Despite having previously disparaged airline stocks and the industry as a whole, Buffett and his Berkshire Hathaway investing group bought large amounts of stock in each of the four major airlines — Delta, United, American, and Southwest — in late 2016.
Buffet has not said outright that he wants to acquire an airline, but he did make comments in a Charlie Rose interview last month saying it would be easier to buy and move planes than it would be to install thousands of miles of train tracks. (Berkshire acquired Burlington Northern Santa Fe railroad in 2010 for $26 billion.)
“While we have no knowledge of any potential transactions, U.S. airlines have structurally changed for the better following consolidation that has resulted in more pricing power, supply discipline, and a focus on margins over market share,” Morgan Stanley analyst Lalwani wrote, Bloomberg reported. “An interest in industries with structural improvement and the gradually growing stakes are fairly consistent with Berkshire’s approach to acquiring Burlington Northern Santa Fe.”
Berkshire is now one of the top two investors in all four major airlines, but analysts think Southwest may be a top target because of its domestic focus, free cash flow, and growth opportunities, according to Chicago Business Journal. Southwest also has management with greater tenure, the Journal said.
After struggling for many years following the Sept. 11, 2001, attacks on the World Trade Center, airlines have posted record profits in recent years as fuel prices have decreased and consolidation has produced cost savings, the Journal reported, making it a beneficial time for an acquisition that could be one of the biggest Berkshire has ever had.
The Burlington railroad deal was Berkshire’s largest acquisition to date, the Journal said, but Bloomberg pointed out that its next-largest buyout was Precision Castparts, an airplane parts manufacturer it acquired last year.
(Jen Krausz - Newsmax)