what is the US$/Euro exchange rate situation at the time of the case? why using FX forwards look less attractive to EADS? 
In early May of 2008, Jean-Baptiste Pons, Head of Corporate Finance and Treasury at the European Aeronautic Defence and Space Company N.V. (EADS), a leading global aerospace and defense company, was preparing for the next week's meeting with the company's senior executives. Recent developments had prompted Pons to elevate foreign exchange (FX) risk management issues to EADS' highest echelons. Over the last three years, Airbus, EADS' commercial jet division and its primary source of revenue, had reported record order intakes, exceeding the company's turnover at that time by a factor of three. Yet, since 2006, the U.S. dollar ($) had depreciated substantially against the euro (). Specifically, the dollar-to-euro ($/) exchange rate had climbed from $1.20 per euro to $1.58 per euro; thus, each dollar of revenue was now yielding nearly 25% fewer euros. The $/ exchange rate was crucial to EADS's profitability since Airbus billed customers in dollars even though it incurred a significant portion of its costs and reported its financial statements in euros. To protect its bottom line from unfavorable FX movements, EADS systematically hedged future revenues with FX forward contracts. In the wake of the recent FX headwind, however, Pons feared that EADS' current hedging policy might cause the company to hedge an insufficient portion of its currency posure at increasingly unfavorable exchange rates. To address mounting FX issues, Pons's team wondered if EADS should broaden the range of derivatives used to hedge FX risk by employing FX options as well as forward contracts, and tried to estimate hedge amounts that would prevent Airbus from being either under or overhedged. Detailed analysis of Airbus' hedging situation revealed that Pons' team would soon have to make some difficult choices. If EADS chose to hedge its foreign exchange exposures with FX options in an amount sufficient to protect Airbus' 291 billion ($460 billion) worth of aircraft orders, it would cost them roughly the equivalent of Airbus's EBIT in the previous year. Another possibility was to continue using FX forward contracts despite ongoing deterioration of the forward exchange rates. Finally, given the financial market turmoil and the presence of some "natural" hedges inside EADS itself, some executives debated the necessity of any formal hedging program. In early May of 2008, Jean-Baptiste Pons, Head of Corporate Finance and Treasury at the European Aeronautic Defence and Space Company N.V. (EADS), a leading global aerospace and defense company, was preparing for the next week's meeting with the company's senior executives. Recent developments had prompted Pons to elevate foreign exchange (FX) risk management issues to EADS' highest echelons. Over the last three years, Airbus, EADS' commercial jet division and its primary source of revenue, had reported record order intakes, exceeding the company's turnover at that time by a factor of three. Yet, since 2006, the U.S. dollar ($) had depreciated substantially against the euro (). Specifically, the dollar-to-euro ($/) exchange rate had climbed from $1.20 per euro to $1.58 per euro; thus, each dollar of revenue was now yielding nearly 25% fewer euros. The $/ exchange rate was crucial to EADS's profitability since Airbus billed customers in dollars even though it incurred a significant portion of its costs and reported its financial statements in euros. To protect its bottom line from unfavorable FX movements, EADS systematically hedged future revenues with FX forward contracts. In the wake of the recent FX headwind, however, Pons feared that EADS' current hedging policy might cause the company to hedge an insufficient portion of its currency posure at increasingly unfavorable exchange rates. To address mounting FX issues, Pons's team wondered if EADS should broaden the range of derivatives used to hedge FX risk by employing FX options as well as forward contracts, and tried to estimate hedge amounts that would prevent Airbus from being either under or overhedged. Detailed analysis of Airbus' hedging situation revealed that Pons' team would soon have to make some difficult choices. If EADS chose to hedge its foreign exchange exposures with FX options in an amount sufficient to protect Airbus' 291 billion ($460 billion) worth of aircraft orders, it would cost them roughly the equivalent of Airbus's EBIT in the previous year. Another possibility was to continue using FX forward contracts despite ongoing deterioration of the forward exchange rates. Finally, given the financial market turmoil and the presence of some "natural" hedges inside EADS itself, some executives debated the necessity of any formal hedging program
