EADS Builds Hedge Book to $84 Billion

European Aeronautic, Defense & Space Co., also known as EADS, announced that it has been able to secure more contracts in 2012 and that helped it to smooth out the swings between USD and Euro. USD is incidentally the currency of choice, when it comes to the worldwide aviation industry.

Harald Willhelm, the Chief Financial Officer of EADS stated that the company has now boosted the hedge book from $75 billion of that of 2011. The hedge book was at $84 billion at the end of 2012. In 2012, the company bought $30 billion in form of new hedges. Thereby, the company has locked in an average rate of $1.30 to the Euro for protecting the future revenues for its large commercial aircraft, satellites and helicopters. Incidentally, EADS is the parent company of Airbus SAS.

Willhelm commented that they have been able to take full advantage of the favorable environment for USD and therefor accelerated the hedging speed in 2012. Many of the 599 Airbus planes that were delivered last year were paid in USD. However, more than 50% of the total cost was incurred in Euros. As a result, EADS has to buy financial contracts for protecting the revenue to be translated back into Euro. In terms of pretax profit, every 10 cent decline in the value of USD against Euro currently costs the company around 1 billion Euros.

Euro is currently at $1.3087 after gaining around 0.3%. Yesterday, it had actually gone down to $1.3018, marking its weakest value since 7th January. The financial guidance of EADS has been set on expectation of $1.35 to the greenback.

In an order to limit the risk, EADS is currently trying to increase the number and quality of banks which can take the other side of the hedging transaction. Willhelm even commented that one of the most important strategies undertaken in 2012 was of expanding the number of banks for hedging risks. As they are looking for both diversification and quality of banks, the company has expanded their profile by going to north, east and west. Currently, EADS is associated with 40 different banks with which it takes part in hedging transaction. EADS is said to be covered for 2013 already and non-covered Dollars for 2014-2016 have been reduced at pretty attractive rates as well. Therefore, its resilience to currency fluctuations will enhance.