Sliding Euro helps Airbus

As Airbus and EADS countdown to the March 6 earnings report with a hoped-for resolution of the financially disastrous A400M program, the companies are unexpectedly benefiting from a recent weakening of the Euro to the US dollar.

Every 10 cent difference in the exchange rate means US$1bn EBIT (earnings before interest and taxes) to Airbus, whose costs are primarily in Euros while sales are in dollars.

With the A400M costing Airbus 100m Euros a month, resulting from the ill-considered fixed-price contract entered into in 2003 (USAF take note with respect to the KC-X), Airbus and EADS are desperate to get their seven customer-nations to agree to a major adjustment in the cost of the contract.

The A380 program, falling dramatically short of delivery projections in 2009 and 2010, costs (by our WAG estimates) more than $5bn in deferred revenue for these two years alone.

Thus, a little relief on the Euro-dollar front right now is sorely welcome.

The question is, is this relief permanent or temporary?

An article in Friday’s Wall Street Journal suggests that there is currency manipulation going on with the Euro related to the Greek debt crisis which might further pressure the Euro. Hedge funds are betting against the Euro in much the way hedge funds worked the UK pound many years ago, driving it down sharply, from which it never recovered.

The Euro-dollar relationship will be interesting to watch over the next several months–and it will be interesting to see what, if anything, EADS has to say about it on the earnings call.

7 Comments on “Sliding Euro helps Airbus

  1. This article was in irony with what the EADS CEO Louis Gallois said on its 2010 annual press conference.

    He still blamed a “weak dollar” while hiding the incompetence of its management team.

    • Ironic might be your lack of historic background?

      The Euro started well below parity against the dollar
      gaining more or less continuously against the dollar
      during its decade of existence.
      The recent euro bouts reflect lack of trust in the dollar
      and a general trend to lessen exposion to a softening
      The recent appreciation of the dollar doesn’t really
      make a dent in that problem ( for Europe ).
      Due to diminishing income and perspective it does not
      really help US consumers either.

    • To Daniel:
      The 2010 press conference referred to 2009, just in case you are not aware of that (it’s just the same with all companies, so it may not be obvious). In 2009 the avg. monthly exchange rate US$/€ went from 1.32 in Jan 2009 (lowest 1.27 in Feb 2009) to 1.49 in November before falling again in December. If that’s NOT a weak dollar, I’d like Daniel to comment on what a weak dollar would look like.

      See also:

      The Euro Exchange Rate Movements

      When the euro was introduced to the financial market, the euro dollar exchange rate against other major currencies has fallen heavily, and most especially against the US dollar. In 1999, the dollar to euro exchange rate was at US$1.18 per euro but on October of 2000, the euro exchange rate fell to $0.8228 per US dollar. This was the lowest exchange rate for euro of all – time. The euro recovered in 2001 rising to $0.96 as its exchange rate but it fell again on July of the same year. The exchange rate for euro at that time was $0.8344, a little higher than the all-time low.

      When the coins and notes have started to appear in 2002 and with the replacement of all currencies (national), the euro started to steadily appreciate. Since November 2003, the euro to dollar exchange rate has remained above $1.15 and no longer fell below $1.25 starting August of 2006. Last October 2007, the euro dollar exchange rate has reached $1.4299. Now, with the current US crisis, the euro dollar exchange rate is on the verge of breaking the $1.6 barrier.

      So in closing it appears that while there is incompetence to hide, it may not be on the side of the Airbus management (this time). but never let the facts get in the way of a good bit of Airbus bashing.

      All the best


  2. To be fair, Daniel, the fact that the dollar is jusat starting to strengthen does not mean it is as strong as it was.

  3. The trend since 2002 is for the Euro to climb against the dollar, which means on delivery Airbus collect less money in Euros than they originally sold the planes for. Hard to say if this correction is a change in the trend or just a blip.

  4. Thanks for all of your responses.

    They are all true and I must admit that the US dollars were not as strong as it had been…

    Thanks again~!

  5. Avg. monthly $/€ exchange rate in 2009 went from 1.32 to 1.27 (Jan/Feb) but then fell to 1.49 in Nov and rose to 1.48 Dec. Pretty horrible for a company like EADS.

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