Friday, September 29, 2006

The Dollar, The Euro, and Airbus

Recently I've been doing some thinking about the decline of the dollar relative to other world currencies and the news really is not bad at all. What brought this up was a small contretemps over on where one of my correspondents, remarking on the slide of the U.S. dollar to the Canadian Loonie allowed as how the U.S. dollar was in a turd filled toilet-which, he was pleased to point out, was somehow indicative of serious moral decline here in the states.

It was a matter of a few moments to dredge out the information that showed that at different times, the loonie and the US dollar have been in the turd filled toilet, sometimes together, sometimes separately sometimes it's this, sometimes it's that over the last forty years. The take home for my young friend was that the mess will find its way to his doorstep in Canada as if by remote control or autopilot.

Now. To the subject at hand.

In the last five years, the dollar was worth 1.168 euros and it has declined to the present 0.78 euros, although it has been lower, reaching .7315 euros in late 2004. What this means to Airbus is that because it pays the suppliers, worker bees and everything else in Euros but sells a lot of its product for dollars, if it didn't hedge its transactions its costs have gone up just that much-about fifty nine percent. They could hedge their sales and probably did to index them to the exchange rate, but everything else that they buy in euros is costing a lot more than it did. It also means that its assets are that much more overpriced than they were before.

Nobody can continue to take that kind of a hit forever.

Bad Business Decisions.

At one time when McDonnell Douglas was sailing toward the shoals, it was rumored that there had been some very informal talks about Airbus taking a chunk of Long Beach, but nothing ever came of it. Perhaps it was just an idea batted around at a cocktail party. And of course, at the time, it would not have made a great deal of sense unless one had some uncommonly good insights about the course the future would take.

Now that the dollar is again in the turd filled toilet and having a grand old time while worker bees are getting by on less and less, the notion that Airbus will have a presence in the future flying gas station project for the air force is not by any means certain and I'd just bet they wish they had a pied a terre on the North American continent, a fully capable airplane factory right in the dollar zone, with a ready made labor market to draw on.


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