Airbus Industrie's plan to offer its aircraft in the new European single currency as well as US dollars are set to receive a warmer reception from airlines than from the financial community.

Airlines in the 11 countries which have signed up for the first wave of euro membership in January 1999 stand to benefit from increased stability. While they receive the bulk of revenues in domestic currencies, up to 50 per cent of costs, represented by fuel and finance charges, are in dollars, exposing them to high foreign exchange risks.

Financiers, meanwhile, have shown little warmth to aircraft lending priced in currencies other than the dollars. A recent financing for Italy's Air One was split 50:50 between dollars and Deutsche marks - the five B737-400s are being purchased from Lufthansa.

However, the deal, lead managed by Banque Paribas, has received a cool reception. 'While the Deutsche mark may more clearly track Air One's sales there was a mismatch between the asset and the borrowing,' notes a UK banker who turned down the deal.

The Airbus consortium would stand to gain from cutting its own foreign exchange exposure as most of its costs are in Deutsche marks, French francs, sterling and pesetas. The UK's decision not to join the first round of euro entrants, however, may complicate the position of British Aerospace, which would have to hedge in dollars and euros in offsetting its portion of Airbus costs and sales.

Meanwhile, BAe is still awaiting agreement from the UK government to lend £120 million (US$203 million) to help fund its share of the development costs of the stretched A340 programme.

Doug Cameron

Source: Airline Business