ALEXANDER CAMPBELL / LONDON
European Commission warns that high value of euro could hit continent's recovery
EADS is preparing to face an even weaker dollar in 2004, making export sales difficult, but says it will still achieve increased profits. In the last three years the dollar has lost a third of its value against the euro, falling from €1.19 to €0.78, and EADS is not expecting a significant recovery in 2004: its planning is based on a dollar worth an average of €0.83 over the year.
European aerospace is particularly sensitive to the falling dollar, as 52% of its revenues come from exports outside the continent, which tend to be dollar-denominated. The dollar has also been falling against other currencies, such as the UK pound.
The European Commission has warned that the weak dollar is endangering Europe's nascent export-led recovery. But so far the European Central Bank (ECB) has not acted to slow the euro's rise. However, concern seems to be growing: bank president Jean-Claude Trichet said last week that "brutal moves" in the exchange rate were unwelcome, adding: "We are concerned. We are not indifferent." The next step could be to cut interest rates in the euro zone from their present level of 2% in an attempt to bring down the euro's value and help European companies export against cheaper dollar-priced competition. But the ECB has no mandate to boost European exports: its only responsibility is to control inflation. By contrast, the USFederal Reserve has fought the downturn over the last three years with interest rate cuts - which weakened the dollar as a side effect.
Despite this obstacle to its export sales, EADS is optimistic that it can beat 2003's results this year. Strong defence sales and the reform of its space business will push profits up in 2004, despite flat sales and a slight drop in deliveries of Airbus airliners, say chief executives Philippe Camus and Rainer Hertrich. Sales and profits in 2003, due for release on 8 March, will be roughly the same as in 2002: €29-30 billion ($36.6-37.8 billion) sales and €1.4 billion profits before interest, tax, goodwill amortisation and exceptionals. In 2004, profits will rise to around €1.7 billion, EADS says, as the space division returns to the black, counteracting the slight fall from the weakening dollar and continued weak airliner deliveries. Airbus said last week that it expected 2004 deliveries to be around 300 for the third year running, with no significant recovery expected before 2005.
Source: Flight International
