Euro Costs vs. Dollar Revenues: How EADS Manages Foreign Exchange Exposure

EADS, the parent company of Airbus, is the second largest aerospace and defence corporation in the world after Boeing. Though a latecomer, EADS surpassed Boeing in sales revenue in 2008. However, its profitability has always lagged behind Boeing’s. This is partly because EADS has invested heavily in the development of new aircraft, and partly because of the mismatch between dollar-denominated revenue and euro-denominated costs that makes EADS vulnerable to foreign exchange risks. According to EADS’s estimates, a 10-cent drop in the dollar against the euro would wipe 1 billion euro off its operating profit. This case focuses how EADS uses natural hedges and financial hedges to minimize the impact of exchange rate volatility on its operating profit.