For international European Union companies like Airbus, the depreciated value of the dollar hurts their profits. Costs remain the same within the EU for Airbus, BMW, Daimler Chrysler, Volkswagen and more, as the value of their products continue to fall. Significant amounts of sales from these companies are directly to the United States. Airbus' only strong competitor is Boeing, which is an American company. The low value of the dollar and high value of the euro gives Boeing an advantage over Airbus.
Airbus prices its planes in dollars as most products in the aviation sector duopoly are priced in dollars. This helps airlines from throughout the world get a full comparison when shopping for Airbus and Boeing as both companies use the same international currency. Airbus planes have 43% of their costs in Euros, and those planes sell in dollars. With the recent appreciation of the euro compared to the dollar "Costs are higher [in dollar terms]; revenue is the same; so the rate of return is lower," said Adam Pilarski, an industry analyst with Avitas. "When the dollar gets weaker, it's not good for [Airbus]." Venturing into the currency hedging market is one of the only options for European companies. Airbus hedges almost all of its costs priced in euros which amount to approximately $10 Billion per year. The expense of getting into these contracts hurts the company, but they are necessary. Airbus needs to lock in an exchange rate when they negotiate prices for their airplanes (which often have contracts signed 3 years before the plane is built and paid for) in order to protect themselves from exchange rate fluctuations.
To compete with an American company when the United States foreign exchange rate policy favors American businesses by keeping an undervalued currency, a European Union corporation must lower costs. Airbus fortunately purchases many of the parts for their planes in dollars due to the dollar being the primary international currency used in the aerospace industry. This lowers Airbus' risk by allowing them to protect themselves from exchange rate fluctuations since both cost and revenue are in dollars. Another way that they combat the problem is by increasing efficiency. Airbus is cutting labor costs (which is their biggest Euro denominated expense) and increasing efficiency by developing new production techniques for their factories in Germany and France. These are long term procedures that hopefully will help Airbus fight its higher cost base over its American competitor.
In the long run these cost benefits might turn out to really benefit Airbus. Currently cost reductions are necessary for the company to survive, but in the future the dollar may appreciate. If it does, these cost reductions will help Airbus undercut Boeing. EU companies currently are forced to cut costs and increase efficiency, since it is one of the few ways to combat an overvalued currency like he euro. However, in the future the dollar may appreciate since the United States is growing much faster then the European Union. The prolonged undervalued currency will make the US economy strong, which eventually will push the value of the dollar up against the euro. The EU is not very competitive on the international market with such a low value of the dollar. A devaluation in the euro due to a weaker economy will place the European Union in a better position. In the future if a devaluation occurs, costs for EU companies will be comparatively low compared to the US since they are developing more efficient production techniques. Airbus currently needs to weather the storm, but its prospects are still strong in the future with the hope that eventually the dollar will appreciate against the Euro and which will make Airbus more competitive.
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