The FX risk remains a major issue of much concern for the EADS. Because of the mismatch of the cash flow between the dollar denominated revenues as well as cost, that are hugely incurred in the euro, the EADS has to carry out hedging policy and, hence, safeguard its EBIT against the decline of dollar. As Pons has indicated, “each 10% movement in dollar to euro rate of exchange against us is 1 billion euro EBIT influence at EADS”. That is particularly significant for the EADS competitive as Boeing, their prime competitor, is United States-based manufacturer. Another reason of the essential of hedging policy is the period lapse about eight years between payment commitments alongside the actual cash receipt for the product manufactured (Bordo, Humpage and Schwartz 2015).
The double-prolonged approach to the FX risk management entails FX risk mitigation as well as the FX risk transfer. The FX risk mitigations means that EADS sources vastly from the United States or the economies whose monetary system utilize rate of exchange pegged to the dollar. It declines the share of the costs, incurred in the euro, and decreases risks of the unanticipated cost base growth due to the dollar/euro fluctuations. The risk mitigation further entails restructuring program that is the power8 programme that permits the conversion of euro-denominated cost base into the dollars. Such programs aimed at reducing the workforce as well as withdrawing capital from the European sites and re-price it into the United States dollars.
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