Britain's leaving the EU - pros and consFear and uncertainty hurt the markets, but do they do anything to hurt Bombardier's short term prospects? The mid term production is already booked and the prices locked in, so what does this do to Bombardier's short and long term prospects.
Short Term:
- Positive - Northern Ireland's labour costs just dropped by the value of the pound, this is good. Let's say they represent 5-10% of the cost of the CSeries, that means that the costs just dropped 0.5-1%. That's all margin and that's good news if it lasts for at least a couple years.
- Negative - British Airways may face more costs flying in Europe - that's bad for their profits, but does it hurt the prospect of ordering the CSeries? I don't know. If anything, Britain will want to protect all jobs while facing the strong likelihood of a recession, but I don't know if this support goes so far as to help British Airways with financing of planes.
- Negative - This will extend the decline in the market for business jets, except maybe for gold companies, by 6 months to a year.
- Neutral - Markets may remain volatile, or may calm down over the next couple weeks. The more volatile and longer the duration, the more the world economy will be hurt which could hurt orders for the CSeries. On the other hand, continued low interest rates make the CSeries more attractive versus older, existing planes. So I give this one a neutral grade.
Long Term
- Trade barriers will only hurt the UK, but if the pound stays low relative to the Euro, Bombardier's manufacturing in Northern Ireland will turn out to be a very economical manufacturing base in Europe and good for Bombardier.
- The swift market reaction and penalty to the British economy should deter other EU members from making the same ill-fated decision, and the relaxing of certain rules within the EU will ultimately be good for the EU members' sovereignty. Ultimately I don't see any other important EU members leaving the union and so I don't see any long-term negatives to worry about.
Ultimately Bombardier will be fine. My major worry is that I pulled 15% of my money out of stocks a week before the Brexit vote, and another 15% Friday and Monday, and now I have to figure out when to put it back in.