Airbus Purchases in Euros Gain Favor as Buyers Seek Hedge
Airbus SAS Chief Executive Officer Fabrice Bregier said the number of aircraft purchased in local currencies will increase as some customers seek to balance their finances by placing orders in euros or the Chinese renminbi.
About 5 billion euros ($6.8 billion) of jet deliveries are now priced in the European currency over four years, Bregier said today. Airlines with high euro-denominated revenue are tapping the ability to pay for planes that way, he said.
“I see a small shift towards euro-sales,” Bregier said in an interview at Bloomberg’s London office. “It’s still small, but it’s new. You could imagine the Chinese airlines paying in renminbi guaranteed by Chinese banks.”
Airbus is exposed to exchange-rate swings between the dollar, denomination of choice for aircraft and fuel purchases, and the euro, since the Toulouse, France-based company’s costs are in the European single currency. The planemaker has sought more sales in euros to cut back on hedging contracts that protect revenue when translated back into its home currency.
The company has managed to secure “landmark” euro-denominated deals this year, Harald Wilhelm, chief financial officer at Airbus-parent European Aeronautic, Defence & Space Co., told investors this week.
Every 10-cent drop in the value of the dollar against the euro costs EADS about 1 billion euros in pretax profit. The company had about $80 billion in financial contracts against its outstanding orders as of the end of September.
Airbus is establishing a single-aisle final assembly facility in Mobile, Alabama, to move more of its costs to dollars and to better tap a market that will remain one of the world’s biggest. While the importance of Europe and North America have dropped for Airbus orders, they will continue to make up a sizable portion of business, Bregier said.
The planemaker also is in talks with the Chinese government to extend for 10 years an agreement to build narrow-bodies in Tianjin, Bregier told investors yesterday. The Asian country’s domestic market will become the world’s biggest within a decade, overtaking the U.S., Airbus reckons.
China is working on its own single-aisle plane, the C919, due to enter service from 2016. Bregier said the plane will probably be introduced “with some delay,” and then take another few years before it has wider market penetration.
Commercial Aircraft Corp. of China Ltd., which is making the C919, has also begun talks with jet-engine makers to power a future long-range jet that could challenge the duopoly Airbus and Boeing Co. (BA) have in the wide-body market.
“Long-range aircraft are much more complicated to develop,” Bregier said. “On this, it will take them probably another 20 years.”
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