Safran SA (SAF) has already covered 80 percent of its dollar hedging requirements for 2016 at $1.25 to the euro, above its $1.26 target, and expects to have completed currency cover through the end of 2016 by year-end.
The French company, which makes engines for single-aisle planes through a joint venture with General Electric Co. (GE), has fully hedged for 2013 and 2014 and is close to achieving the $4.8 billion needed to protect dollar revenue in 2015 not secured otherwise, Chief Executive Officer Jean-Paul Herteman and Chief Financial Officer Ross McInnes said today on a call.
Safran has sought to have three years of anticipated dollar revenue protected by contracts locking in favorable exchange rates when translating dollars into euros. Commercial aircraft and engines are sold almost exclusively in dollars worldwide. While security equipment such as software for recognizing fingerprints is also frequently sold in dollars, Safran is better protected from currency swings in that area because it has a large workforce in the U.S.
“It’s mainly for commercial aerospace revenues that we buy financial hedges, for both new engines, spares, and also for aerospace equipment,” CEO Herteman said today on a call with journalists after the company announced first quarter sales.
About 50 percent of the company’s U.S. revenue is naturally protected by U.S. procurement. Herteman also said that Safran also faces “indirect exposure” to dollars in some cases where even if Safran is being paid in euros, it competes with U.S. companies that have their costs in dollars.
Safran has benefited from more favorable rates since early February as the dollar as risen against the euro.
In 2011, a hedge book covering $4.3 billion in revenue was achieved at a rate of $1.37 to the euro, and in 2012 coverage for $4 billion came at $1.32 to the euro.
For 2013, $5 billion was covered at $1.29, for 2014 $5.2 billion is covered at $1.28. For 2015, the company has achieved an average rate of $1.25 to cover $4.8 billion of $5.2 billion required, McInnes said. For 2016, Safran brought coverage from $1.7 billion in February to $4.1 billion at $1.25 billion by the end of the first quarter.
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