We are particularly concerned about moves under consideration by European governments to adopt austerity measures.
If austerity measures in Greece and Italy (and others) result in a near-term decrease in the funding of forestry fire protection by these governments, this could impact some of our customers that contract with these countries to provide aerial fire fighting protection.
We have a dealer, Air Tractor Europe, located in Spain that works the European arena for us. The majority of its sales and work is in the the aerial forestry fire fighting category. The company has its own fleet of planes that it contracts for forestry work. It sells to private companies that contract for forestry work and also sells and services planes directly to some governments that operate their own fleet. We have had this particular dealer relationship for more than 10 years.
In a good year, we sell 12+ planes to customers in places such as Spain, Italy, Greece, Croatia, Cyprus, Macedonia and Montenegro. So far, we’ve seen no decrease in 2011. But that could change in 2012 if the economic crisis worsens.
The other concern we have relates to the value of the Euro against the U.S. dollar. It is too early to determine the total impact of the European crisis on the exchange rate of the Euro to the dollar. Still, if European financial difficulties trend the Euro down against the dollar over the near term, then our customers in Europe (who pay for our goods in dollars) will experience a net effective near term rise in the purchase price of our airplane.
Currently, we are seeing and hearing apprehension on the part of our European customers.
The strategy we’re using is to emphasize how the protection our planes provide can save money: Keeping fires small, as opposed to letting them get out of control, can prevent widespread property damage.
The other side of the coin is that while the news is not so good in Europe currently, there are opportunities in other parts of the world where we sell.
We sell planes for both the forestry fire fighting protection market and the agriculture market. With a growing world population to feed coupled with a growing world middle class (that reflects a diet change), there is more pressure to produce grains and other agricultural crops to meet these demands. This demand is reflected in higher agriculture commodity prices and the resulting action on the part of growers to be more productive and to protect their growing crops. This has translated into increased business for us in Latin America, Asia and Australia. We’re beginning to see positive movement in Africa in the agricultural market.
Time will tell how the European crisis will impact our operation — for the bad and good — in rural Texas.
David Ickert is vice president of finance of Air Tractor, a firm based in Olney, Texas, that manufactures agricultural and forestry airlines.
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