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robffm2
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 3:54 pm

According to a dpa report EADS considers to sell planes in EUR.

The report says that Hans Peter Ring, CFO of EADS, today announced these plans in New York and that EADS is already in discussion with airlines.

EADS profit suffer from the falling USD as a big part of their costs are in EUR.

Up to know I did find only German press reports, nothing in English, also not on the EADS site.

http://www.airliners.de/management/s.../eads-will-in-euro-verkaufen/24895
 
MoltenRock
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:03 pm

Given the utter dysfunction in the US Congress and recent events, it really was the straw that broke the camel's back in other countries moving from selling commodities and industrials in US$.

Good for EADS!
 
N766UA
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:04 pm

I suppose that makes sense for now, but the Euro isn't doing much better.
 
DullesFlyer
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:04 pm

And they'll be selling them in Chinese Yuan once the Euro collapses.
 
TeamintheSky
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:05 pm

Okay, so as an accountant I do forecasts on transfer pricing that deal with FOREX changes. Whether it shows up in dollars or euros, the net amount should be similar to their original forecast unless they have dummies behind the wheel. There still hasn't been large enough swings in the currency market to warrent trying to re-peg pricing. And I am not sure I would move to Euros right now either, not with countries that support this currency facing default.
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MoltenRock
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:11 pm

Quoting TeamInTheSky (Reply 4):
Okay, so as an accountant I do forecasts on transfer pricing that deal with FOREX changes. Whether it shows up in dollars or euros, the net amount should be similar to their original forecast unless they have dummies behind the wheel.

I'm sure it's a trial balloon. Just as when one airline raises fares to see who else might jump in, this idea may gain traction or be dismissed quietly. Oil producing countries have been wondering the same thing for the past few years, as well as other industries.
 
crosswinds21
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:17 pm

As long as this doesn't make EADS uncompetitive, then this move makes perfect sense. It doesn't matter if the Euro is volatile or if it's better or worse than the US dollar. The only thing that matters is that EADS's costs are in Euros and therefore, by selling their products in Euros, they face no risk whatsoever. Even if something does happen to the Euro compared to the value of other currencies, it doesn't matter one bit because they are still getting paid in their home currency.

But again, this is assuming that selling in Euros does not make EADS less competitive. Perhaps customers prefer to buy in US dollars for whatever reason. If that's the case, then they may lose business to Boeing. Or, perhaps, customers are indifferent about the currency or the customers hedge currency risk. If this is the case, then this is probably a good move for EADS.
 
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robffm2
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:23 pm

Quoting N766UA (Reply 2):
I suppose that makes sense for now, but the Euro isn't doing much better.

The Euro might not doing better right now, but the point is to remove the risk of changing currency exchange rates.
Of course they might hedge against this, but hedging is expensive and does not remove the fundamental changes in a price.

If airlines generate a lot of income in EUR it might be a win-win situation for both.

If EADS has a significant cost portion in CNY they might consider to sell planes also in that currency.

[Edited 2011-08-10 09:24:27]
 
PanHAM
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:46 pm

I am going trough the ups and downs of € resp. DM vs US$ and also the Pound since 4 decades now and I decided to stop playing roulette a long time ago. I sell in € and I see that most my purchasing is done in € as well.

If I sell in US$ I buy in US$ as well and then it's gambling again, or like Forest Gump said - you never know what you gonna get.

Of course, large companies can cover a good part of their US$ sales but that costs money as well. Smart move and hopefully they can actually get this nailed down in their future contracts.

Airbus is a power house right now and it's time to make use of that strong position.

Quoting MoltenRock (Reply 1):
Given the utter dysfunction in the US Congress and recent events, it really was the straw that broke the camel's back

They should have put some rum into the tea, that would have given them eventually wisdom. August 2 actually was the turning point. But look at it the positive way, in 1 or 2 decades China will do the manufacturing in labor cheap USA.
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N14AZ
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:50 pm

Quoting DullesFlyer (Reply 3):
And they'll be selling them in Chinese Yuan once the Euro collapses.

... and in US Dollar again once the Chines Yuan collapses. So no need to worry.  
 
DullesFlyer
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 4:51 pm

Quoting N14AZ (Reply 9):
So no need to worry.

Exactly!   
 
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LAXintl
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 5:11 pm

EADS can try to sell a plane in any currency they wish, however a customer will pay in the way they desire.

One of the appeals of the USD is that unless you are a European based airline and fly virtually wholly within the community so much of your global cost and revenue are in USD already.

The Euro will hardly appeal or be beneficial for many nations and airlines, forcing them to deal with what to them is a 3rd party minority currency as far as their business goes, and take on greater currency risk burden themselves.
Seems like a win for Boeing especially with continued US policy to maintain a weak currency to support exports. I guess Airbus is getting tired about its huge currency hedging practice it maintains.
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N766UA
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 5:31 pm

Quoting robffm2 (Reply 7):
The Euro might not doing better right now, but the point is to remove the risk of changing currency exchange rates.

But so many of EADS's customers don't use the Euro, so I don't really see how that makes more sense? You're exchanging currency either way.
 
exFATboy
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 5:38 pm

Here's a report from Bloomberg on this... I have to admit I'm a little confused as to what EADS is trying to accomplish.

I read the original post (and topic title) as an indication that EADS would be denominating future sales contracts in EUR rather than USD, which would shift forex risk to the customer. (I'm also presuming that Airbus contracts within the eurozone were already written in EUR.)

But the Bloomberg article indicates that EADS is looking for existing customers to remit payments against existing contracts in EUR rather than USD. If the contract is written in USD (as I suspect most of their non-Eurozone customer contracts are), all this would do is reduce EADS' forex conversion costs and/or cost for forex futures contracts to reduce their downside risk on holding USD positions, a much smaller change.

Quoting MoltenRock (Reply 1):
Given the utter dysfunction in the US Congress and recent events, it really was the straw that broke the camel's back in other countries moving from selling commodities and industrials in US$.

Recent events haven't affected exchange rates much - for the last three months the EUR rate in USD has fluctuated between USD 1.4132 and USD 1.4559 (bid/ask midpoint, per oanda.com). That's a pretty narrow trading range, especially since there's been just as much "dysfunction" in the Eurozone (the Greek crisis, the fear of "contagion" spreading, etc.) as in the US. The "flight to quality" has been from both the dollar and the euro to the Swiss franc more than anything else.

But again, if Airbus does begin putting contracts in EUR rather than USD, it's not really that big a deal - it's just reducing their exchange exposure and shifting the forex risk to their non-Eurozone customers.
 
MoltenRock
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 6:01 pm

Here's an english link:

Quote:
“The challenge is to identify airlines in Europe and Middle East who have a mirroring exposure to what we have,” Hans Peter Ring, EADS’s top financial officer, said in a meeting with reporters in New York. “We’re long on the dollar and they’re short on the dollar probably and this would be a win-win if we can identify that” and get them to pay in euros.

http://www.bloomberg.com/news/2011-0...-euros-as-u-s-dollar-hedge-1-.html


[Edited 2011-08-10 11:13:54]
 
exFATboy
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 6:22 pm

Quoting LAXintl (Reply 11):
EADS can try to sell a plane in any currency they wish, however a customer will pay in the way
they desire.

A contract can specify what currency the customer must remit payment in, and what payment method is to be used. Any desire the customer (or the seller) may have regarding this has to be agreed to in the contract.

It doesn't necessarily even have to be the currency the contract is denominated in - for example, it would be perfectly legal for EADS to sign a contract with a US carrier with the price set in EUR but allowing remittance in USD at the spot rate in effect at the day of payment. Alternately, they could denominate the contract in USD but include a clause requiring remittance in EUR at the spot-EUR equivalent to the original USD price.

Either of these options would result in EADS being insulated from forex fluctuation, although the first option (price in EUR, payment in USD) would leave EADS sitting on a USD balance, leaving them with forex exposure unless they can use the USD to pay suppliers willing to accept dollars, hedge with options, or just sell the USD and buy EUR and accept the related expense.

In the second option (price in USD, remittance in EUR rate at payment date), all the forex risk and expense is shifted to the purchaser. The purchaser can mitigate the risk with options contracts, but would still have the additional remittance expense of having to buy EUR to make the payments.
 
Part147
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 6:26 pm

Quoting MoltenRock (Reply 15):
However, on a macro-economic scale it has the potential to delink the US$ as the default fiat currency of transactions. Just as the £ was displaced by the US$.

And perhaps if there is a long-term 'plan' behind this decision - maybe EADS is pre-empting a possible decoupling between oil and the dollar, so that many of their oil-rich customers don't have to deal with US currency when buying European aircraft!?
It's better to ask a stupid question during training, rather than make a REALLY stupid mistake later on!
 
solarflyer22
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 7:58 pm

This makes sense and I am frankly surprised they didn't do it sooner. Long term there is more printing of dollars vs. euros. If LX has some Francs they'd be smart to buy some EAD's planes right about now.
 
PanAm788
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 8:38 pm

Although I somewhat understand the move as a protection against global economic unrest, I think it hurts Airbus' chances in securing a massive DL and/or WN order.
 
MoltenRock
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 10:26 pm

Quoting PanAm788 (Reply 18):
Although I somewhat understand the move as a protection against global economic unrest, I think it hurts Airbus' chances in securing a massive DL and/or WN order.

Not at all. They will continue to sell US carriers in US$. (For now at least.) This move will shift $1 billion to $2 billion away from EADS' exposure. However, on a longer term basis if EADS moves to all € transactions for final payment, it would be no more different than Boeing selling in US$ to European airlines.

[Edited 2011-08-10 15:28:45]
 
Ruscoe
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 10:30 pm

I don't think the $ is the reason why EADS/Airbus is making such dismall profits on record sales and production.

Try pricing.

Ruscoe
 
MoltenRock
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 10:41 pm

Quoting Ruscoe (Reply 20):

I don't think the $ is the reason why EADS/Airbus is making such dismall profits on record sales and production.

Then why is Airbus/EADS pushing their supply chain to dollarize their production facilities?
 
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par13del
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 10:59 pm

So what exactly does this mean to all the talk over the years of trying to get facilities and increase holdings of dollars in the US zone to buffer currency fluctuations, just talk?
 
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InsideMan
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 11:00 pm

Quoting exFATboy (Reply 13):
(I'm also presuming that Airbus contracts within the eurozone were already written in EUR.)

nope, only some very select few and that only per request of the buyer, normally a state or goverment agency of some kind.

Quoting Ruscoe (Reply 20):
I don't think the $ is the reason why EADS/Airbus is making such dismall profits on record sales and production.

then you think wrong.
Image a plane that was sold in 2002 coming to delivery today or even 3 years ago. In 2002 the conversion rate was 0,8 now it is 1,40 (for ease of calculation). It was even up to 1,6 a while ago.

Taking aside escalation, which counters partially that effect, selling an aircraft for 30M$ in 2002 was 37,5M€. Now it is only 21,5M€ a 42% hit in revenue!! Times 500 deliveries the difference alone is 8B€ Airbus would make as profit, had the exchange rate stayed the same.

Ok, factoring in escalation on commodities (rises the $ price more than the € price) and hedging (which in turn also costs money) realistically you can say that I'm maybe halfway right. That still makes 4B€!
 
Maverick623
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 11:06 pm

Quoting Part147 (Reply 16):
maybe EADS is pre-empting a possible decoupling between oil and the dollar, so that many of their oil-rich customers don't have to deal with US currency when buying European aircraft!?

I doubt it. The Euro is doing about as poorly as the Dollar.

I believe EADS when they say that it's simpler for them (as their costs are in Euros) and it eliminates some of the currency exchange risk, although that is mitigated by the risk that certain airlines will only purchase with USD.
"PHX is Phoenix, PDX is the other city" -777Way
 
exFATboy
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EADS To Sell Planes In Euro, Abolishing USD

Wed Aug 10, 2011 11:50 pm

Quoting InsideMan (Reply 23):
nope, only some very select few and that only per request of the buyer, normally a state or goverment agency of some kind.

That's quite odd, I'd think that both EADS and Eurozone customers would prefer to remove the uncertainty from the transaction.

Quoting Maverick623 (Reply 24):
I doubt it. The Euro is doing about as poorly as the Dollar.

In the last few months that's been true - we've effectively had offsetting crises. The five-year trend has been essentially flat (the dollar is actually up a bit on average), but the longer-term trend has been for the Euro to appreciate against the dollar. Here's a ten-year chart:

 
babybus
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:04 am

Quoting N14AZ (Reply 9):
... and in US Dollar again once the Chines Yuan collapses. So no need to worry.

...and in euros again when the dollar collapses.

It does seem a bit silly to ask for dollars for an aircraft made in Europe and I'm surprised they've left it so late. Doesn't Libya deal in euros for its oil transactions? The world is moving on.
and with that..cabin crew, seats for landing please.
 
eaa3
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:17 am

Given that a high percentage of their costs are in dollars (and yuan which are pegged to the dollar) anyway the best way to hedge out the currency risk is to sell planes in both euros and dollars. Presumably they would have to match up the share of sales in each currency with each currencies share in their costs. The contracts would be made at the current exchange rate (to give the same price irregardless of currency) at any particular time and future fluctuations would be totally on the airlines, which should be fine as the airlines would be buying a product denominated in their own operating currency. This way they can sell American carriers planes in dollars and European carriers their planes in euros. And orders from other places would have to pick one. They could also add pounds to the list given that a high percentage of their costs are in Britain and perhaps even other places such as Japan. Carriers from other countries would have to pick a currency for their orders to be denominated in. A large part the world also pegs to the US dollar such as India, China and the Gulf countries.

Airbus would obviously have to make sure that at any one time there is not a mismatch of currency share in the cost and liabilities against the revenue of the company and if there is then they can protect themselves with financial products.

The same could be done for Boeing and would probably be a good business practice.

By having revenue coming in from many currencies they would be able to hedge out their risk of having cost in many currencies and therefore decrease the total operating forex risk.
 
tayser
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:18 am

Quoting LAXintl (Reply 11):
The Euro will hardly appeal or be beneficial for many nations and airlines, forcing them to deal with what to them is a 3rd party minority currency as far as their business goes, and take on greater currency risk burden themselves.

...actually *ahem* any savvy finance department of an airline can make the three way currency exchange work for them - safer bets than just hedging a two way currency exchange.

AUD, EUR, USD - AUD is the local domicile, oil bought in USD and aircraft bought in EUR - EUR/USD will rise and fall and AUD/USD and EUR/AUD will have their own movements not necessarily reflected in the movement of EUR/USD thus you can take advantage of any arbitrage.

Australian airlines are in the box seat to take advantage of EUR/AUD and AUD/USD being far more favourable to buy offshore from Boeing or Airbus at the moment.
 
Asiaflyer
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:31 am

Quoting exFATboy (Reply 13):
But again, if Airbus does begin putting contracts in EUR rather than USD, it's not really that big a deal - it's just reducing their exchange exposure and shifting the forex risk to their non-Eurozone customers.
Quoting exFATboy (Reply 15):
A contract can specify what currency the customer must remit payment in, and what payment method is to be used. Any desire the customer (or the seller) may have regarding this has to be agreed to in the contract.


        
You got this right!!
It is just about in who's books the currency risk and hedging will sit.

All the wishes/forecasts about the collapse of USD/EUR/CNY is not really relevant in this topic.
The only affect that has, is regarding the relative cost base for the manufacturers.
You guys from America, who quickly jump in and wish EUR or CNY to collapse are countering American export companies best wishes.

Quoting exFATboy (Reply 15):
The purchaser can mitigate the risk with options contracts, but would still have the additional remittance expense of having to buy EUR to make the payments.


Wouldn't they just purchase the EUR with a forward contract and just lock in the exchange rate and the thereby fix the price in EUR? Longer dated ptions are very costly.
The transaction cost for doing the forward hedge should be neglectable.
 
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Stitch
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:41 am

Quoting par13del (Reply 22):
So what exactly does this mean to all the talk over the years of trying to get facilities and increase holdings of dollars in the US zone to buffer currency fluctuations, just talk?

EADS have hedged themselves rather magnificently the past decade, but each new hedge seems to be at a less favorable rate than the previous, so they are taking a hit on currency fluctuation, especially with the long lead times.

But as eaa3 notes, Airbus purchases a good chunk of parts from the US and China, so they are most likely paying their suppliers in US Dollars and Chinese Yuan. Unless they can convince those suppliers to take payment in Euros, I'm not sure what this really does for Airbus on a large scale other than perhaps a psychological move.
 
Maverick623
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:59 am

Quoting exFATboy (Reply 25):
but the longer-term trend has been for the Euro to appreciate against the dollar. Here's a ten-year chart:

Trends are great, but you have to put the trends into context and explain them to make future predictions more accurate. For one, the Euro was only introduced in 1999, and the first notes and coins weren't circulated until 2002... making a 10-year chart 1 year longer than you can analyze and compare rates.

Also, the Dollar took a rather large hit in 2007-2008 before the financial collapses hit Europe. With a few of the larger Euro economies in far worse shape than the US, the Euro will continue to be held down with the Dollar.

If the US can't pull out of this crisis at a similar rate as Europe, then we may see a real trend that is bankable.

Quoting Babybus (Reply 26):


It does seem a bit silly to ask for dollars for an aircraft made in Europe and I'm surprised they've left it so late.

Just like Boeing has a lot of trade with Europe, EADS buys and sells a lot of stuff from/to the US and China.

Quoting Babybus (Reply 26):
Doesn't Libya deal in euros for its oil transactions? The world is moving on.

Not sure how Libya being in a vast minority means the world is moving on...
"PHX is Phoenix, PDX is the other city" -777Way
 
Asiaflyer
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 2:12 am

Quoting Maverick623 (Reply 31):
Trends are great, but you have to put the trends into context and explain them to make future predictions more accurate. For one, the Euro was only introduced in 1999, and the first notes and coins weren't circulated until 2002... making a 10-year chart 1 year longer than you can analyze and compare rates.


But the economies in Euro area was not created 10 years ago, and the longer trends mainly depends on trade- and current account balances.
US has been running a large trade deficit for more than a decade. This is the reason why USD has been weakening, which is the mechanism that makes US made good cheaper outside the US, and balances the trade balance back to neutral.
Financial crisis etc just tends to be erratic tics in the longer trends.
There might be a bit of loss of prestige associated with weak currencies, but it is a blessing for countries who suffers from high inflation and low productivity gains.
 
frmrCapCadet
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 3:30 am

Quoting eaa3 (Reply 27):
Given that a high percentage of their costs are in dollars (and yuan which are pegged to the dollar) anyway the best way to hedge out the currency risk is to sell planes in both euros and dollars. Presumably they would have to match up the share of sales in each currency with each currencies share in their costs. The contracts would be made at the current exchange rate (to give the same price irregardless of currency) at any particular time and future fluctuations would be totally on the airlines

Something like this seems like an intelligent way to go. I would not be surprised if the accountants don't do this sort of thing already.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
exFATboy
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 4:02 am

Quoting Maverick623 (Reply 31):
For one, the Euro was only introduced in 1999, and the first notes and coins weren't circulated until 2002... making a 10-year chart 1 year longer than you can analyze and compare rates.

The euro became a currency on January 1, 1999, with all non-physical transactions between the 11 pre-euro currencies replaced by the euros as of that date, with the national currencies' banknotes becoming nothing more than physical manifestations of the euro converted between each other with permanently locked exchange rates. The pre-euro currencies no longer traded on forex markets as of 1/1/99, so any rate comparison after that date is valid.

(The pre-euro physical currencies are no longer legal tender, but are still convertible to euros in some Eurozone counties through their central banks - the law in Austria, Germany, Ireland and Spain provide for banknotes to be convertible forever.)
 
astuteman
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 4:09 am

Quoting LAXintl (Reply 11):
Seems like a win for Boeing

Yup. That'll be why they're doing it, of course

Quoting Ruscoe (Reply 20):
I don't think the $ is the reason why EADS/Airbus is making such dismall profits on record sales and production.

Try pricing.

Try the huge cost overruns on product development and ramp-up.

Quoting eaa3 (Reply 27):
the best way to hedge out the currency risk is to sell planes in both euros and dollars

  

Which, as the Bloomberg article points out, is exactly what they're trying to do

Quoting Stitch (Reply 30):
I'm not sure what this really does for Airbus on a large scale other than perhaps a psychological move

???
You answered your own question earlier in the post.

Quoting Stitch (Reply 30):
EADS have hedged themselves rather magnificently the past decade, but each new hedge seems to be at a less favorable rate than the previous, so they are taking a hit on currency fluctuation

They want to reduce their dollar hedging exposure from its current $20Bn a year

Rgds
 
DullesFlyer
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:02 pm

Quoting Babybus (Reply 26):
...and in euros again when the dollar collapses.

LOL!! Good luck with that after Greece, Portugal, Ireland, Italy, Spain, enter next failed European economy here -> __________ collapse the Euro.
 
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kc135topboom
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:08 pm

Quoting MoltenRock (Reply 1):
Given the utter dysfunction in the US Congress and recent events, it really was the straw that broke the camel's back in other countries moving from selling commodities and industrials in US$.

To be more accurate, Obama has don't nothing, which is even worse than Congress making bad decisions. He is going on (another) 10 day vacation (and most likly more golf course time) to Martha's Vineyard, one of the famous "Outer Lands" of Massachusetts.

BTW, I believe that most of EADS/Airbus contracts are currently payable in USD. I guess the exception would be European Based airlines that use the Euro as their currency. My guess is the few EU countries that don't use the Euro (UK, Swiitzerland, Denmark, Sweden) will still have to buy in USD.

Quoting N766UA (Reply 2):
I suppose that makes sense for now, but the Euro isn't doing much better.

Correct.
 
DullesFlyer
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:15 pm

Quoting Asiaflyer (Reply 29):
You guys from America, who quickly jump in and wish EUR or CNY to collapse are countering American export companies best wishes.

Not sure there are to many of us "wishing" for either currency to collapse. No wishing required - especially regarding the EUR. The CNY is severely maniplated and intentionally undervalued - by 28.5% (like many other Asian currencies) in favor of China, but with a booming Chinese economy and a growing manufacturing sector, the CNY is unlikely to collapse even if it is revalued. It is the growing economic crisis in Europe and the failed economies of many of the Eurozone members which will be the undoing of the EUR.
 
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lightsaber
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:19 pm

Why doesn't Airbus demand payment in gold?  
Quoting astuteman (Reply 35):
Quoting eaa3 (Reply 27):
the best way to hedge out the currency risk is to sell planes in both euros and dollars



Which, as the Bloomberg article points out, is exactly what they're trying to do

   Ideal for Airbus would to sell only as many dollars as their total cost in dollars with the rest being in Euros. Ideals are rarely acheived...

Quoting exFATboy (Reply 13):
EUR rather than USD, which would shift forex risk to the customer.

If the customer agrees, why not? Those will be interesting negotiations to listen to.

Quoting exFATboy (Reply 13):
But the Bloomberg article indicates that EADS is looking for existing customers to remit payments against existing contracts in EUR rather than USD. If the contract is written in USD (as I suspect most of their non-Eurozone customer contracts are), all this would do is reduce EADS' forex conversion costs and/or cost for forex futures contracts to reduce their downside risk on holding USD positions, a much smaller change.

Change existing contracts? Expect customers to tune into WIIFM (What's in it for me.)

Quoting MoltenRock (Reply 21):
Then why is Airbus/EADS pushing their supply chain to dollarize their production facilities?

I do find it interesting that Airbus/EADS is pursuing more contracts in the USA.

Somehow this feels like noise to just mask development cost over-runs. It isn't a bad long term strategy to cut FOREX costs, it just isn't the root causes of Airbus cash flow. See A400.   

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par13del
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:27 pm

Since I have never seen a purchase contract I'll ask the question.
If someone purchases an a/c today for delivery in 5 years time and pays a deposit, are all prices fixed and the OEM takes the difference in currency fluctuation up or down?
The deposit is at whatever the exchange rate is today, what about the balance of payment, is a rate fixed in the purchase contract and is it a flexible amount? The percentage difference between deposit and final payment is huge, and the difference in currency exchange rates can occur on either side, country of purchaser or OEM.
Not sure without going thru the details what I think is fair, all of my company's foreign purchases are paid for during the year mostly at time of purchase, yes there are differences between exchange rates when we received quotes and when payment is made, however, since we are usually doing a single payment we just list the final payment with current rates as the cost.
It is easy to say the price of the a/c is the price of the a/c it does not change if your currency devalues, only issue I can see with that is that all customers would then want a very short delivery line, OEM's backlog would have to shrink or their annual production numbers increase.
 
flyAUA
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:32 pm

Quoting robffm2 (Thread starter):
According to a dpa report EADS considers to sell planes in EUR.

Finally!!!   

I was always against this. No offence intended but why should the whole world sell aircraft in US$ just because Boeing, McDD, or whoever else does so. If I buy something in the US, I have to pay in US$... If I buy something in Germany, I have to pay in €... I don't see why it should be any different with aircraft.

Especially at times where the US$ is suffering, and EADS lose a huge amount of earnings in the whole conversion process, I salute them for having the balls to do this. Finally the answer to a question I've asked myself for years is "yes, it would make sense to do so" 

Quoting crosswinds21 (Reply 6):
As long as this doesn't make EADS uncompetitive, then this move makes perfect sense. It doesn't matter if the Euro is volatile or if it's better or worse than the US dollar. The only thing that matters is that EADS's costs are in Euros and therefore, by selling their products in Euros, they face no risk whatsoever. Even if something does happen to the Euro compared to the value of other currencies, it doesn't matter one bit because they are still getting paid in their home currency.
Quoting robffm2 (Reply 7):

The Euro might not doing better right now, but the point is to remove the risk of changing currency exchange rates.
Quoting astuteman (Reply 35):

 checkmark 



Quoting lightsaber (Reply 39):
Why doesn't Airbus demand payment in gold?

Even better than €  rotfl 

[Edited 2011-08-11 05:49:47]
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DullesFlyer
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 12:46 pm

Quoting robffm2 (Thread starter):

I am not criticizing this move, but I am wondering if this move is more - as we would say here "nationalistic" - "Euroistic" than anything else.

http://moneymorning.com/2011/05/11/f...o-why-europes-key-currency-doomed/
 
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InsideMan
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 1:07 pm

Quoting KC135TopBoom (Reply 37):
BTW, I believe that most of EADS/Airbus contracts are currently payable in USD. I guess the exception would be European Based airlines that use the Euro as their currency. My guess is the few EU countries that don't use the Euro (UK, Swiitzerland, Denmark, Sweden) will still have to buy in USD.

nope, see my answer here

Quoting InsideMan (Reply 23):
nope, only some very select few and that only per request of the buyer, normally a state or goverment agency of some kind.

(have Euro based purchase agreements)

Quoting par13del (Reply 40):
If someone purchases an a/c today for delivery in 5 years time and pays a deposit, are all prices fixed and the OEM takes the difference in currency fluctuation up or down?

the price is not fixed, but the formula is. Base price times escalation (makes up for labor cost increase and increase in commodities, essentially inflation). But the price is in USD and remains in USD. No provision for an exchange rate range of any sort. Sometimes good for Airbus, sometimes bad. THAT is why dollar sourcing is increased, to limit the exposure to FOREX risk.
 
PanHAM
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 1:10 pm

The structure, as that article quotes, is not flawed. The Maastricht treaty has been broken by the member states in many ways. A monetary union has been changed de facto into a transfer union and that is unlawful and a big threat against the Euro.

A motion bya EADS/Airbus to negotiate payment in Euro instead of US Dollars on futrue contracts is as nationalistic as the response to stay with the US$, or, use the power of the economy to impose the US$ on the rest of the world in first place.

Now that this economic power is fading and Airbus raking in more new orders than their main competitor, combined with the market turbulences caused by unqualified politicians on both sides of the pond, Airbus deemed the time is ripe for this move. This is a business decision. The major part of the expenses happens in Euros. No Airbus worker will accept payment in US$, which is not the legal tender in most European countries. Taxes must be paid in € and many more.

it only makes sense.
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DullesFlyer
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 1:28 pm

Quoting PanHAM (Reply 44):
Now that this economic power is fading

The U.S. has seen far worse economic times and has weathered it each time and come out stronger. Nothing to indicate this time will be any different, especially since other parts of the world are in far worse economic shape than us.

Quoting PanHAM (Reply 44):
the power of the economy to impose the US$ on the rest of the world in first place.

Until a majority of the world moves away from doing business in $'s - which is unlikely even with Russia and China suggesting it, it will continue to be the predominant currency of choice despite current economic conditions.
 
DullesFlyer
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 1:28 pm

Quoting PanHAM (Reply 44):
This is a business decision. The major part of the expenses happens in Euros.

No denying that......
 
PanHAM
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 1:41 pm

Quoting DullesFlyer (Reply 45):

The U.S. has seen far worse economic times and has weathered it each time and come out stronger. Nothing to indicate this time will be any different, especially since other parts of the world are in far worse economic shape than us.

I've been following that since 4 decades in business and I challenge your statement. However, that is another story.

From own experience, I can tell you that more and more business deals are signed in € . The basic logic is that if your costs are in € you sell in € as well. If a customer wants to pay in US$, fix a rate of exchange and get the payment immediately. Very rarely was it possible to realise currency exchange gains on 30 day payment terms, it was usually a loss, or, over the year the losses wiped out the currency gains.

As I said it before, to quote Forrest Gump, the US$ is like a box of chocolates, you never know what you gonna get.
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DullesFlyer
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 2:17 pm

Quoting PanHAM (Reply 47):
As I said it before, to quote Forrest Gump, the US$ is like a box of chocolates, you never know what you gonna get.

Actually, you do. There is far more long-term security in the US$ than any other currency except the Swiss Franc.

If even one country pulls out of the EMU and dumps the euro, we will more than likely see the domino effect, and there are many who believe one of the PIIG countries or eastern european countries will do just that. The euro was overvalued from the get-go. The US$ is used as the primary and reserve currency in nearly three dozen countries and territories, and remains the currency of international business - and will be so in the future.

Nobody is criticizing eads moving to the euro, but how this could impact eads in the future is another story. What kind of mid- and long-term economic forecasting was done? If the EMU and the euro collapse, will eads business be done in french francs?, deutsch marks? pound sterling? I have family and friends working in the banking and investment world, and they and many of their coleagues won't go anywhere near euros, and it is widely believed that the question of a collapse isn't a matter of "if", but "when."
 
flyAUA
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EADS To Sell Planes In Euro, Abolishing USD

Thu Aug 11, 2011 2:22 pm

Quoting DullesFlyer (Reply 48):
What kind of mid- and long-term economic forecasting was done?

I guess history speaks for itself, and looking back at the last 11 years, clearly this is a wise move for EADS. Certainly wiser than not doing anything about it! That's enough mid-term planning for all the skeptics.
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