Business & Investing
Sponsored by

Berkshire sells airlines

3,950 Views | 31 Replies | Last: 3 yr ago by OldArmyBrent
nactownag
How long do you want to ignore this user?
AG
https://www.barrons.com/articles/warren-buffetts-berkshire-hathaway-sells-huge-blocks-of-delta-southwest-stock-51585949991
deadbq03
How long do you want to ignore this user?
Exsurge Domine
How long do you want to ignore this user?
Uhhhhh.....ladies and gentlemen this is Captain Buffet from the flight deck, we're going to turn on the fasten seatbelt sign and have the flight attendants take a seat, it's going to get a little bumpy
TriAg2010
How long do you want to ignore this user?
AG
Quote:

Berkshire (ticker: BRKB ) subsidiaries sold 13 million Delta (DAL) shares over Wednesday and Thursday for a total of $314.2 million, a per-share average of $24.19 each.

A little more than a month ago, Berkshire was buying Delta stock, paying $45.3 million on Feb. 27 for a total of 976,507 shares, an average per-share price of $46.40.


Not great, Bob.
FrontPorchAg
How long do you want to ignore this user?
Exsurge Domine said:

Uhhhhh.....ladies and gentlemen this is Captain Buffet from the flight deck, we're going to turn on the fasten seatbelt sign and have the flight attendants take a seat, it's going to get a little bumpy
more like:

All animals are equal, but some animals are more equal than others
Cuterebra
How long do you want to ignore this user?
AG
Be fearful when other are fearful, or something.
drill4oil78
How long do you want to ignore this user?
AG
Berkshire still owns quite a few shares in both. Raising some cash
BreNayPop
How long do you want to ignore this user?
AG
Oh my
Alta
How long do you want to ignore this user?
AG
I imagine this has to do with him getting under 10% ownership in preparation of making another type of investment in these companies.
5StarShield
How long do you want to ignore this user?
AG
Yep. Probably a Preferred deal similar to Goldman back in the day.
Bob Knights Paper Hands
How long do you want to ignore this user?
Airlines are going to have a long road before they recover. He can probably use this money elsewhere now and still get cheap airlines stock in 6 months if he wants to get back into it. Also could use this short term loss to offset short term gains during the recovery.
TxAG#2011
How long do you want to ignore this user?
Maybe he wants to create panic with the headlines?
Phil Rirruto
How long do you want to ignore this user?
Buffet sold his other railroad stocks before buying BNSF.
Alex Bregman
How long do you want to ignore this user?
AG
SECTAMU#1
How long do you want to ignore this user?
drill4oil78 said:

Berkshire still owns quite a few shares in both. Raising some cash
Doesn't the fund already have $126 billion in cash?
FrontPorchAg
How long do you want to ignore this user?
Phil Rirruto said:

Buffet sold his other railroad stocks before buying BNSF.
who do you think he buys?
All animals are equal, but some animals are more equal than others
Rice and Fries
How long do you want to ignore this user?
Mtn_Guide said:

Phil Rirruto said:

Buffet sold his other railroad stocks before buying BNSF.
who do you think he buys?
I am think Delta or Southwest.

My money is on Southwest with respect to being more domestically focused vs internationally focused Delta. I just think it's:

1. Simple Business to Understand
2. Relatively decent moat
3. Can generate large amounts of cash/cash based revenue

Chance to buy one for pennies is also tempting.
nactownag
How long do you want to ignore this user?
AG
So what's the reason for selling shares now?
deadbq03
How long do you want to ignore this user?
AG
nactownag said:

So what's the reason for selling shares now?
For the same reason most of the people on the thread about buying the beaten down Coronavirus stocks said "not yet."

Chances are good they can cash out now and buy another airline at an even bigger bargain later.

Edit to add: And yeah, if they had wanted to make this move for quite some time, then yes, they should've (and would've, IMO) had the foresight to do this in the early days of the crash.

So I bet the "why now" is a loss of faith in DAL leadership's response to the crisis. A month ago, they were ok keeping an intermediate term loser in their portfolio, but something has changed since then.
Rice and Fries
How long do you want to ignore this user?
nactownag said:

So what's the reason for selling shares now?


Needs to be below 10% ownership.
nactownag
How long do you want to ignore this user?
AG
So you have to be below 10% owner to buy an entire company or majority?
$30,000 Millionaire
How long do you want to ignore this user?
AG
In my opinion, Southwest, United, Delta, JetBlue, Hawaiian, and Alaska survive.

I think AA, frontier, and Spirit will fail. In the case of AA, literally every one of their customers would choose another option if they had one, therefore they are most at risk of customer attrition to another option.
FrontPorchAg
How long do you want to ignore this user?
Don't airport hubs effectively provide AA a moat?
All animals are equal, but some animals are more equal than others
Rice and Fries
How long do you want to ignore this user?
nactownag said:

So you have to be below 10% owner to buy an entire company or majority?


Negative. He just likes being below 10% because it can potentially bring more regulations, especially in banking.

I'd imagine that if they decide to buy another airline. It would complicate matters if they have significant ownership in competitors and they own an airline.
Alta
How long do you want to ignore this user?
AG
No but the SEC and various exchanges have different rules if an investor is an "affiliate." While it's a facts and circumstances test being over 10% is one factor that could make one much more likely to be considered an affiliate. Depending on the investment - it is much quicker with less hurdles to get a deal done with a non-affiliate.
Stymied
How long do you want to ignore this user?
AG
Mtn_Guide said:

Don't airport hubs effectively provide AA a moat?
Hubs and strategic moats don't matter if there is no demand. Hubs are only protection when you can charge a premium vs alternative products.

AA has the highest leverage of the big 3 and the least amount of dry powder (unencumbered assets) left if they need more cash. The unsecured bond market isn't really functioning right now, not to mention I'm not sure who would lend AA month without a security. Their fate will likely pivot on whether the government keeps providing loans to keep them afloat.

UA probably isn't far behind. DL has the strongest balance sheet of the big 3. However, their latest 8K said they were burning $60M in cash a day. That's a lot of cash burn to cover.

Unless the lock down ends very soon, I think at least one of the big three files in 4Q or early 2021.
Oldmanriver
How long do you want to ignore this user?
Should be big 4 not big 3...LUV is the largest domestic carrier..LUV has $10B to ride this out...they have the strongest balance sheet, domestic flying will recover before Int'l...wouldn't rule out another merger...they are going to come out of this stronger than ever in the next year..
$30,000 Millionaire
How long do you want to ignore this user?
AG
AeroAg2003 said:

Mtn_Guide said:

Don't airport hubs effectively provide AA a moat?
Hubs and strategic moats don't matter if there is no demand. Hubs are only protection when you can charge a premium vs alternative products.

AA has the highest leverage of the big 3 and the least amount of dry powder (unencumbered assets) left if they need more cash. The unsecured bond market isn't really functioning right now, not to mention I'm not sure who would lend AA month without a security. Their fate will likely pivot on whether the government keeps providing loans to keep them afloat.

UA probably isn't far behind. DL has the strongest balance sheet of the big 3. However, their latest 8K said they were burning $60M in cash a day. That's a lot of cash burn to cover.

Unless the lock down ends very soon, I think at least one of the big three files in 4Q or early 2021.


I thought AA was declining before US Air bought them. The US Air management has made flying miserable, even for people that mostly sit in first class. I've been concierge key for 5 years, and I had an opportunity to meet Doug Parker. He asked me for feedback. I told him I was frustrated that AA had devalued the points so significantly, made redemptions less appetizing, and had made accrual of points significantly harder. I also shared that the seat space situation was becoming untenable, even in first class, and asked him if their goal was to find the minimum tolerable comfort point that people would pay for. He basically confirmed that.

I've started to take the Pepsi challenge and fly other airlines, normally buying first fare. You know what? The worst flight on any of the competitors is better than the best flight on AA. It's occasionally inconvenient to fly other airlines living in Dallas, but the experience is better.

They deserve to go bankrupt for lots of reasons, #1 is the worst service and worst experience for their customers
jh0400
How long do you want to ignore this user?
AG
I hadn't thought about the LCCs and ULCCs in this market. They have to be 99%+ recreational travel, and their target customer demographic is likely to be the last to resume travel when this blows over.
flown-the-coop
How long do you want to ignore this user?
AG
For clarification, I would not classify Southwest as a LCC. Particularly between short-hop city pairs those flights are predominantly business. The Monday flights out of DAL to cities in Texas is PACKED with lawyers, medical personnel, consultants, etc.

I can see SWA coming through this hurt but not mortally. But I also think its purely all speculation at this point until we know if the end game is prolonged social distancing, vaccine, testing w/ effective treatment, etc.

I typically flew 50-75 flights a year. I would not step on an airplane until a vaccine is available or I new I could catch it, take some pills, layup and be better.
$30,000 Millionaire
How long do you want to ignore this user?
AG
Exactly. I am a 120-150 flights, 150-175 hotel nights per year person. I have not flown since mid February. What I have learned from this experience is that while in person meetings are important, there are few that are truly important enough to travel for. I plan to cut my travel by half or two thirds after this. Marriott and some of the airlines will be just fine after this is over. Flying is bad for your health anyway.
Exsurge Domine
How long do you want to ignore this user?
I'm scared of flying and I'm so damn happy I have a good excuse to never do so again, as I fly about 15 times or so a year, and hate it
OldArmyBrent
How long do you want to ignore this user?
AG
Not concierge key, but I used to fly a ton out of Dallas on AA. Service was never great, but the status kept me. After I changed jobs and lost status for a year, I started traveling on SWA to another Texas city almost every week. It was convenient, the people were nice, and the fares were reasonable. But I went from paying about $280 roundtrip to well over $400 over the last 4 years while the service from SWA moved much closer to the AA service I hated.

I think SWA has lost their edge that made people want to use them over others, even when they weren't guaranteed a seat and prices were similar. They may weather this better than the others, but I have my doubts they'll be able to hang on like everyone thinks. They'll be in bad shape and if they don't fix the things internally that got them away from their old model, it will be very tough to come out of this without needing some help. Maybe Berkshire can provide that help, though. Who knows.
Refresh
Page 1 of 1
 
×
subscribe Verify your student status
See Subscription Benefits
Trial only available to users who have never subscribed or participated in a previous trial.