk to Airbus as a manufacturing entity is that they become irrelevant by losing more and more of their grasp on reality and what their customers' want. We saw some of that with the 380, and it was further demonstrated and infinitely more obvious when we look at the development history of the 350 and all its variants.

On the flip side to that risk is the basic fundamental principals of the aviation business today:
1) Airbus is part of (for all intents and purposes) a duopoly. This leaves virtually no where for customers to turn if they are unhappy with an Airbus offering (Boeing can and will only build so many aircraft a year.. they learned that lesson the hard way).
2) Even if you completely miss what your customers want, aircraft are so 'cookie' cutter, and most enhancements are pretty much no-brainers, that even if you are just faking it, it's pretty hard to miss the mark by enough to TRULY drive away all your customer base.

Ofcourse these same 'silver' linings apply to Boeing as well, and helped keep Boeing around through some of their dark days, so I'm not saying they are the ONLY reason Airbus is still around, but trying to point out that, while we may go on and on here about manufacturer A vs. manufacturer B, at the end of the day it's pointless. Airbus isn't going anywhere anytime soon unless there is a drastic change in the way the European governments view the organization and I don't see that happening until things in Europe get *much* worse than they are today.



I don't care what you think of my opinion. It's my opinion, so have a nice day :)
User currently offlineR2rho From Germany, joined Feb 2007, 2771 posts, RR: 1
Reply 18, posted (7 years 2 weeks 11 hours ago) and read 3354 times:



Quoting Lumberton (Reply 14):
And that could mean having to address the unions' concerns that they are not pricing their aircraft sufficiently. And that could mean disclosing the real selling prices.

Which raises an interesting issue: should Airbus raise its list prices? (or reduce its refunds, which is equivalent)

I think they could. Not for the aircraft already firmed, of course, but for future orders. Sure, they'd lose some orders, but they have a huge backlog anyway, and a slight rise in prices wouldn't imply a dramatic decrease in sold aircraft. They could sell aircraft a bit more expensive when airlines make follow-up orders, but keep the refunds for any new customers to a type.

Quoting NAV20 (Reply 18):
The plot thickens - looks as if the proposed plant sales are off.

Well as I said, selling off euro-zone plants only to keep them as the same euro-zone plants but under different ownership defeats the whole purpose. And with EADS playing with the idea of offshoring production, who would want to invest their money in a plant with an uncertain future?


User currently offlineOsiris30 From Barbados, joined Sep 2006, 3192 posts, RR: 25
Reply 19, posted (7 years 2 weeks 10 hours ago) and read 3290 times:

Perhaps more interestingly in that article is this:

"Chief Executive Officer Louis Gallois told reporters yesterday that a decision on the sale of the plants would be made ''as soon as possible'' to enable the selection of partners to build the Airbus division's new A350 airliner. "

What impact does this have on the 350, the partner selection, the timelines and cost of that program? If they aren't selling those plants, are they now going to outsource less of the production and eat the increased costs? Seems to be a likely course of action and not unexpected given the conditions set out in my post above.



I don't care what you think of my opinion. It's my opinion, so have a nice day :)
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 20, posted (7 years 2 weeks 9 hours ago) and read 3265 times:



Quoting Stitch (Reply 19):
It may not be Airbus driving it, but the proposed buyers. I can only assume that Airbus would have a fixed price with those facilities for their product.

The buyers always drive the prices, Stitch.  Smile

I suspect that, way back, EADS management made a simple mistake. Since it was my business, long ago, to advise and negotiate on things like factory sales, that wouldn’t surprise me in the least; I’ve seen other businessmen make the same mistake (at first).

Owner-occupied factories tend to be valued for balance sheet purposes at ‘cost less depreciation’ – so Gallois and Co. would have seen values of some billions in the books against the plants they wanted to sell. It must have looked like a simple matter to sell them off and realise those billions.

But such ‘book’ figures do not usually reflect achievable market value. Aircraft factories tend to be huge specialist buildings miles from anywhere. As such they cost a lot to build and maintain but tend to have very low open market values – effectively, they’re not much use to anyone except ANOTHER aircraft manufacturer. So on a straight ‘vacant possession’ basis, they are highly unlikely to be worth anything like the sort of money they cost to build.

The way round this is usually ‘sale and leaseback’ – EADS COULD have offered the plants for sale to investors with the benefit of 40-year leases at indexed rents. They might well have realised something like the book values then.

Instead, as far as one can judge from the leaked information, they appear to have required any interested parties to agree to:-

- Pay top dollar for the buildings, and absorb all the risks of ownership thereafter.
- Agree to build components for Airbus at low or fixed prices (in Euros).
- Agree to keep the existing workforce on on their existing terms and conditions.

If that’s the situation it wouldn’t be surprising if any offers are extremely low – not the sort of billions that EADS would have been hoping for when they first looked at the balance sheet figures. The main reason for that outcome would NOT be the Euro appreciating - it would be the original over-optimistic view of the likely market.

Had someone like me been asked for advice, I'd have recommended the 'sale and leaseback' route from the outset; and they'd have had the money 'in hand' years ago. Wouldn't work now, though - any prospective landlord is going to take one look at EADS' 2006/7 results and 'forward outlook' and decide that they're not a good risk.

Quoting Osiris30 (Reply 21):
If they aren't selling those plants, are they now going to outsource less of the production and eat the increased costs?

That would appear to be the only alternative, Osiris30. Except that they currently don't have any profits coming in with which to pay the increased costs, so they'd need government cash to follow that course.

Idea, M. Gallois! Offer the plants for sale with the benefit of 40-year leases from EADS at indexed rents, which are GUARANTEED by the governments concerned. The WTO might not like the guarantee idea, but at least you'd get your A350 development cash then. No charge for the advice, I'm retired now.......



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineRuscoe From Australia, joined Aug 1999, 1605 posts, RR: 2
Reply 21, posted (7 years 2 weeks 8 hours ago) and read 3216 times:

What I would like to know is how is Airbus achieving record sales at a time of record Euro values??

Ruscoe


User currently offlineStitch From United States of America, joined Jul 2005, 31387 posts, RR: 85
Reply 22, posted (7 years 2 weeks 6 hours ago) and read 3165 times:
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Quoting R2rho (Reply 20):
Which raises an interesting issue: should Airbus raise its list prices?

I think they could. Not for the aircraft already firmed, of course, but for future orders. Sure, they'd lose some orders, but they have a huge backlog anyway, and a slight rise in prices wouldn't imply a dramatic decrease in sold aircraft. They could sell aircraft a bit more expensive when airlines make follow-up orders, but keep the refunds for any new customers to a type.

I believe Boeing and Airbus last raised their list prices around 2006, so it might be a bit early to boost them again.

However, Airbus is doing a good job of stuffing their backlog, which does help Boeing raise their prices due to superior delivery positions. Airbus could "auction" some of their slots for follow-on orders by offering earlier deliveries for higher prices (using some of the money to compensate the original customer for accepting the delay).

Quoting Ruscoe (Reply 23):
What I would like to know is how is Airbus achieving record sales at a time of record Euro values?

Lower prices, superior delivery positions, superior product (A330 vs. 767 and A380 vs. 747), embedded market (many customers are significantly or totally Airbus operators), etc.


User currently offlineOsiris30 From Barbados, joined Sep 2006, 3192 posts, RR: 25
Reply 23, posted (7 years 2 weeks 6 hours ago) and read 3165 times:



Quoting Ruscoe (Reply 23):
What I would like to know is how is Airbus achieving record sales at a time of record Euro values??

They sell in dollars and haven't upped their pricing with the rise of the Euro.. hence they are bleeding money right now (although it's more complicated than that given hedges, and delivery timeframes, but the basic idea is there)



I don't care what you think of my opinion. It's my opinion, so have a nice day :)
User currently offlineR2rho From Germany, joined Feb 2007, 2771 posts, RR: 1
Reply 24, posted (7 years 1 week 5 days 12 hours ago) and read 3197 times:



Quoting Stitch (Reply 24):
I believe Boeing and Airbus last raised their list prices around 2006, so it might be a bit early to boost them again.

Airbus unions were handing out leaflets this week accusing management to sell planes with too high discounts "just to beat Boeing" and achieve record orders this year. Don't know how much truth is in that, but it's worth considering.

It is rumored in French press that Gallois is pushing to decide the plant sales before the end of the year, while Enders is trying to delay the final decision. It is also rumored that Enders would be leaning more towards Spirit acquiring the sites, while the French Government is "urging" EADS to pick Latecoere. On the German side, it's no secret that the goverment is pushing for a "German solution", which is one of the things that is delaying the sale of the German plants.


25 Post contains images NAV20 : Thanks for the new information, R2rho. That sounds like exactly what the unions WOULD be saying - "Sell the aeroplanes for more money or don't sell t
26 Ruscoe : I don't think it would necessarily have that effect. Supermarkets I know, and if two Supermarkets are operating in the same market, without significa
27 Post contains images NAV20 : Of course you could be right, Ruscoe - so far 'duopoly' is an economic theory, it has never been fully played out in practice, to the 'end-game.' But
28 Post contains images Osiris30 : Some industry 'experts' have suggested that Airbus is pricing so aggresively that Boeing has chosen to not even bid against the Airbus proposals. To
29 R2rho : That's what I think too. Airbus could very well give up a few percentage points of market share, but at least be selling profitably. This year, Airbu
30 Post contains links Jacobin777 : ...according to this Bloomberg article: "EADS to Freeze Sales of Airbus Plants in Europe, Le Figaro Says By Simon Kennedy Dec. 6 (Bloomberg) -- Europ
31 Post contains links Lumberton : While I personally feel the union's complaint WRT profitability may have some validity, we will most likely never know. The only way this would ever b
32 Osiris30 : Wow just the fact he went out of his way to mention it sure makes it sound like a pile of BS to me.. I hadn't even thought there would be politcal pr
33 Post contains images Baroque : Sorry to hear that has happened to you.
34 NAV20 : From experience of negotiating with the Chinese, my advice to anyone trying it is start at double what it's going to cost you, and you may succeed in
35 Jacobin777 : "Airbus is expected to post another loss during 2007, and the company is only likely to achieve profit margins around 5% by 2010, Mr. Gallois reiterat
36 Post contains links NAV20 : Dead right, IMO, Jacobin777. But Airbus is no longer the whole picture. For a long time the military side of EADS was making a loss and Airbus profit
37 Post contains images Jacobin777 : You are correct NAV20..unfortunately its been hurting them quite a bit...... It's going to be interesting to see how Airbus reacts to this current ev
38 Post contains links Lumberton : EADS may have convinced Lagardere that they need to offshore jobs, but from the sound of this Reuters report, they have some work to do to convince th
39 Joni : Adapting to a different exchange rate requires structural changes and implementing them on the scale of something like EADS takes years - so it's pru
40 Post contains images Baroque : If the macroecon anal is correct, then undoubtedly the US $ will rise or fall further, as the one place it does not seem to "like" is about the appro
41 NAV20 : Good fun to watch, though, Baroque. When I studied economics Keynes still reigned supreme. Governments should 'intervene' to run their economies. But
42 Baroque : True and true Nav20. Do I sense the ghost of JMK poised for a comeback? It appears that the Ruddsters are not going to sit by and watch the Reserve B
43 Post contains images NAV20 : Exactly so, Baroque - if prices are rising the obvious remedy is to raise prices....... Being 'serious' for a moment, I have honestly NEVER been able
44 Post contains images Jacobin777 : ..thanks for the link Lumberton.. ....quite interesting regarding "political pressure"....isnt' this what EADS/Airbus was trying to move away from...
45 YOWza : At the recent GCC summit, one of the items on the agenda was removing the dollar peg that most GCC nations (Kuwait excepted) have in place between the
46 Baroque : This is likely the case, but it may also be the case that Airbus has more to gain by making a fuss about it. We shall see, as they say!
47 Post contains images R2rho : Well, Sarkozy absolutely had to sell more airplanes during his China visit than Chirac did (he sold 150 during his 2006 visit, Sarkozy sold 160 this
48 Flysherwood : Well, when President Sarkozy was told that the Billions upon Billions of Euros of taxpayer funds that has been invested in that "Jobs Program" named
49 Post contains links and images NAV20 : Quite incredible lack of communication at the top, by all accounts:- "TOULOUSE (Thomson Financial) - Thomas Enders, chief executive of EADS unit Airbu
50 Jacobin777 : While I don't really know how this will all "play out"....getting an injection of govt. cash certainly wouldn't help Airbus in the KC-X Air Force tan
51 Osiris30 : Here's how it's going to play out (IMHO or my maybe not so humble opinion, take your pick): Airbus is going to continue to cry poor to the government
52 NAV20 : I reckon that 'crunch time' is likely to be early March 2008 when EADS announce their 2007 results and 2008 'outlook.' They have already announced th
53 AirCatalonia : Well, here we go again. The US Federal reserve lowered interest rates today by 0.25%. Looks like the dollar is going fall some more against the euro.
54 Art : As a company Airbus is in danger of becoming the manufacturing equivalent of an airline like Alitalia. I once did some work for a large company that
55 Stitch : Could have been worse. Wall Street expected 0.50% and took a bath when it didn't.
56 Post contains images Jacobin777 : ..I don't think you are too far from the truth...especially if the falls more in the subsequent months...France's govt. is already is stating they do
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