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.