[dizbuster]

The "hedges" mentioned could well be currency options, which gives airbus the ability to sell us$ and buy euros at an agreed rate but these contracts do have a shelf life.

In essence what is being said, is that airbus have agreed contracts and will recive us$ in payment, whereas their costs are in euro which means any movements in the us$euro exchange rate will have an impact. The more the move, the bigger the impact.

For example, the piece mentions an order backlog of us$220.4bn. If their costs are euro150bn and the exchange rate is 1.30 (i.e. us$1.30 = euro1.00) then the costs work out at us$195bn (150bn x 1.30) meaning a profit of us$25.4bn (us$220.4bn in contracts less us$195bn in costs).

If the rate goes down to 1.20 (i.e. us$1.20 = euro1.00) then the profit rises as the costs would then work out at us$180bn (150bn x 1.20) giving a profit of us$40.4bn (us$220.4bn in contracts less us$180bn in costs).

Alternatively if the rate keeps going higher then they face making less money and possibly face making a loss.

The above examples are based on figures and a scenario that assumes the orders and the costs will be dealt with all at once, but obviously in reality costs are ongoing and exchange rates move everyday. Therefore, their analysts will be factoring in day to day costs and a moving exchange rate in order to give profit forecasts. Receiving money (us$) for their delivering on their orders is the easy part - the problem the CEO and the board have now is that with the us$/euro rate raising all the time, they are seeing their forecast profits diminishing.

What their CEO would give to see the rate drop to 1.00 !!

Hope this helps to explain it a bit.