Airbus, unlike Boeing, must also manage to exchange rates as an integral element of its business.It sells aircraft in US Dollars, but at least half the content is priced in Euros, including all of its employees in France and Germany. As a result, exchange rates can provide a significant swing in costs and profitability without any changes in Airbus operations. Every 10 cents in Euros means a $1bn swing in profits.
The Euro is currently under pressure, and it appears that Greece, after a bank run and riots in Athens, will soon exit the Euro. The impact of this action on exchange rates could either slow the slide, or exacerbate it as speculation of Spain and Italy following the Greek actions could push the Euro down further. The following chart shows the exchange rate history over the last five years, and the trend line from peak-to-peak is showing a longer-term trend. Is it time to short the Euro? What direction is George Soros trading these days?
The Euro relationship against the dollar is current in a downslide, down about 6% from one year ago and continuing to fall at this writing. More importantly, the general downward trend, which is favorable for Airbus as it reduces the Euro cost component while the dollar revenues remain constant, appears to be trending downward. The net result, over the last year, is about a 3% gain in margin from foreign exchange for Airbus, since a bit over 50% of its costs are Euro based. Should the Euro continue to significantly drop, this would be a boost for Airbus and help it in the current price war with Boeing.
Looking at a 10 year chart could change the conclusion quite a bit. When the Euro started the initial exchange rate was around 1.18.
All trends aside, if certain “weaker” countries were to leave the Euro zone, would that not, in the longer term, make the Euro stronger as a currency? Obviously there would be short term damage, but after a year or so, I would think the currency would come back with a vengance and any further exits, if any, would be less disruptive.
Not that this would be good for Airbus.