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phxa340
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Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 4:01 pm

I wanted to know what people thought about the effects of declining Euro's value over the last couple of months (today trading at 1 Euro to 1.12 U.S. Dollar).

Will this help/hurt Airbus and or Boeing when negotiating prices with customers for RFPs etc ? Most of the supply chain is global however labor is paid in Dollars and Euros respectively. Thoughts ?
 
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flyingturtle
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 4:25 pm

1. Are aircraft paid in $, or €? If in Dollars, then Airbus doesn't have to worry. For a purchaser outside of the EU, they will pay in $ anyway, and with the Dollars Airbus receives it can pay more workers!

2. Both the producers and the purchasers are most probably hedging currencies. Even more so when an airline leases the aircraft, and then the leasing company offers investment fund shares, like in these examples: http://www.hannover-leasing.com/103.php

So the currency risks can be spread among many investors.


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a380787
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 4:29 pm

i think Airbus gains more - they charge in Dollars then pay (most of their) workers in Euros

Boeing gains some too, especially with 787 - charge in dollars but pay 787 suppliers in JPY
 
roseflyer
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 4:54 pm

Airplane sales are almost always priced in dollars. Airbus usually sells in dollars and then does a currency hedge against the price of the current $/Euro exchange rate to protect them from currency fluctuation since sales are made years before manufacturing. Major contracts that both Boeing and Airbus create with suppliers are also usually priced in dollars. Boeing has 90-100% of their cost in dollars. Airbus has about 50% of costs in dollars and 50% of costs in Euros.

With a high valued dollar, Airbus wins and Boeing loses.

Airbus Chief Executive Fabrice Bregier Thursday said he remains concerned about the strength of the euro against the U.S. dollar which could limit the European plane-maker's export-reliant growth despite strong demand for passenger jets particularly from Asia. The CEO has previously expressed concern that the euro's rise against the dollar could force the company to seek extra cost cuts or savings. Speaking at the Paris Air Show, Mr Bregier told Dow Jones Newswires that Airbus is most comfortable operating when the euro trades around $1.33 to $1.34. "But our objective is that the dollar trades durably below $1.30; $1.34 isn't the case. "We must have a euro less than $1.30," he said.

http://www.advfn.com/nyse/StockNews.asp?stocknews=BA&article=58077162
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vv701
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 4:56 pm

Much will be determined by the terms of contracts with suppliers. For example for the Boeing 787:


Passenger doors and wiring are manufactured in France
Software development and floor beam manufacture are in India
Fuselage sections manufacture is in Italy and South Korea as well as in USA
Horizontal stabilizers are manufactured in Italy
Central wing boxes are manufactured in Japan
Wing tips, flap support fairings and wheel well bulkheads are manufactured in South Korea
Cargo doors are manufactured in Sweden
Landing gear manufactured in the UK and France


So the answer as to who wins can be pretty obscure.
 
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speedbored
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 4:57 pm

Airbus now sell some aircraft in Euros, and some in Dollars. Boeing sell almost exclusively in Dollars.

Both manufacturers, however, have some suppliers inside the Eurozone and some outside it.

Airbus will gain on their Dollar sales and lose on payments to non-Eurozone suppliers.
Boeing will be unaffected on sales and gain on payments to Eurozone suppliers.

So I'd imagine that there will not be that huge a difference in the net gains to either manufacturer.

Also bear in mind that some sales contracts and some supplier contracts will have currency variation clauses that may counter, or exacerbate, some of the gains/losses.

As to the question about new sales / RFPs, I doubt it will make a huge difference in the short term. It doesn't really make sense to react too quickly to adjust negotiated prices in response to short-term currency rate fluctuations, when sales and deliveries are often many years apart. I wouldn't expect much change in negotiated prices unless the Euro stays low for a significant period of time (or it becomes pretty certain that it will).

Currency rates vary up and down so it all tends to even out over time anyway.

Quoting a380787 (Reply 2):
Boeing gains some too, especially with 787 - charge in dollars but pay 787 suppliers in JPY

Not sure I understand how a declining Euro will affect the Dollar-Yen exchange rate  
 
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kanban
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 4:59 pm

several years ago there was a problem for Airbus when the situation was reversed .. low dollar, high Euro.. and they were contemplating switching sales from dollars to euros.. which would have backfired in today's market
 
vv701
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 6:11 pm

Quoting Roseflyer (Reply 3):
Airbus has about 50% of costs in dollars and 50% of costs in Euros.

All Airbus wings design, development and manufacture are in the UK, So their not insubstantial manufacturing costs are denominated in Sterling. Other Airbus components that are UK manufactured include some of the landing gear and fuel systems manufacture. On this Airbus web site:

http://www.airbus.com/company/worldwide-presence/airbus-in-uk/

Airbus claim that their UK activities generate 100,000 jobs' through an extended supply chain of over 400 companies'. So a 50-50 split between US $s and euros has to be incorrect.
 
mffoda
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 8:31 pm

Quoting VV701 (Reply 7):
Airbus claim that their UK activities generate 100,000 jobs' through an extended supply chain of over 400 companies'. So a 50-50 split between US $s and euros has to be incorrect.

They say 42% here...

"For the production of its jetliners, Airbus spends 42 percent of its aircraft-related procurement in the U.S. – buying more parts, components, tooling and other material from the United States than any other country. Workers in more than 40 states help build Airbus aircraft, supporting 226,000 high-quality jobs across the U.S. Airbus is the largest export customer for the United States aerospace industry.

Since 1990, Airbus has spent $140 billion in the U.S. with hundreds of American suppliers. This supplier network involves some of the most respected names in American aerospace, including Alcoa, Eaton, GE, Goodrich, Hamilton Sundstrand, Honeywell, Northrop Grumman, PPG, Pratt & Whitney, Rockwell Collins and Spirit Aerosystems."


http://www.airbus.com/company/americas/us/
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par13del
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 8:40 pm

Funny thing, this article was re-printed in our local papers today, then I saw this thread, so my position was going to be that Airbus a/c are in demand so US airlines will not see any drop in price.
http://abcnews.go.com/Business/wireS...oppers-benefit-euros-drop-28411966
 
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speedbored
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 9:30 pm

Quoting mffoda (Reply 8):
They say 42% here...

Probably true but ...

I suspect that when they say:

Quoting mffoda (Reply 8):
aircraft-related procurement

they mean procurements from outside the Airbus group. After all, you can not procure what you already have, or make yourself  

So payments for wings to Airbus in the UK probably don't affect that 42% figure but do require cash to be converted into Pounds Sterling to pay Airbus UKs staff and suppliers. Of course, depending on currency rates, Airbus will probably sometimes convert directly from their US$ accounts, and other times from Euro accounts, to get the required GBPs.
 
Planesmart
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 10:18 pm

Labour content is local currency. Employ staff in the EU, pay in EUR.

Suppliers from the EU will invoice Airbus in EUR.

Suppliers from the US will invoice Airbus in USD.

Suppliers from the rest of the world may invoice Airbus in EUR, USD or local currency.

Airbus are far more proactive using their financial market power to optimise exchange rates for suppliers by assuming responsibility for local currency to EU hedging, spot rates, forward contracts, etc, while Boeing largely requires USD pricing, and requires suppliers to manage their own exchange risk.

Buyers may purchase in USD, EUR or basket of currencies including USD and EUR.

For buyers, it is certainly not a case of USD or nothing. Airbus is far more flexible in respect to non-USD pricing, which has assisted sales to start-ups and airlines with little or no USD revenue flows.
 
MIflyer12
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Fri Jan 23, 2015 11:25 pm

Quoting planesmart (Reply 11):
Labour content is local currency. Employ staff in the EU, pay in EUR.

Suppliers from the EU will invoice Airbus in EUR.

Suppliers from the US will invoice Airbus in USD.

Lots of supply contracts get written with a currency of invoice different from currency of location of value-add. Sometimes buyers insist on it, and yes, that pushes currency risk to the supplier.

Currency hedging can flatten short-term fluctuations but doesn't repair long-term trends. If the Euro is at US$1.20 and falling month after month (hypothetically) no counter-party is going to accept a hedge at $1.40 without a big up-front payment.

If the OP wants real information he can find it in Boeing and Airbus financial statements.
 
prebennorholm
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RE: Declining Euro - Pro/Con For Airbus And Boeing

Sat Jan 24, 2015 1:14 am

Quoting speedbored (Reply 5):
Quoting a380787 (Reply 2):Boeing gains some too, especially with 787 - charge in dollars but pay 787 suppliers in JPY
Not sure I understand how a declining Euro will affect the Dollar-Yen exchange rate.

If you look beyond yesterday's 4% decline of the Euro, and take a look at the exchange rate changes that began roughly six months ago, then major currencies such as JPY and GBP lost against USD.

Over the last six months until today the JPY and GBP just declined only roughly half as much as the EUR against USD.

So a380787 has a valid observation. Before August Boeing could buy roughly 102 Yen for a dollar. Today they get 118.

We are talking about the decline of the Euro, but if we don't also talk about the (smaller) declines of Yen, Sterling, and a lot of other currencies, then it is just as valid to talk about a gain on the Dollar.
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