Airbus 2015 Annual Report Download - page 41

AIRBUS GROUP REGISTRATION DOCUMENT 2015 l 09 l
Risk Factors
Registration Document 2015
1 Financial Market Risks
Foreign Currency Exposure
A significant portion of the Company’s revenues is denominated
inUSdollars, while a major portion of its costs is incurred in
euro, and to a lesser extent, in pounds sterling. Consequently, to
the extent that the Company does not use financial instruments
to hedge its exposure resulting from this foreign currency
mismatch, its profits will be affected by market changes in the
exchange rate of the USdollar against these currencies. The
Company has therefore implemented a long-term hedging
portfolio to help secure the rates at which a portion of its future
USdollar-denominated revenues (arising primarily at Airbus) are
converted into euro or pound sterling, in order to manage and
minimise this foreign currency exposure.
There are complexities inherent in determining whether and
when foreign currency exposure of the Company will materialise,
in particular given the possibility of unpredictable revenue
variations arising from order cancellations, postponements or
delivery delays. The Company may also have difficulty in fully
implementing its hedging strategy if its hedging counterparties
are unwilling to increase derivatives risk limits with the Company,
and is exposed to the risk of non-performance or default by
these hedging counterparties. The exchange rates at which the
Company is able to hedge its foreign currency exposure may
also deteriorate, as the euro could appreciate against the US
dollar for some time as it has been the case in the past and
as the higher capital requirements for banks result in higher
credit charges for uncollateralised derivatives. Accordingly,
the Company’s foreign currency hedging strategy may not
protect it from significant changes in the exchange rate of the
USdollar to the euro and the pound sterling, in particular over
the longterm, which could have a negative effect on its results
China has acknowledged additional downward revisions in its
GDP growth targets, confirming fears of a slowdown in the
world’s largest growth engine. This reversion in Chinese demand
is exacerbating pressures on global commodity markets and
subsequently to other economies with high exposure on
commodities such as Russia, Middle East or Brazil. Beside
the diverging policies of European Central Bank and Federal in
parallel, the reduction of monetary easing by the Federal Reserve
Bank and the expected increase of US treasury yields impact
financial markets of emerging countries, in particular those
with high current account deficits. The noticeable slowdown
of emerging markets results in cuts of policy rates and the
devaluation of local currencies against USdollar. The continued
reallocation of investments to the US and the devaluation of
emerging market currencies deteriorate the external refinancing
conditions for issuers from emerging countries including our
customers in these countries.
If economic conditions were to deteriorate, or if more pronounced
market disruptions were to occur, there could be a new or
incremental tightening in the credit markets, low liquidity, and
extreme volatility in credit, currency, commodity and equity
markets. This could have a number of effects on the Company’s
business, including:
 requests by customers to postpone or cancel existing orders
for aircraft (including helicopters) or decision by customers to
review their order intake strategy due to, among other things,
lack of adequate credit supply from the market to finance
aircraft purchases or change in operating costs or weak levels
of passenger demand for air travel and cargo activity more
generally;
 an increase in the amount of sales financing that the Company
must provide to its customers to support aircraft purchases,
thereby increasing its exposure to the risk of customer defaults
despite any security interests the Company might have in the
underlying aircraft;
 further reductions in public spending for defence, homeland
security and space activities, which go beyond those budget
consolidation measures already proposed by governments
around the world;
 financial instability, inability to obtain credit or insolvency
of key suppliers and subcontractors, thereby impacting
the Company’s ability to meet its customer obligations in a
satisfactory and timely manner;
 continued de-leveraging as well as mergers, rating
downgrades and bankruptcies of banks or other financial
institutions, resulting in a smaller universe of counterparties
and lower availability of credit, which may in turn reduce the
availability of bank guarantees needed by the Company for its
businesses or restrict its ability to implement desired foreign
currency hedges;
 default of investment or derivative counterparties and other
financial institutions, which could negatively impact the
Company’s treasury operations including the cash assets of
the Company; and
 decreased performance of the Group’s cash investments due
to low and partly negative interest rates.
The Company’s financial results could also be negatively
affected depending on gains or losses realised on the sale
or exchange of financial instruments; impairment charges
resulting from revaluations of debt and equity securities and
other investments; interest rates; cash balances; and changes
in fair value of derivative instruments. Increased volatility in
the financial markets and overall economic uncertainty would
increase the risk of the actual amounts realised in the future on
the Company’s financial instruments differing significantly from
the fair values currently assigned to them.
Financial Statements 2015
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Annual Report 2015 Financial Statements 2015
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