Question

1.What type of foreign exchange exposure does Airbus face? How can Airbus protect itself from its exposure to changing exchange rates? How does the company’s switch to more U.S. suppliers help the company?

2.Airbus has asked its European based suppliers to start pricing in U.S. Dollars. What does Airbus hope to gain by this request? What does it mean for suppliers?

Answer 1

1. More than half of Airbus' revenues are denominated in US dollars with approximately 60% of such currency exposure 'naturally hedged' by US dollar-denominated costs. The remainder of costs is incurred primarily in euro, and to a lesser extent, in pounds sterling.

As Airbus intends to generate profits only from its operations and not through speculation on foreign currency exchange rate movements, Airbus uses hedging strategies solely to manage and minimise the impact on its EBIT from the volatility of the US dollar.

Airbus manages a long-term hedge portfolio with a maturity of several years covering its net exposure to US dollar sales, mainly from the activities of Airbus Commercial Aircraft and, to a lesser extent, of the Airbus Helicopters and Airbus Defence and Space Divisions. The net exposure is defined as the total firm audited currency exposure (US dollar-denominated revenues), net of the part that is 'naturally hedged' by US dollar-denominated costs. The hedge portfolio covers nearly all of the Airbus hedging transactions.

2. Airbus has asked its European based suppliers to start pricing in U.S. Dollars. Because the costs of many suppliers are in euros, the suppliers are finding that to comply with Airbus's wishes, they have to move morework to the US or those countries whose currency is pegged to the US dollar.