A Weakening Dollar is giving Boeing a Trade Advantage over Airbus

Posted by PITHOCRATES - June 23rd, 2013

Week in Review

Before you can buy from a foreign country you have to exchange your currency fist.  For example, if you’re in China and want to buy some aircraft from Boeing or Airbus, you have to exchange you currency first.  Exchange Chinese yuan for U.S. dollars.  Or exchange Chinese yuan for euros.

Now if both Boeing and Airbus have a plane that meets all of their needs leaving price as the only consideration, they have two things to consider.  Price, obviously.  And the current exchange rate.  For if the U.S. dollar is weaker compared to the euro they will get more dollars than euros when exchanging their currency.  Giving the Americans a trade advantage.  Because if the dollar is weaker than the euro the Chinese yuan will buy more from Boeing than it will from Airbus.  A situation that actually exists now.  And it concerns Airbus (see Airbus CEO Concerned Over Euro/USD Exchange Rate Affecting Exports by David Pearson posted 6/20/2013 on 4-traders).

Airbus Chief Executive Fabrice Bregier Thursday said he remains concerned about the strength of the euro against the U.S. dollar which could limit the European plane-maker’s export-reliant growth despite strong demand for passenger jets particularly from Asia.

The CEO has previously expressed concern that the euro’s rise against the dollar could force the company to seek extra cost cuts or savings.

The aircraft market is a world market.  An aircraft manufacturer’s export sales will be greater than their domestic sales.  So a weak currency benefits them.  Which is why governments like to weaken their currencies.  Especially if they depend on robust export sales.  But the down side to that is that a weaker currency will raise prices everywhere else.  So, yes, exports will grow.  But people will lose purchasing power.  As their money won’t buy as much as it once did.

Because the Chinese yuan will buy more from Boeing than it will from Airbus they have to somehow lower the price of their planes to offset that advantage Boeing has. Which means they will have to find costs they can cut.  Find savings elsewhere.  Or watch Boeing sell more planes.

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