Why Bombardier Inc. Is Particularly Vulnerable to a Grexit

Bombardier Inc. (TSX:BBD.B) shareholders are in for some turbulence.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It now looks more likely than not that Greece will exit the Eurozone. And if you think Canadian stocks will be unaffected, think again.

Bombardier Inc. (TSX:BBD.B) is especially vulnerable, and for that reason, the company’s shares sunk by as much as 6.2% on Monday.

So, just how bad is the news?

The threat of contagion

A so-called Grexit would be catastrophic for the Greek people, and is also a big risk for the rest of Europe. In the worst-case scenario, other weak economies—Spain, Portugal, and Italy—would see an outflow of capital as investors lose confidence. This would make it harder for these countries to service their debts.

If creditors take a hard line, and these countries resist austerity (as we have seen in Greece), then you could see more countries default and exit the Eurozone. This could eventually lead to the collapse of the currency union, and a deep recession for the continent.

Few believe this scenario will actually play out. But we are in uncharted territory, and no one likes uncertainty. Thus, Bombardier’s customers in Europe may be more hesitant to press the order button.

How exposed is Bombardier?

Let’s take a look at Bombardier Aerospace first. This segment has been getting all the attention recently thanks to the company’s struggles with the CSeries. And Europe’s problems won’t help either. To put this in perspective, Europe accounted for just under 20% of Bombardier Aerospace’s revenues last year.

In the future this number will likely decrease. Bombardier estimates that 13,100 aircraft in the 20- to 149-seat category will be delivered over the next 20 years, with Europe accounting for 14% of the total. China alone will account for more deliveries. But Europe is still a very important piece of Bombardier Aerospace’s business.

Bombardier Transportation is an even bigger concern

Bombardier Transportation is based in Germany, and last year 57% of its revenue came from Europe. So, a Grexit could turn into a big problem for Bombardier Transportation.

How big? We’ll find out fairly soon. Bombardier is expected to sell a portion of Bombardier Transportation to the public. At that point, we’ll know how much the division is worth in the public’s eyes. Previous estimates called for Bombardier Transportation to be valued at anywhere from US$3 billion to US$5 billion.

Another big negative

A Grexit would affect Bombardier in one other way: it would lead to lower oil prices.

This would happen for a couple of reasons. First of all, a weakened European economy would lessen the demand for oil. Second, the U.S. dollar would strengthen as investors pull their money out of Europe and into safer geographies. Both would be bad for oil prices.

And this would be bad for the CSeries, whose best-in-class fuel efficiency is more significant with higher oil prices.

All in all, no one really knows what’s going to happen next. So, Bombardier’s shareholders should buckle their seat belts.

Should you invest $1,000 in Shopify right now?

Before you buy stock in Shopify, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Shopify wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

Concept of multiple streams of income
Dividend Stocks

Why I’d Consider These 5 Essential Canadian Dividend Stocks for a Robust Income Portfolio

These dividend stocks are critical pieces of the Canadian economy and would serve a long-term income portfolio well.

Read more »

money goes up and down in balance
Dividend Stocks

Invest $25,000 in These Dividend Stocks to Combat Currency Fluctations

These dividend stocks could turn a $25,000 investment into a huge income stream – and help battle ongoing volatility.

Read more »

exchange traded funds
Dividend Stocks

I’d Invest $12,000 in These 3 High-Yield Dividend ETFs for Passive Income

Market turbulence? Sleep easy with these three high-yield dividend ETFs that provide steady monthly income while you wait for recovery.

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

How I’d Use $15,000 in 3 Monthly Dividend Stocks for Consistent Income Potential

Monthly dividend-paying stocks like Peyto Exploration and Development offer generous yields and strong growth prospects.

Read more »

A worker gives a business presentation.
Dividend Stocks

Where I’d Allocate $10,000 in Dividend Stocks for Decade-Long Appreciation

Here are two TSX dividend stocks I’d buy for long-term capital gains and dividend income if I had $10,000 to…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Can the Maximum TFSA Room Keep Up With Inflation?

Just because you want to make major gains in a TFSA during inflation doesn't mean making risky investments.

Read more »

A microchip in a circuit board powers artificial intelligence.
Tech Stocks

The 1 Canadian Stock I’d Buy and Hold Forever for AI Exposure

This Canadian stock may not be the first you think of when hearing "AI stock," but it should be.

Read more »

investor looks at volatility chart
Investing

3 Stocks Down More Than 25% to Buy During the Market Volatility

These three stocks have become ultra-cheap in the current market environment, making them some of the best investments to buy…

Read more »