David A. Grogan | CNBC
This is breaking news. Please check back for updates.
Berkshire Hathaway Chairman and billionaire value investor Warren Buffett said that the conglomerate has sold the entirety of its equity position in the U.S. airline industry. The prior stake, worth a collective several billion dollars, included United, American, Southwest and Delta Airlines.
“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” he said. “I don’t know if Americans have now changed their habits or will change their habits because of the extended period.”
But “I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control,” he added.
Asked by CNBC’s Becky Quick to clarify if Berkshire had sold all of its airline holdings, Buffett answered “yes.”
He explained: “When we sell something, very often it’s going to be our entire stake: We don’t trim positions. That’s just not the way we approach it any more than if we buy 100% of a business. We’re going to sell it down to 90% or 80%.”
“If we like a business, we’re going to buy as much of it as we can and keep it as long as we can,” he added. “And when we change our mind we don’t take half measures.”
His comments Saturday afternoon came after Berkshire Hathaway reported first-quarter earnings that showed Buffett and his lieutenants built up the conglomerate’s cash stockpile and only nibbled at equities during the violent stock market rout in March.
In 2016, Berkshire revealed a surprise bet on the sector that Buffett had before shunned. But years of consolidation through post-bankruptcy mega-mergers and a decline in fuel prices have helped airlines rake in record profits. Airlines posted their 10th straight year of profits in 2019 and were preparing for even more growth in travel demand early this year, just when coronavirus started to spread.
But the so-called “Oracle of Omaha” had alluded to the airline sale earlier in Saturday’s meeting, when he said he’d made an “understandable mistake” when valuing the airline stocks as a near-global halt in travel due to the coronavirus sent their prices sharply lower.
“When we bought [airlines], we were getting an attractive amount for our money when investing across the airlines,” he said. “It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs. Believe me. No joy of being a CEO of an airline.”
“I don’t know that three, four years from now people will fly as many passenger miles as they did last year,” he said. “You’ve got too many planes.”
Airline executives have called the pandemic the industry’s worst-ever crisis and expect the impact to take several years to recover from. Last month, American, United Southwest and Delta reported their first losses in years. US travel demand is down 95% on the year.
Buffett had previously eschewed airline investments and had been so opposed to putting money into the industry in the past that told shareholders in a 2007 note that “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” (edited)
On CARES Act: U.S. airlines last month started receiving portions of $25 billion in federal grants and loans that require them not to lay off or cut pay rates of workers through Sept. 30. Major airline executives this week warned they will have to shrink to manage through the crisis.
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.