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Why Are Airplanes Always Paid In USD?  
User currently offlineMajorTommy From France, joined Dec 2010, 8 posts, RR: 0
Posted (3 years 9 months 2 weeks 2 days 13 hours ago) and read 10381 times:

Hi All,

For a school project we're currently focusing on the airline industry and the consequences of the crisis. We have however been unable until now to figure out why airplanes are always paid in USD and not in any other currencies. Could anyone of you shed some more light on that? This causes especially a problem for Airbus which has all its costs in euros while revenues are in dollars.

Thanks a lot!

[Edited 2010-12-05 06:43:23]

26 replies: All unread, showing first 25:
 
User currently offlinemmedford From United States of America, joined Nov 2007, 561 posts, RR: 8
Reply 1, posted (3 years 9 months 2 weeks 2 days 13 hours ago) and read 10358 times:

Well atleast for Boeing, they are HQ here in the USA (Chicago, iirc)...

So it would be natural for them to charge USD as currency...?

and I guess Airbus really wants to be like Boeing?....a better answer is that, the USD is a "benchmark" currency that is avaliable and (relatively) holds a constant value.



ILS = It'll Land Somewhere
User currently offlinehka098 From United States of America, joined Oct 2010, 556 posts, RR: 0
Reply 2, posted (3 years 9 months 2 weeks 2 days 13 hours ago) and read 10326 times:

I would assume that the leasing companies that provide some of these aircraft deal in the dollar because the banks that provide the cash trade in such.

User currently offlineMajorTommy From France, joined Dec 2010, 8 posts, RR: 0
Reply 3, posted (3 years 9 months 2 weeks 2 days 13 hours ago) and read 10275 times:

But wouldn't there be a demand from European airline companies to buy planes in Euro's? And if that is the case, would it be possible for them to sign such a contract?

Thanks.


User currently offlinehka098 From United States of America, joined Oct 2010, 556 posts, RR: 0
Reply 4, posted (3 years 9 months 2 weeks 2 days 12 hours ago) and read 10231 times:

I think it would make sense for European airlines to acquire their aircraft with Euros, but the source of funding may not trade in that currency. From what I understand, these aircraft are bought with credit and under contract. The banks that finance the purchases may choose a common currency to avoid a fluctuating exchange rate. I don't think the airlines approach Airbus with a cheque for one hundred million whatever. The banks handle deposits for the contract from the purchasing agent to customer. Kinda like a financed new automobile purchase in the U.S.

User currently offlinetootallsd From United States of America, joined Apr 2006, 559 posts, RR: 0
Reply 5, posted (3 years 9 months 2 weeks 2 days 12 hours ago) and read 10195 times:
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Many industries work in USD. The biggest example is oil. My company sells into the drilling industry in many countries and all our customers work in dollars. Similarly many raw materials that we buy are denominated in USD even though they are made/collected outside the USA and consumed outside the USA. Examples are things like seaweeds, peels, cotton linters, wood pulps and some chemicals. Its about the commodity marketplace.

It may well be that Airbus initially priced in USD in the pre-Euro environment and now it is an industry norm. It may well have been that before.


User currently offlinerobffm2 From Germany, joined Dec 2006, 1117 posts, RR: 0
Reply 6, posted (3 years 9 months 2 weeks 2 days 12 hours ago) and read 10111 times:

In fact the pricing of planes in USD is more for historical reasons than anything else.
Also please keep in mind that Airbus has a lot of suppliers in the US (as Boeing has in Euroland). Note as well that (european) airlines generate their revenues in multiple currencies (not only EUR, but also USD, GBP, CHF, JPY and several more).

Right now the low value of the USD is advantageous for Boeing and less so for Airbus.

With the declining importance of the USD you will see planes being offered and paid in other currencies as well. Especially the Russian and Chinese plane producers will do so, most likely at first only for their local customers but later also for others.

Will planes (and oil) be traded in EUR tomorrow? Certainly not. But one day a first deal will be done and others will follow.


User currently offlineMajorTommy From France, joined Dec 2010, 8 posts, RR: 0
Reply 7, posted (3 years 9 months 2 weeks 2 days 11 hours ago) and read 10008 times:

Thank you very much for the valuable insights everybody!

User currently offlinecaptaink From Mexico, joined May 2001, 5109 posts, RR: 12
Reply 8, posted (3 years 9 months 2 weeks 2 days 11 hours ago) and read 9927 times:

USD is pretty the currency of trade in almost all parts of the world.

And in other news, English is pretty much the international language of trade.



There is something special about planes....
User currently offlineBogota From Colombia, joined Sep 2004, 819 posts, RR: 1
Reply 9, posted (3 years 9 months 2 weeks 2 days 11 hours ago) and read 9832 times:

Is this a fact that planes are only negotiated in USD? I remeber people saying that Colombian airline ACES went bankrupt in part because it had negotiated its A320 fleet in Euros when the Euro had just came out, the known revaluation of the European currency that followed soon after was a huge problem for the finances of the airline.

Back then many people forecasted the devaluation of the Euro after its introduction when it really ended going in the opposite direction by a long stretch. Anyhow today I would asume Airbus would want to make sure this does not happen again to keep it self competitive vs Boeing although I would think that if the dollar ever makes a strong comeback they might be interested in negotiating in a different currency. At the end Airbus has to convert what ever currency back to Euros to pay most of its production.

[Edited 2010-12-05 09:19:34]

User currently offlinemanfredj From United States of America, joined Mar 2007, 1132 posts, RR: 0
Reply 10, posted (3 years 9 months 2 weeks 2 days 11 hours ago) and read 9819 times:

Quoting robffm2 (Reply 6):
With the declining importance of the USD you will see planes being offered and paid in other currencies as well. Especially the Russian and Chinese plane producers will do so, most likely at first only for their

This may be true, but probably not in our lifetime. Yes, the Chinese and Russian economies are gaining ground but they have a long long way to go. Don't forget the Chinese are still a producer economy and don't have nearly the infrascturue the Americans have. At the end of the day, the U.S. dollar has been and will always be the benchmark for value, stability and durability.

Quoting robffm2 (Reply 6):
In fact the pricing of planes in USD is more for historical reasons than anything else.

This is funny. I don't think the entire world economy is running on the U.S. dollar stricly for "old" times"sake.


MajorTommy, it's no secret that some economies benefit from using the dollar from a manufacturing and sales perspective. For example, during the early 90's, the Japanese were able to offer their cars in the United States at a signifcant value because our dollar was trading more adventageously for them.

This changes from time to time. Somtimes we have the advantage, and sometimes other countries do. This all depends on the value of the American dollar versus other currencies. It's the way the world economy works and it keeps, for the most part, everything equal.



757: The last of the best
User currently offlineLAXintl From United States of America, joined May 2000, 25346 posts, RR: 49
Reply 11, posted (3 years 9 months 2 weeks 2 days 10 hours ago) and read 9662 times:

Simply put, the USD is a global reserve currency and as such the base currency that most manufacturers including the various vendors such as avionics, seats, IFE, engine, galley equipment that make up a plane price in.

A few years ago(late 90s) Airbus tried set up a mechanism to price commercial products in Euro's, however one of the outcomes of using more than a single currency was the disparity in product pricing as currency values shifted. In other words the spread between what started as a $35mil A320 vs $35mil 737 would be constantly shifting and all of a sudden that $35mil A320 would now cost the equivalent of $38mil 6-months later making the Airbus product less attractive.

Also remember the airline industry in general works in USD for other things also - fuel is generally dollar based at the source, and global airlines also have lots of other dollar denominated interaction such as ticket and cargo revenues, and also payment for services to vendors for example.

Currency exposure can be a big problem for people like Airbus which have a big Euro fixed cost base, but dollar denominated revenue base. Such exposure and currency rate results can be the difference between profit and loss, so companies use things like foreign currency hedging to minimize forward exposure.



From the desert to the sea, to all of Southern California
User currently offlineTVNWZ From United States of America, joined Feb 2006, 2388 posts, RR: 2
Reply 12, posted (3 years 9 months 2 weeks 2 days 10 hours ago) and read 9550 times:

Quoting LAXintl (Reply 11):

Precisely.
The USD is the currency of international commerece for the reasons you state. It is the best way to compare apples to apples from competing bids to the price of parts, services. and anything else of international construction or sales.


User currently offlineformigueta From Spain, joined Nov 2006, 31 posts, RR: 0
Reply 13, posted (3 years 9 months 2 weeks 2 days 9 hours ago) and read 9414 times:

And also suppliers usually include currency inmunity clauses in the contracts where they are protected in case of payments made in a currency other than USD and airlines should pay the difference between the currency and USD according with the index published by New York Stake Exchange

User currently offlineRoseFlyer From United States of America, joined Feb 2004, 9635 posts, RR: 52
Reply 14, posted (3 years 9 months 2 weeks 2 days 9 hours ago) and read 9385 times:

Quoting MajorTommy (Thread starter):
This causes especially a problem for Airbus which has all its costs in euros while revenues are in dollars.

That is not true. A significant amount of Airbus costs are paid in dollars. I have seen figures as high as 50% are in dollars. That is because the contracts that Airbus negotiates with suppliers are often in dollars. The US has the largest supplier base in aviation. European companies might negotiate with Airbus in Euros, but all engines, large scale systems and non EU contracts are negotiated and contracted in dollars. Airbus' largest costs in Euros are wages followed by consumable resources in its operation.



If you have never designed an airplane part before, let the real designers do the work!
User currently offlineAirNZ From , joined Dec 1969, posts, RR:
Reply 15, posted (3 years 9 months 2 weeks 2 days 8 hours ago) and read 9020 times:

Quoting MajorTommy (Thread starter):
We have however been unable until now to figure out why airplanes are always paid in USD and not in any other currencies.

Aircraft prices/orders are more normally quoted in USD (mostly by media) but, however, there is no requirement to pay for them that way and indeed a very great deal are not.

Quoting manfredj (Reply 10):
This may be true, but probably not in our lifetime.

Of course aircraft are quoted and paid for in other currencies other than USD!!

Quoting hka098 (Reply 4):
but the source of funding may not trade in that currency

There are very little funding sources which trade in only USD


User currently offlineheathrow From United Kingdom, joined Sep 2005, 979 posts, RR: 0
Reply 16, posted (3 years 9 months 2 weeks 2 days 7 hours ago) and read 8584 times:

why are NUC's equal to USD? It's just easy to keep it all on one, relatively stable currency. Especially when your clients are based all around the world with many different currencies.

User currently offlineeta unknown From Comoros, joined Jun 2001, 2077 posts, RR: 0
Reply 17, posted (3 years 9 months 2 weeks 2 days 2 hours ago) and read 6283 times:

Although I'm sure these 2 transactions were at a USD conversion level, I do know of 2 instances where passenger aircraft for their respective government owned airlines were not paid for with money:

Saudi Arabian Airlines paid for a fleet of aircraft with petroleum.

JAT Yugoslav paid McDonnell Douglas in pork for a few DC9's in the '70's. So perhaps pigs can fly...


User currently offlinerfields5421 From United States of America, joined Jul 2007, 7607 posts, RR: 31
Reply 18, posted (3 years 9 months 2 weeks 2 days ago) and read 5628 times:

Quoting manfredj (Reply 10):
Quoting robffm2 (Reply 6):
In fact the pricing of planes in USD is more for historical reasons than anything else.

This is funny. I don't think the entire world economy is running on the U.S. dollar stricly for "old" times"sake.

One thing I've heard more than once is that the Euro is still a relatively new currency.

Probably over the next 10 years we will see it used more and more as an international exchange medium. The successful settlement with Ireland over their difficulties, and any in other nations in the future will only strengthen the Euro.

When the Euro has been in circulation 25-30 years - this conversation probably would not happen.

The Euro is growning as a "Reserve Currency" but still has a long way to go to catch the USD. Last year's figures I've seen are for 2009 with 62.2% of the world reserves in USD and 27.3% in Euros.

Former chairman of the US Federal Reserve - Alan Greenspan - said in 2007 that some day in the future - a few decades out - the Euro might replace the USD, or at least achieve equal status with the USD.

[Edited 2010-12-05 19:58:20]

User currently offlinekiwimex From Mexico, joined Nov 2009, 154 posts, RR: 0
Reply 19, posted (3 years 9 months 2 weeks 1 day 21 hours ago) and read 4918 times:

It's all done in USD because all the loans made to purchase aircraft are backed by the USG.

Try making the negotiations happen in a different currency and see how fast the bank tells you "no deal if it's not USD".

Quoting manfredj (Reply 10):
Yes, the Chinese and Russian economies are gaining ground but they have a long long way to go. Don't forget the Chinese are still a producer economy and don't have nearly the infrascturue the Americans have.

Are you sure about that? China's high speed train network is vastly superior to the U.S. one.

http://newsfeed.time.com/2010/12/05/...in-hits-a-record-breaking-300-mph/

"China already has the world's longest high-speed rail network, which the country expects to expand to 10,000 miles of coverage by 2020, with trains reaching speeds of over 312 mph.

Read more: http://newsfeed.time.com/2010/12/05/...-breaking-300-mph/#ixzz17JPNv57Z"

Quoting manfredj (Reply 10):
At the end of the day, the U.S. dollar has been and will always be the benchmark for value, stability and durability.

That's what they said about the Sterling, and the Denarius before that. The USD will probably lose reserve currency status within 5 years. We'll be returning to gold/silver backed currency fairly shortly.

Also, query the goog about SDR's


User currently offlineacidradio From United States of America, joined Mar 2001, 1874 posts, RR: 10
Reply 20, posted (3 years 9 months 2 weeks 1 day 20 hours ago) and read 4757 times:
AIRLINERS.NET CREW
FORUM MODERATOR

There is a degree of hedging that takes place here. There is a long-running perception (some will say it's a 'truth') that the USD is getting weak. This is because the US Treasury has this amazing ability to just create more money. This dilutes the value of the rest of the money that already exists. This is great when the government wants to buy lots of new stuff but gets tough for citizens trying to live their lives, buy groceries, pay taxes (look up 'fiat currency' on Wikipedia!!!), etc.

For the past several years the dollar has lost strength against a number of currencies. If you hold other currencies (ie. Euros, Yen, Canadian Dollars, etc.) and have to pay for something on a future delivery basis that is a great way to do it: make the deal now and in a few years when you have to pay for it the product has essentially become cheaper!

A lot of this is a competitive or marketing move I would imagine. It can take years of time from purchase or order to time of final delivery on an aircraft. Much can change in those years and often does. Boeing sells its product in USD. If Airbus were to sell in EUR the price of Boeing's product could become more appealing as the exchange rate would change from time of order to time of delivery. To be competitive Airbus must sell in USD.

A non-US purchaser would rather buy in dollars as the money they hold to buy this plane with is going to increase in value compared to the USD (given the past few years' trends) from time of order to time of delivery; they get a better deal. And a US-based purchaser wants some assurance that the aircraft isn't going to get more expensive on them from time of purchase to time of delivery.

[Edited 2010-12-06 00:06:23]

[Edited 2010-12-06 00:08:31]


Ich haben zwei Platzspielen und ein Microphone
User currently offlineODAFZ From Afghanistan, joined Jul 2004, 357 posts, RR: 5
Reply 21, posted (3 years 9 months 2 weeks 1 day 19 hours ago) and read 4553 times:

well prices are quoted in USD for a simple reason and this goes back to the end of the WW2, when the Bretton Woods agreement was signed . Your history books should provide you with enough information on the importance of that agreement which shaped the economies of the world for more than 20 years.
Prior to WW2, the dominant economic power was England and the reserve currency was the Sterling pound but major trade payments were made according to currency blocks . 3 main currency blocks existed at that time the Sterling pound ( being the dominant monetary force), the French Franc ( being the 2nd largest empire after the United Kingdom) and the United states ( the US sphere of influence of the US was dimmed after ww1 die the isolationist or non intervention policy followed .
The end of WW2 and the emergence of US as the single most powerful economy and the subsequent collapse of the Britsh and French empires prompted the USD to be the money of reference, trade and reserve. The USD will remain the currency at which most commodities, services, goods are priced as long as the United States remain the dominant and stable economic power .The US should be extremely vigilant in maintaining its deficit under strict control, because one day the US treasury would repay those debts ( hold by Japan, China, India, Taiwan , the Euro zone, ) and beware.... the Greek , Argentina , Russia and Irish examples are here to remind how ugly and devastating are state bankruptcies .
And 50 years for now, the odds are open : the Euro, the Yuan, the Rupiah or even the Lebanese pound or even a basket of these currencies could be the future tenders of payment!


User currently offlineGrid From Kazakhstan, joined Apr 2010, 624 posts, RR: 0
Reply 22, posted (3 years 9 months 2 weeks 1 day 19 hours ago) and read 4502 times:

Quoting kiwimex (Reply 19):
Quoting kiwimex (Reply 19):
It's all done in USD because all the loans made to purchase aircraft are backed by the USG.

Try making the negotiations happen in a different currency and see how fast the bank tells you "no deal if it's not USD".

Quoting manfredj (Reply 10):
Yes, the Chinese and Russian economies are gaining ground but they have a long long way to go. Don't forget the Chinese are still a producer economy and don't have nearly the infrascturue the Americans have.

Are you sure about that? China's high speed train network is vastly superior to the U.S. one.

http://newsfeed.time.com/2010/12/05/...in-hits-a-record-breaking-300-mph/

"China already has the world's longest high-speed rail network, which the country expects to expand to 10,000 miles of coverage by 2020, with trains reaching speeds of over 312 mph.

Read more: http://newsfeed.time.com/2010/12/05/...breaking-300-mph/#ixzz17JPNv57Z"

Quoting manfredj (Reply 10):
At the end of the day, the U.S. dollar has been and will always be the benchmark for value, stability and durability.

That's what they said about the Sterling, and the Denarius before that. The USD will probably lose reserve currency status within 5 years. We'll be returning to gold/silver backed currency fairly shortly.

Also, query the goog about SDR's
Quoting kiwimex (Reply 19):
Quoting kiwimex (Reply 19):
It's all done in USD because all the loans made to purchase aircraft are backed by the USG.

Try making the negotiations happen in a different currency and see how fast the bank tells you "no deal if it's not USD".

Quoting manfredj (Reply 10):
Yes, the Chinese and Russian economies are gaining ground but they have a long long way to go. Don't forget the Chinese are still a producer economy and don't have nearly the infrascturue the Americans have.

Are you sure about that? China's high speed train network is vastly superior to the U.S. one.

http://newsfeed.time.com/2010/12/05/...in-hits-a-record-breaking-300-mph/

"China already has the world's longest high-speed rail network, which the country expects to expand to 10,000 miles of coverage by 2020, with trains reaching speeds of over 312 mph.

Read more: http://newsfeed.time.com/2010/12/05/...breaking-300-mph/#ixzz17JPNv57Z"

Quoting manfredj (Reply 10):
At the end of the day, the U.S. dollar has been and will always be the benchmark for value, stability and durability.

That's what they said about the Sterling, and the Denarius before that. The USD will probably lose reserve currency status within 5 years. We'll be returning to gold/silver backed currency fairly shortly.

Also, query the goog about SDR's

Good grief, I'm not sure that a superior high-speed rail system makes one country's infrastructure better than another country's.

I have never heard that the U.S. government backs every loan involving a sale of aircraft. Something tells me that a Chinese airline company wishing to buy domestic or foreign aircraft could get the deal done in RMB even if it were not purchasing a large number of frames. Of course, there is a little reason to do so unless it feels it will help push the dollar from being less of an international currency.

I don't think SDRs are going to catch on anytime soon.



ATR72 E120 E140 E170 E190 Q200 717 727 737 747 757 767 777 A319 A320 A321 A330 A340 MD11 MD82 MD83 MD88 MD90
User currently offlinerobffm2 From Germany, joined Dec 2006, 1117 posts, RR: 0
Reply 23, posted (3 years 9 months 2 weeks 1 day 18 hours ago) and read 4394 times:

Quoting kiwimex (Reply 19):
It's all done in USD because all the loans made to purchase aircraft are backed by the USG.
Try making the negotiations happen in a different currency and see how fast the bank tells you "no deal if it's not USD".

Your first remark obviously would be true only of US made goods. And the second is hard to believe. It's a core competence of banks to deal and predict FX rate changes. Any bank/institution not being able to make such deals surely shouldn't be your partner in financing something like a plane.


User currently offlinerobffm2 From Germany, joined Dec 2006, 1117 posts, RR: 0
Reply 24, posted (3 years 9 months 2 weeks 1 day 18 hours ago) and read 4381 times:

Quoting LAXintl (Reply 11):
Simply put, the USD is a global reserve currency and as such the base currency that most manufacturers including the various vendors such as avionics, seats, IFE, engine, galley equipment that make up a plane price in.
Quoting rfields5421 (Reply 18):

The Euro is growning as a "Reserve Currency" but still has a long way to go to catch the USD. Last year's figures I've seen are for 2009 with 62.2% of the world reserves in USD and 27.3% in Euros.

From Wikipedia:
http://upload.wikimedia.org/wikipedia/commons/thumb/1/12/Reserve_currencies.svg/800px-Reserve_currencies.svg.png


25 Post contains images faro : Otherwise said, because of its pre-eminent reserve status, there are literally boatloads of USD's sloshing around in the world's financial system. Th
26 kiwimex : As always follow the money. Where do the aircraft lease firms borrow the money to buy the aircraft they on-lease? From the US Export Import (Ex-Im) B
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