The national flag-bearer of Germany, Lufthansa, purchased twenty 737 Boeing aircraft in January of 1985 for $500 million. The payment was due in January of 1986 upon delivery of the aircraft from the U.S. manufacturer. At the time of the purchase, the U.S. dollar was at a record high versus the Deutschemark, and had been steadily appreciating against the Deutschemark for five years. The CEO of Lufthansa, Herr Heinz Ruhnau, was responsible for determining what hedging if any would be used in conjunction with the dollar exposure.
Students generally enjoy risk management or currency hedging problems. The real crux of this case is really managerial decision-making, the formation of expectations, and the value and leadership of senior management. Students typically argue over what Herr Heinz Ruhnau did, and what they think he should have done. The more general lesson is whether the firm =s best interests are found in accepting open uncovered positions or not, and not whether he did or did not do the right thing in retrospect.