Airbus hit by dollar woes


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AIRBUS is in danger of becoming the highest-profile casualty of the weak US dollar. The European plane-maker has a stark problem - much of its costs are obviously in euros, but it sells its aircraft in an industry that trades in dollars.

Tom Enders, the Airbus chief executive, makes no bones about it. The dollar's dive threatens the company's existence.

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"The dollar exchange rate has gone beyond the pain barrier," he says. As a result, Airbus's profit margins have gone into a tailspin.

A vivid example: two years ago the list price of some $300 million for the new double-decker super jumbo Airbus A380 would have brought in 170m a plane.

But with the greenback at new lows against European currencies, that list price is now worth about 145m - a loss on the change in the currency exchange rates of about 15 per cent, or 25m per plane.

To make things worse, Airbus says the weak dollar plays right into the hands of its main rival, Seattle-based Boeing, as it makes it easier for Boeing to export.

Enders' problem, however, is that Airbus staff feel he is using the situation as a stalking horse to force through major organisational changes at the company. He has not exactly disabused them of this fear by saying that, as far as cost-cutting measures to respond to the weakening currency are concerned, "there will be no more taboos".

This is worrying for the workforce as Airbus - owned by EADS - has already announced 10,000 redundancies and some plant closures after delays to the A380 drove the firm into the red last year.

The dollar hit new record lows against the euro on Thursday as the European currency reached $1.487.

Although the euro was down slightly at $1.479 in late trading yesterday, it has appreciated more than 12 per cent against the dollar in 2007.

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It is never easy for a workforce when they are hit by "macro" factors which have little or nothing to do with their own skills or efficiencies. But it is clear that Airbus is in very bad shape, and the currency pain is probably going to be a far more tangible depressant on the wider workings of the company.

ACTIVIST investor Knight Vinke has had very limited success in its efforts to bounce HSBC into getting out of investment banking to help turn around a lengthy period of share price underperformance.

The bank's board reaffirmed its commitment to its CIBM investment banking arm, but threw Vinke the sop of saying that it had no plans to bulk it up with an acquisition.

It was not that much of a concession, actually, more a statement of a no-brainer.

To buy up more investment banking assets in the current uncertain banking climate would be folly indeed.

HSBC has also said it will not make a major purchase in the US, where it has had a lot of its problems with sub-prime. Again, quelle surprise.

Meanwhile, Knight Vinke has got nothing for its other two suggestions.

HSBC is not going to spin-off all or part of its Asian business, despite the fund manager saying this would release more value for shareholders.

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The Hong Kong and Shanghai Banking Corporation, as it was once known, has deep (and profitable) roots in the region, and it was never going to be receptive to the suggestion of Asian withdrawal.

Furthermore, Knight Vinke has got a blank rejection by the bank - now the biggest in the world following big subprime-related share price falls at Citigroup - of its allegation that the bonus schemes at HSBC are too generous and with far too low hurdle-rates for triggering them.

HSBC's line is that it consulted its top 50 investors and the Association of British Insurers before the bonus plan was put to shareholders at the 2005 AGM, and the wording had been changed to add transparency.

So there.

Generally speaking, Knight Vinke believes that HSBC's much-trumpeted strength - its highly diversified geographic coverage over 80 countries - is, in fact, a weakness.

The fund manager believes that the share-price underperformance is due to the bank being spread too thinly geographically, with good performance in one region frequently offset by a downturn in another.

Knight Vinke believes that it would be better for HSBC to build competitive advantage in fewer, key markets.

The self-styled "world's local bank" clearly begs to differ.

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