olle
Posts: 494
Joined: Tue Feb 06, 2007 3:38 am

USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 7:04 am

During the last years the USD - Euro exchange rate has been moving from 0,84 to todag more then 1,38.


Airbuses had its first year of #1 before Boeing in Sales at 0,84 and is now fighting with getting expenses down. What will it mean for B vs A if the USD - Euro becomes 1,5?
 
scouseflyer
Posts: 2165
Joined: Wed Apr 26, 2006 7:02 pm

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 7:30 am

"What will it mean for B vs A if the USD - Euro becomes 1,5?"

It becoems harder and harder for A to remain competative - one thing that they might do is to start to price their supplier contracts in $s to take away the problem - but I'm guessing they'd like the rate to go down first!
 
Flighty
Posts: 7648
Joined: Thu Apr 05, 2007 3:07 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 7:38 am

This currency issue has been a sledgehammer for B vs A.

For one thing, it makes Euro zone customers better able to afford Boeing jets priced in dollars, which have grown cheaper in euros.

For another, it chokes the life out of Airbus when it continually has to raise the dollar price of _its_ jets. Or, it can choose to just eat the massive costs from this, or underprice in Euros.

Airbus will apparently try to get more suppliers in the dollar zone (including Asian peggers) to diversify against this. And furthermore, Boeing diversifies its suppliers geographically in part for similar reasons.

The world doesn't have a main currency anymore, so the norm is some basket between yen, dollars and euros. Airbus and Boeing are each trying to eliminate this annoying risk, but in the meantime... advantage Boeing.

[Edited 2007-07-12 00:39:11]
 
Lumberton
Posts: 4176
Joined: Fri Jul 29, 2005 7:34 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 7:38 am

According to M. Gallois in this news report, the weak dollar could force Airbus to manufacture outside Europe!
http://news.yahoo.com/s/afp/20070711...orexeurocompanyairbus_070711124740

Quote:
PARIS (AFP) - The current weakness of the dollar against the euro poses a threat to the future of large aircraft manufacturing in Europe, the chief executive of European plane maker Airbus warned in an interview published on Wednesday.
Airbus is implementing a radical restructuring plan at the moment and plans to cut 10,000 jobs in the next four years to stay competitive with US rival Boeing, with which the group shares the market for large commercial planes.
The plan "should ensure that Airbus is competitive at a rate of one euro for 1.35 dollars," chief executive Louis Gallois told French magazine Challenges.
However, "if the dollar slides durably far beyond this, we will have to ask ourselves whether we can still make planes in Europe," he added.
"When all is said and done, more will be said than done".
 
SWISSER
Posts: 1568
Joined: Sat Feb 12, 2005 11:31 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 8:09 am

If the Dollar keeps on going like this, maybe in a few years Airbus can buy Boeing for a Bargain!
problem solved!

 bigthumbsup 
What time is top of descent?
 
roseflyer
Posts: 9606
Joined: Fri Feb 13, 2004 9:34 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 9:31 am

Quoting Scouseflyer (Reply 1):
It becoems harder and harder for A to remain competative - one thing that they might do is to start to price their supplier contracts in $s to take away the problem - but I'm guessing they'd like the rate to go down first!

From what I understand, prices are actually mostly negotiated in Dollars. Planes are often priced and sold in dollars and components are sold in dollars. It is almost the official currency of aviation. Airbus however has to pay out many costs in Euros. However they do hedge against currency fluctuations. Airplanes purchased now, but built in 3 years will have a hedge on the value of currency today, so that Airbus won't see any flutuation in prie. It allows them to negotiate prices and not be hit by an exchange rate fluctuation.
If you have never designed an airplane part before, let the real designers do the work!
 
ikramerica
Posts: 13730
Joined: Mon May 23, 2005 9:33 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 9:46 am

Quoting SWISSER (Reply 4):
If the Dollar keeps on going like this, maybe in a few years Airbus can buy Boeing for a Bargain!
problem solved!

no free cash and bad credit...

it's actually the other way around. despite the poor exchange, over time Boeing will become stronger, and could leverage that strength. but of course, no way that would be allowed, since it would be uber anti-competitive.
Of all the things to worry about... the Wookie has no pants.
 
Baron52ta
Posts: 182
Joined: Fri Apr 15, 2005 1:52 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 10:01 am

Quoting RoseFlyer (Reply 5):
Planes are often priced and sold in dollars and components are sold in dollars

Commercial airliners are all marketed in US currency,not that they always get paid in US$, however Airbus is paying for 90% of its component parts in EU and the remainder in GB pounds(which is even more expensive to them).
 
WAH64D
Posts: 744
Joined: Tue Jan 11, 2005 4:14 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 10:16 am

Quoting Flighty (Reply 2):
This currency issue has been a sledgehammer for B vs A.

For one thing, it makes Euro zone customers better able to afford Boeing jets priced in dollars, which have grown cheaper in euros.

For another, it chokes the life out of Airbus when it continually has to raise the dollar price of _its_ jets. Or, it can choose to just eat the massive costs from this, or underprice in Euros.

Airbus will apparently try to get more suppliers in the dollar zone (including Asian peggers) to diversify against this. And furthermore, Boeing diversifies its suppliers geographically in part for similar reasons.

The world doesn't have a main currency anymore, so the norm is some basket between yen, dollars and euros. Airbus and Boeing are each trying to eliminate this annoying risk, but in the meantime... advantage Boeing.

Purchase price is very rarely the primary concern for airlines. For small startups maybe it is but they generally don't buy new aircraft. The cost of operating a B777 sized aircraft over a period of 10-15 years makes a even a 50% difference in purchase price a non-issue.

The dollar that has slumped, the Euro that has remained pretty stable against the other major currencies. With Boeing sourcing a high percentage of parts and services from outside the US, this has got to be hurting them as much as anybody else.
I AM the No-spotalotacus.
 
atmx2000
Posts: 4301
Joined: Wed Oct 13, 2004 4:24 pm

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 11:00 am

Quoting SWISSER (Reply 4):
If the Dollar keeps on going like this, maybe in a few years Airbus can buy Boeing for a Bargain!
problem solved!

Currently Boeing's market cap is ~$78 billion while EADS market cap is ~$26-27 billion. As the dollar weakens, EADS/Airbus will have greater profit difficulties or losses, and market cap could go down further as net assets decrease. Boeing will see the opposite effect. The Euro would have to appreciate multiple fold for them to be even afford Boeing.

Quoting WAH64D (Reply 8):
The dollar that has slumped, the Euro that has remained pretty stable against the other major currencies. With Boeing sourcing a high percentage of parts and services from outside the US, this has got to be hurting them as much as anybody else.

Huh? You haven't noticed that the Euro is hitting record highs against the yen and many Asian currencies. The Euro has remained relatively stable in relation to other European currencies and the currencies of countries that don't have a policy of manipulating the value of their currency in relation to the dollar.

Quoting WAH64D (Reply 8):
Purchase price is very rarely the primary concern for airlines.

Ha, ha, ha!

Quote:
The cost of operating a B777 sized aircraft over a period of 10-15 years makes a even a 50% difference in purchase price a non-issue.

Right, airlines are willing to leave $75 to $150 million dollars in the hands of the manufacture per aircraft.  sarcastic 

Purchase price was a major reason airlines were choosing the A340NG before the dollar went down and oil went up. The higher cost of the 777 wasn't offset by savings from operations as long as oil was cheap and Airbus could afford to sell the A340NG for less in dollars.
ConcordeBoy is a twin supremacist!! He supports quadicide!!
 
roseflyer
Posts: 9606
Joined: Fri Feb 13, 2004 9:34 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 1:07 pm

Quoting WAH64D (Reply 8):
Purchase price is very rarely the primary concern for airlines. For small startups maybe it is but they generally don't buy new aircraft. The cost of operating a B777 sized aircraft over a period of 10-15 years makes a even a 50% difference in purchase price a non-issue.

I have no idea why you think that. Airlines often operate on razor thin margins and will save any money where they can. Lower lease or puchasing costs can be a huge factor. When you are in the United States for example when airlines are expected to maybe make an overall collective profit of about 2% this year, then your statement just doesn't make sense. When you are in the Middle East or India where airlines can't get planes fast enough, then acquisition costs might not be as important as speedy delivery, then it might work, but commercial aviation margins as a whole are small.
If you have never designed an airplane part before, let the real designers do the work!
 
Lumberton
Posts: 4176
Joined: Fri Jul 29, 2005 7:34 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 6:38 pm

Quoting RoseFlyer (Reply 5):
However they do hedge against currency fluctuations.

Hedging isn't something they like to do; it's expensive.

Quoting WAH64D (Reply 8):
With Boeing sourcing a high percentage of parts and services from outside the US, this has got to be hurting them as much as anybody else.

Unless they were smart enough to negotiate all costs up front in USD?  Yeah sure
"When all is said and done, more will be said than done".
 
olle
Posts: 494
Joined: Tue Feb 06, 2007 3:38 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 7:08 pm

How long will the airplanes be prised in USD?

The Oil producing countries getting more and more tired of loosing value with the weak USD and is looking for moving closer to a prising against a basket of currencies.

One reason why USD has been the currency for handling prices in is because most national banks have got a lot of USD deposited mostly because of the oil imports.

If this change to a basket of currencies we might see a change. The question now is when.

In 1920s the Sterling had the USD position and it took until after WWII to change that even if the economic figures spoke for it before.

So will for example Emirates, Dubai start to request prices against one basket to make the investment more secure for the future and more easy to plan?

Right now they gain from the weak USD but if the USD comes back to 0,82 what will they say?
 
Lumberton
Posts: 4176
Joined: Fri Jul 29, 2005 7:34 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 7:10 pm

Quoting Olle (Reply 12):
How long will the airplanes be prised in USD?

Probably for the foreseeable future. I can't see EADS going to Euros and Boeing sticking with USD. Judging my M. Gallois' comments in the article I quoted earlier, he doesn't seem to imply that EADS will opt for Euro-pricing either.

Quoting Lumberton (Reply 3):
However, "if the dollar slides durably far beyond this, we will have to ask ourselves whether we can still make planes in Europe," he added.
"When all is said and done, more will be said than done".
 
User avatar
robffm2
Posts: 340
Joined: Mon Dec 18, 2006 8:47 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 7:25 pm

Quoting Olle (Reply 12):
How long will the airplanes be prised in USD?

The Oil producing countries getting more and more tired of loosing value with the weak USD and is looking for moving closer to a prising against a basket of currencies.



Quoting Lumberton (Reply 13):
Probably for the foreseeable future.

Presuming exchange rate remain stable I think we will see a change within the next five years.
Should the USD continue to fall, this might be even sooner.

But in the end this is difficult to predict, there is a lot of politics involved, not only in Europe and the U.S.

Rob
 
FlyingAY
Posts: 408
Joined: Thu Jun 21, 2007 2:26 pm

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 7:32 pm

Since 787 is very much produced outside of US and many of the companies working on 787 parts are supposedly paid in USD, isn't this bad for those companies, although good for Boeing? Just like it is bad for Airbus, since they sell their planes in USD.

By the way, do they (Airbus) actually do that, when dealing with European customers? It's hard to imagine that Finnair, for example, would make the payment in USD to another European company...
 
roseflyer
Posts: 9606
Joined: Fri Feb 13, 2004 9:34 am

RE: USD-Euro Sales Success B Vs A

Thu Jul 12, 2007 10:06 pm

Quoting Olle (Reply 12):
How long will the airplanes be prised in USD?...

One reason why USD has been the currency for handling prices in is because most national banks have got a lot of USD deposited mostly because of the oil imports.

Not only is it because USD is a popular worldwide currency, but also because of the aviation industry in the United States. Everyone thinks of Boeing, but there are many other comapanies such as GE, Pratt & Whitney, Rockwell Collins, Honeywell, Hamilton Sundstrand and so many more. These companies are American and have the luxury of negotiating in their home currency and they make some of the most expensive components found on aircraft.
If you have never designed an airplane part before, let the real designers do the work!
 
Flighty
Posts: 7648
Joined: Thu Apr 05, 2007 3:07 am

RE: USD-Euro Sales Success B Vs A

Fri Jul 13, 2007 12:08 am

Quoting RoseFlyer (Reply 16):
Not only is it because USD is a popular worldwide currency, but also because of the aviation industry in the United States. Everyone thinks of Boeing, but there are many other comapanies such as GE, Pratt & Whitney, Rockwell Collins, Honeywell, Hamilton Sundstrand and so many more. These companies are American and have the luxury of negotiating in their home currency and they make some of the most expensive components found on aircraft.

Well those American components have become cheaper for Airbus. So that is great for them. Their costs have gone down.

But selling jets to US dollar customers must stink now for Airbus.

Meanwhile, Boeing is happy to sell you a jet for 100 million US dollars, which is what... only 72 million Euro now!! My god, what a huge discount Airbus has to give now! The 2 currencies were equal (or the Euro greater) just a few years ago.
 
Lumberton
Posts: 4176
Joined: Fri Jul 29, 2005 7:34 am

RE: USD-Euro Sales Success B Vs A

Fri Jul 13, 2007 3:01 am

Quoting FlyingAY (Reply 15):
Since 787 is very much produced outside of US and many of the companies working on 787 parts are supposedly paid in USD, isn't this bad for those companies, although good for Boeing? Just like it is bad for Airbus, since they sell their planes in USD.

The Japanese yen has fallen to a record low against the euro. As you are no doubt aware, the Japanese produce a significant portion of the 787.
http://www.bloomberg.com/apps/news?p...1085&sid=aqtyemxBjm4o&refer=europe
Perhaps Gallois was hinting at plans to produce in the U.S. and Japan?

[Edited 2007-07-12 20:11:10]
"When all is said and done, more will be said than done".
 
Lumberton
Posts: 4176
Joined: Fri Jul 29, 2005 7:34 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 14, 2007 3:20 am

Yesterday the yen; today the dollar.
Dollar Hits All-Time Low Vs. Euro
"When all is said and done, more will be said than done".
 
Lumberton
Posts: 4176
Joined: Fri Jul 29, 2005 7:34 am

RE: USD-Euro Sales Success B Vs A

Fri Jul 20, 2007 11:41 pm

Update. Mr. Enders says that Airbus can cope with the high euro.
German says Airbus can cope with euro

Quote:
"I'm not a politician. I'm a businessman," Enders said. "I will not speculate about what politicians should do or would like to do. I know one thing: We need to act in this company and we need to act decisively."
. . .
"The Power 8 program is not only, or foremost, about the weak dollar. It's one of the reasons," Enders said, noting that the program also involves a major reorganization of Airbus's industrial organization, the centralization of numerous administrative functions and a streamlining of the company's procurement activities. "It's a very comprehensive program."
"When all is said and done, more will be said than done".
 
jfidler
Posts: 359
Joined: Wed Aug 23, 2000 3:32 pm

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 12:21 am

The foreign exchange market is well-developed and can handle risk mitigation. It's possible to buy forward contracts to hedge against future currency risk. Forex options are available as well.

In fact, in the example given of Finnair not wanting to pay an EU supplier (Airbus) in USD, it's possible to buy an item in USD but take the loan in a different currency. The USD purchase has an equivalent value in EUR at the time of taking the loan, so it's possible to just get a loan for that amount in EUR.

Justin
 
Lumberton
Posts: 4176
Joined: Fri Jul 29, 2005 7:34 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 1:54 am

Quoting Jfidler (Reply 21):
The foreign exchange market is well-developed and can handle risk mitigation. It's possible to buy forward contracts to hedge against future currency risk. Forex options are available as well.

Hedging is an option, but it's expensive. There is also a downside--you can bet wrong. Risk mitigation is one thing, but if it looks like the U.S. Dollar will continue to weaken vis a vis the euro, then EADS will need to adapt, and not just with hedging.
"When all is said and done, more will be said than done".
 
User avatar
par13del
Posts: 6661
Joined: Sun Dec 18, 2005 9:14 pm

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 2:38 am

I never understood why for political reasons Airbus was not "encouraged" to switch to the Euro, you have the largest a/c maker in the world, so why not have them use the currency of their makers?

National pride usually trumps economics.
 
Flighty
Posts: 7648
Joined: Thu Apr 05, 2007 3:07 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 2:43 am

Quoting Lumberton (Reply 22):

Hedging is an option, but it's expensive. There is also a downside--you can bet wrong.

When you negotiate a price for aircraft 3 years from now, you don't want to deal with 30% fluctuations in currencies between those times. Airbus cannot withstand that type of risk. So they convert their future dollars into future Euros according to the contemporary exchange market. Since the deal is already signed, Airbus' inability to re-price their product at delivery time (unlike airlines) means it is imperative they eliminate the currency risk, which is easy to do.

This is pretty far different from airline fuel hedging scenarios. Fuel prices are a risk that can be eliminated by simply charging more money for tickets in the future. Fuel hedging is usually unnecessary (and many successful airlines do very little of it).

When you sell airplanes, you already agreed on the price. If their currency dives, you are just screwed. Currency conversion is imperative for Airbus.

But, that's just going deal by deal. In the long run future, Airbus can't hedge its way out of expensive labor and parts. Now that the currencies are out of whack, the currency futures are also out of whack. So, Airbus is indeed screwed unless the currency moderates, or Airbus adjusts its business to be more global.
 
Lumberton
Posts: 4176
Joined: Fri Jul 29, 2005 7:34 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 2:53 am

Quoting Flighty (Reply 24):
But, that's just going deal by deal. In the long run future, Airbus can't hedge its way out of expensive labor and parts. Now that the currencies are out of whack, the currency futures are also out of whack. So, Airbus is indeed screwed unless the currency moderates, or Airbus adjusts its business to be more global.

Exactly what Herr Enders was talking about in the comments I referenced here, post #106: Eads +Summit 7/16 Sarkozy-Merkel-Daimler-Lagardere (by Aminobwana Jul 15 2007 in Civil Aviation)

Quote:
The Power8 cost-cutting programme is based on an exchange rate of $1.35 to the euro.
"If the dollar really moves in the direction of 1.50 and beyond, then we will have to consider other, very much more drastic measures," Enders said.
"When all is said and done, more will be said than done".
 
WAH64D
Posts: 744
Joined: Tue Jan 11, 2005 4:14 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 3:06 am

I am still surprised by the attitude that its a good thing to have a weak currency. In the short term there are definitely benefits but in the long term, retail prices must increase to reflect the lower worldwide value of the currency. You simply can't have it both ways, in effect expecting $100 to buy you the same amount of goods that it did 5 years ago. The days of being a global consumer and getting away with it are over. Deals with suppliers to supply parts for a given dollar cost are time limited and when these deals come up for renewal, Boeing and other US companies are going to be hit very hard indeed.

The US economy seems not to have learned that it needs to export more and import less, only by doing this will the dollar recover and the above situation become avoidable. If not, there is only one medium to long term outcome.
I AM the No-spotalotacus.
 
Flighty
Posts: 7648
Joined: Thu Apr 05, 2007 3:07 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 5:23 am

Quoting WAH64D (Reply 26):
You simply can't have it both ways

In the USA you can. Being the world's largest market has its perks.

Japan has also pegged their currency to the US Dollar. So has China. So, Europe holds relatively little sway in all this. If BMW tries to raise prices 30%, guess what... Toyota and Nissan will just take their market. Ditto for Volkswagen.

You are right in theory, but in practice the weak USD has been fabulous for the United States. Heck, our steel mills might reopen soon at this rate.

It can be argued that the USD was simply too high for a long time. All our factories were closing. And, we began to buy too many foreign goods, while we were unable to export.

A weak USD has mitigated these problems, and supported investment growth into the USA as well. The US stock market is at record highs, thanks in part to foreign investors coming in.

The best part about the recent USD weakening is its self-repairing function. As you say, the US needs to export more and import less. With the weak USD, both will eventually come true.

The natural rate for the USD is roughly the rate at which exports equal imports. Therefore, we can say that China for example is artificially weak -- they import too little as a result. For the USA, we can't say that, at least not yet.
 
olle
Posts: 494
Joined: Tue Feb 06, 2007 3:38 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 5:36 am

The USD also will mean that the US people get higher prices -> less for their salaries. Also the interests will go up more then the rest of the world (Loaan for living is the middleclass biggest cost).
 
RIXrat
Posts: 670
Joined: Sun Nov 27, 2005 10:20 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 5:47 am

Quoting RoseFlyer (Reply 5):
However they do hedge against currency fluctuations. Airplanes purchased now, but built in 3 years will have a hedge on the value of currency today, so that Airbus won't see any flutuation in prie. It allows them to negotiate prices and not be hit by an exchange rate fluctuation

At the time of the order/contract you can lock in the dollar-euro exchange rate with your bank and the customer pays that rate six months down the road. Sometimes the producer wins and sometimes the customer wins, but it is possible to lock in these transactions as my company does often with U.S. customers.
 
WAH64D
Posts: 744
Joined: Tue Jan 11, 2005 4:14 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 7:53 am

Quoting Flighty (Reply 27):

In the USA you can. Being the world's largest market has its perks.

If we are talking single nation markets, the worlds largest would undoubtedly be China and a self fulfilling market at that.

Quoting Flighty (Reply 27):

Japan has also pegged their currency to the US Dollar. So has China.

This is not something to be relied upon. First sign of lasting damage and they'll run for the hills.

Quoting Flighty (Reply 27):
If BMW tries to raise prices 30%, guess what... Toyota and Nissan will just take their market.

Not with the products as they stand. People will pay the asking price or be forced to buy an inferior product.
I AM the No-spotalotacus.
 
EmmenezMoi
Posts: 68
Joined: Wed Apr 27, 2005 6:31 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 9:13 am

Quoting Olle (Reply 12):
How long will the airplanes be prised in USD?



Quoting Par13del (Reply 23):
I never understood why for political reasons Airbus was not "encouraged" to switch to the Euro, you have the largest a/c maker in the world, so why not have them use the currency of their makers?

The currency in which airplanes are priced is not so much the issue. I believe the important thing is rather: to what extend are your costs based on different currencies than those of your competitor. B's costs are mainly $-based and A's costs are mainly €-based. So when the € goes up compared to the $, B will have a competitive advantage and be able to sell their planes cheaper, regardless of which currency they're sold in. Customers will always convert prices of both manufacturers to their own currency and then compare the prices of A and B anyway...
I believe this is particularly true for duopolies (as we have here).

Quoting Flighty (Reply 17):
Well those American components have become cheaper for Airbus. So that is great for them. Their costs have gone down.

They have become cheaper in € terms, but not in $ terms. Whereas the European components haven't changed in € terms but became more expensive in $ terms. Again, the issue is how much of your costs are $-denominated and how much €-denominated, and how does that compare to the currency denomination of your competitor's cost base.

Quoting Jfidler (Reply 21):
The foreign exchange market is well-developed and can handle risk mitigation. It's possible to buy forward contracts to hedge against future currency risk. Forex options are available as well.



Quoting Flighty (Reply 24):

When you negotiate a price for aircraft 3 years from now, you don't want to deal with 30% fluctuations in currencies between those times. Airbus cannot withstand that type of risk. So they convert their future dollars into future Euros according to the contemporary exchange market. Since the deal is already signed, Airbus' inability to re-price their product at delivery time (unlike airlines) means it is imperative they eliminate the currency risk, which is easy to do.



Quoting RIXrat (Reply 29):
At the time of the order/contract you can lock in the dollar-euro exchange rate with your bank and the customer pays that rate six months down the road. Sometimes the producer wins and sometimes the customer wins, but it is possible to lock in these transactions as my company does often with U.S. customers.

It is correct that you can lock the €/$ rate using hedging instruments. However, you cannot just do it at any given rate. The rate at which you can do it is based on the current rate at the time you enter the hedge, as well as interest rate differencials between the two currencies. And today's interest rates are actually unfavourable to A, as when they use a hedging, they will actually get less euros for one dollar they will earn in 2 years than for a dollar they would exchange today on the spot market (assuming a 1.30 exchange rate, a one year swap would get them a rate of roughly 1.32). And the longer the time period, the more expensive it becomes. Also, doing this for contracts that are not already signed is risky as you may never receive the dollars but will still have to pay them to the hedging bank.

You could also use forex options or swaptions which are less risky, but very expensive.

Overall it can be a limited solution for the short but not the long term.

Quoting Flighty (Reply 27):
Japan has also pegged their currency to the US Dollar. So has China.

Japan's currency isn't pegged to any other. China's is indeed, but they have already widened the bands and will probably have to do so again.
PNC aux portes!
 
Poitin
Posts: 2651
Joined: Wed Jan 25, 2006 6:32 am

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 9:29 am

Quoting Atmx2000 (Reply 9):
Huh? You haven't noticed that the Euro is hitting record highs against the yen and many Asian currencies. The Euro has remained relatively stable in relation to other European currencies and the currencies of countries that don't have a policy of manipulating the value of their currency in relation to the dollar.

Take a hard look at the Swiss Franc, still about $1.20 each, much as it has been for years. A while ago it got o $1.50 a franc, but the Swiss corrected that problem. Time for the European banks to fix the Euro. Blaming everyone else for your problem, as they are blaming the Japanese, Americans and now Swiss is basically just denial. Unfortunately, the same "Mine is bigger than yours mentality" that brought us the A380 has also brought the EU an oversized currency.
Now so, have ye time fer a pint?
 
rwessel
Posts: 2448
Joined: Tue Jan 16, 2007 3:47 pm

RE: USD-Euro Sales Success B Vs A

Sat Jul 21, 2007 9:57 am

Quoting WAH64D (Reply 30):
If we are talking single nation markets, the worlds largest would undoubtedly be China and a self fulfilling market at that.

Even on a PPP basis, China's GDP is about half that of the United States. On a straight exchange basis, it's about an eighth. Practical reality is somewhere between those two.

If the two countries maintain the growth rates they've had over the last decade, China's economy will be larger than the US's, on a PPP basis, in 12-15 years, but still a quarter the size on an exchange basis.
 
roseflyer
Posts: 9606
Joined: Fri Feb 13, 2004 9:34 am

RE: USD-Euro Sales Success B Vs A

Sun Jul 22, 2007 12:55 am

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.
If you have never designed an airplane part before, let the real designers do the work!

Who is online