AIR Airbus SE

By Robert Wall 

Airbus SE, which turns 50 this year, has its roots in a consortium formed by the leading plane makers of Germany, France and Spain. But according to Chief Financial Officer Harald Wilhelm, it couldn't have become the fully integrated company it is today, with some EUR66 billion ($75 billion) in market capitalization, had it not been for the introduction of the euro in 1999.

Mr. Wilhelm, who is set to leave in April after more than 27 years at the company and its predecessor businesses, spoke to The Wall Street Journal about the challenges of piloting the finances of an international aeronautics giant, and the crucial role the euro has played. Edited excerpts follow.

WSJ: What did the euro's birth mean for Airbus?

MR. WILHELM: The introduction of the euro in January 1999 was followed in 2000 by the creation of the European Aeronautic Defence & Space Co. and its plane-making unit Airbus through the merger of DaimlerChrysler Aerospace, Aerospatiale Matra and, later that same year, Construcciones Aeronáuticas SA.

The objective clearly was to create the one European aviation champion.

When I joined the company in the summer of 2000, my first task was to create a consolidated balance sheet for Airbus. I don't want to think about how hard that would have been using French francs, deutsche marks and so forth. You could say the euro's creation was a kind of conditional precedent for the merger to create EADS and Airbus.

WSJ: What tangible benefits did you see from having one currency?

MR. WILHELM: The creation of one currency allowed us to do significant investments in Europe without considering the exchange risk -- how is the value of the investments influenced by currency changes tomorrow. That is a massive benefit.

Then, imagine the daily flow of goods, of parts, traveling all over Europe. If all of that needed to be traded at daily spot rates [without the euro], that would be a massive impact in terms of volatility every day.

The euro, as such, is a pillar of the EADS/Airbus success story in the past 20 years. It has generated that long-term visibility and stability.

WSJ:What other upside has the euro delivered for Airbus?

MR. WILHELM: The euro debt and bond market established itself as the second-most-important [debt] market and, given the interest-rate level in Europe now, we can say that it is very favorable in terms of funding costs. We have made use of that multiple times with recurring debt issuances for various programs. Also, there is a significant cash position we have -- the pension assets under management. Bear in mind what all of this would have been like with the former national currencies, fluctuations and volatility.

WSJ: The euro has seen significant value swings against the dollar. How has that affected Airbus?

MR. WILHELM: Legacy currency hedging, in place before the euro started trading, caused quite a problem in terms of the balance sheet. After the launch, the euro for a while traded at exchange rates lower than its inaugural rate. Then the euro strengthened, and we had to launch competitiveness programs due to the weaker dollar. [The first such program, in 2007, was a restructuring plan Airbus called Power8, which sought to reduce inefficiencies in its international manufacturing process that were causing excessive overhead and delays.]

WSJ: How did those programs affect Airbus?

MR. WILHELM: Power8, Power8+ and all of the improvement programs thereafter, which we are still doing today, have made Airbus much more resilient. It has allowed us to invest, it improved our margins and cash flow significantly. Just imagine how difficult it would have been without the euro. It would have been incredibly complex to do an industrial restructuring and improvement across Europe, as everybody would have considered short-term tactical aspects when determining where to put investments, where to restructure.

WSJ: How have you tried to mitigate the exchange-rate volatility?

MR. WILHELM: Airbus has one of the largest hedge books, as the vast majority of our revenue -- commercial aircraft sales -- is dollar-denominated, while significant parts of our costs are more euro-denominated. If we had needed to hedge with a higher number of currencies, it would have been much more complex and cumbersome.

So that's why I say the euro has been a foundation for the success of Airbus, operationally but also on the financial side. But we also increased dollar sourcing.

Now about 60% of our dollar sales are covered by purchases made in dollars, so we have that natural hedging, too.

WSJ: How nervous were you that the euro could falter during the 2008-09 financial crisis?

MR. WILHELM: Like a lot of corporations, you always look at the what-ifs. But I don't think we ever got to a point of activating the plan. It was a fallback. There was a very strong willingness at the European leadership level to make sure the euro didn't break apart. The euro being the symbol of Europe, if you take the euro away what is left? That experience made the euro, I think, even more resilient.

Mr. Wall is a senior reporter in The Wall Street Journal's London bureau. He can be reached at robert.wall@wsj.com.

(END) Dow Jones Newswires

January 20, 2019 09:38 ET (14:38 GMT)

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