Buffett's Berkshire Invests in Airlines -- 2nd Update
15 November 2016 - 1:09PM
Dow Jones News
By Doug Cameron and Nicole Friedman
Warren Buffett's Berkshire Hathaway Inc. slashed its investment
in the world's biggest retailer and placed fresh bets on three big
US airlines.
Berkshire Hathaway said in a regulatory filing that it had taken
stakes in American Airlines Group Inc., Delta Air Lines Inc. and
United Continental Holdings Inc., with the latter scheduled to hold
its investor day on Tuesday. Two of the Berkshire stakes each
totaled less than $500 million while that in American was almost
$800 million. Meanwhile, Berkshire cut its holdings in Wal-Mart
Stores Inc. by nearly 70%, leaving it with 13 million shares in the
retail giant at the end of the third quarter.
Mr. Buffett told CNBC that Berkshire had also taken a stake in
Southwest Airlines Co. A Southwest spokesman Monday declined to
confirm any investment by Berkshire.
The airlines' shares rose in after-hours trading. American
gained more than 3% while Delta and Southwest both added more than
2%. United was 1.7% higher.
It wasn't clear if the decision to invest in airlines came from
Mr. Buffett or one of his stock-picking lieutenants. Mr. Buffett
famously derided investing in airline stocks after suffering
initial losses from a foray into what was then known as USAir back
in 1989.
Shares of airlines fell in the first half of the year before
recovering from lows in the summer. For the year, the Dow Jones
U.S. Airlines index is up 0.7%
Investor sentiment toward U.S. airline stocks has improved as
carriers indicated that a prolonged slide in fares, which had hit
profits, was set to ease early next year.
Cheap jet fuel has encouraged airlines to add more flights.
That, combined with a series of fare wars, has left the closely
watched measure of revenue per available seat mile in negative
territory for more than a year. Delta and other carriers expect
this to turn positive early in 2017.
Berkshire owns other aviation-related businesses, including
NetJets Inc., which sells fractional ownership in private jets, and
training company FlightSafety International Inc. The company
acquired aerospace-parts manufacturer Precision Castparts Corp.
earlier this year for $32.7 billion, its largest acquisition
ever.
However, Mr. Buffett has long criticized airline
investments.
Berkshire bought $358 million of preferred stock in USAir Group
Inc. in 1989. The investment lost value in subsequent years. "I
plunged into the business at almost the exact moment that it ran
into severe problems," Mr. Buffett wrote in his 1990 letter to
shareholders.
Berkshire sold its stake "for a hefty gain" in 1998, Mr. Buffett
wrote in his 2007 letter, but he still regretted the purchase.
"The worst sort of business is one that grows rapidly, requires
significant capital to engender the growth, and then earns little
or no money. Think airlines," he wrote.
Given Mr. Buffett's antipathy toward airlines, the new
investments were likely made by one of his lieutenants, Todd Combs
or Ted Weschler, said Thomas Russo, managing member of Gardner
Russo & Gardner, which manages $10 billion. Berkshire is Mr.
Russo's largest holding.
Messrs. Weschler and Combs, who joined Berkshire in the past
five years, have shown willingness to invest in sectors that Mr.
Buffett has shied away from, such as technology.
Write to Doug Cameron at doug.cameron@wsj.com and Nicole
Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
November 14, 2016 20:54 ET (01:54 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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