MAX KINGSLEY-JONES / PARIS
European manufacturer outlines "three tools" it believes can counter currency woes
Airbus is confident that it can counter the threat to its profitability posed by the weak US dollar, despite indications that the situation is likely to worsen in the near term.
The dollar has depreciated by almost 30% against the euro over the past year, but speaking at last week's annual press conference in Paris, Airbus chief executive Noel Forgeard said that the company has "three tools in place to cope with it". He adds that Airbus had already managed to free up around €1 billion ($1.26 billion) in cash by the end of last year through a one-off cash saving effort.
The first of the "tools" is "currency rate coverage", or hedging, which Forgeard says covers all its activities for 2004, 2005 and "a large part of 2006".
The second is the "Route 2006" structural cost-cutting programme announced a year ago, which should reduce the company's cost base by €1.5 billion by the end of 2006. "If successful, this should offset a 20% devaluation of the dollar," says Forgeard.
The third solution is the A380 programme which "is the ultimate answer to the dollar situation", says Forgeard. "It will trigger a change in the size of the company, through the worth of sales and the significant margins."
Airbus chief financial officer Andreas Sperl says that all of Airbus's revenue and around 50% of its costs are in dollars. He attributes the €200 million decline in turnover to €19.3 billion compared to 2002 to the dollar's weakening exchange rate, but is confident that further cost cutting should not be necessary in the medium term even if the rate continues to deteriorate.
Philippe Camus, co-chief executive of Airbus's 80% shareholder EADS, says that the dollar's decline could potentially cost the group €3 billion and is "systematically" seeking to reduce its exposure to the dollar.
Source: Flight International
