By Bill Rigby
WASHINGTON (Reuters) - The head of EADS' (EAD.PA: Quote, Profile, Research, Stock Buzz) North American unit joined on Monday the chorus of complaints from the European defense contractor that the weak U.S. dollar is contributing to the company's financial woes.
EADS, which reported a third-quarter operating loss last month and cut its full-year profit forecast, is struggling to keep margins afloat as its Airbus unit takes on Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) in the cut-throat commercial plane market.
Airbus, like Boeing, gets paid in dollars when it sells planes, but the European company has almost half of its expenditures in euros.
EADS' chief executive Louis Gallois has called the discrepancy "unbearable" as a 10 cent rise in the value of the euro against the dollar costs Airbus more than 1 billion euros in operating profit. Airbus chief Tom Enders has called the issue "life-threatening".
"The financials are problematical -- of course, the big issue is the exchange rate," said Ralph Crosby, chief executive of EADS North America at the Reuters Aerospace and Defense Summit in Washington on Monday. "It's an uncontrollable, an externality that we don't have much in the way of influence on. But as managers we're taking it on squarely."
The problem has come into focus recently as the euro hovers close to a record $1.50 level, up from around $1.20 only two years ago, and above the $1.35 which Airbus based its cost-cutting plans on.
Airbus plans to cut 10,000 staff and to take out 2.1 billion euros ($3.1 billion) in annual costs under its so-called Power8 restructuring plan. It is also trying to sell European factories to suppliers and move some production out of the euro zone.
As a result of the decline in the dollar, Airbus is now looking for a further 1.5 billion euros in annual savings, according to its executives last month. "Who knows how long this will take," said Crosby on Monday. "But we are very much focused on this."
Some union representatives in Europe have accused EADS and Airbus of using the dollar issue to deflect attention from management failings, such as delays on the A380 superjumbo and the A400M military transport plane. But one senior banker sympathized with the company.
"I can tell you they are not faking the pain of the exchange rate," said Henri Courpron, president of the aerospace division at boutique investment bank Seabury Group, at the Reuters summit on Tuesday. "I think the exchange rate challenge is the icing on the cake, it just doesn't help."
Courpron, a former Airbus procurement executive, said the company has been moving to buy more components in dollars for years, but it is tough to adapt to sudden currency moves.
"You can't take cost out fast enough, when you are confronted with this type of degradation of your income," Courpron said.
But one industry analyst said the European company was overplaying the dollar issue as a way to push through aggressive job cuts.
The low level of the dollar is merely a "convenient whipping boy," said Richard Aboulafia of the Teal Group, a Virginia-based aerospace and defense consultancy.
"This is not a dollar issue," said Aboulafia at the Reuters summit on Monday. "However, it is a great story to tell the unions to get them to sign off on Power8." Continued...
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