Warren Buffett sells $6 billion in airline stock

[Old Dogs]

https://www.forbes.com/sites/sergeiklebnikov/2020/05/02/warren-buffett-sells-airline-stocks-amid-coronavirus-i-made-a-mistake/#53d5ddda5c74

Warren Buffett sold all $6 billion of the stock he owned in 4 major American airlines.

[Ambient Sheep]

Also reported by the Beeb here: https://www.bbc.co.uk/news/world-us-canada-52518186

[Toruk Macto]

Surprised he owned airline stock , on record saying airlines are crap businesses .

[ATC Watcher]

Amazing times : selling in the middle of a dip and saying : I made a mistake but I only lost only 4 Billions .. More than the annual GDP of South Sudan ...:rolleyes:
That said bad news for us , as he has probably access to good information , and when those guys are starting betting against an aviation recovery is not a good sign for all of us .

[Old Dogs]

Surprised he owned airline stock , on record saying airlines are crap businesses .

True. Mr Buffett once said, "The way to make a small fortune is to start with a large fortune and invest in airlines", or words to that effect.

[601]

If he is selling who is buying and why?

[Airbubba]

Surprised he owned airline stock , on record saying airlines are crap businesses .

True. Mr Buffett once said, "The way to make a small fortune is to start with a large fortune and invest in airlines", or words to that effect.

"Those who cannot remember the past are condemned to repeat it." - George Santayana

Buffett says 'never again' to airline businessAndrea Rothman
PARIS
ANDREA ROTHMAN Bloomberg News
Published March 29, 2001

Billionaire investor Warren Buffett said he's sworn off investing in airline stocks since his $358-million (U.S.) "mistake" in US Airways Group Inc.

"Now if I get the urge to invest in airlines, I call an 800 number, and I say: 'Hello, my name is Warren, and I'm an air-o-holic,' " he said.

The 70-year-old chairman and chief executive officer of Berkshire Hathaway Inc. said in 1996 that the deal was a "mistake." Berkshire acquired the stake in the form of preferred stock for $358-million in 1989. It has since sold the stake, later converted to common shares, without saying whether it made money.

Mr. Buffett told journalists aboard a London-to-Paris flight on Tuesday that in the last 20 years, 130 U.S. airlines have gone broke. "It's unbelievable," he said, offering to dig out a list of the failed companies he keeps back in his office in Omaha, Neb., to show doubters.

"The airline business from the time of Wilbur and Orville Wright through 1991 made zero money, net," he said. "If capitalists had been present at Kitty Hawk when the Wright brothers' plane first took off, they should have shot it down."

Mr. Buffett invited journalists on the trip aboard a Boeing business jet to discuss Executive Jet Inc., a Berkshire Hathaway company that sells partial shares in business planes.

[dc9-32]

My money is on AA entering Chapter 11 in the coming months then restructuring to a leaner model.

[LGW Vulture]

Why oh why is this even being given the air time? He thought he was investing in safer times for a return. Oh well Mr Sage, you failed on this one.

Who cares, you've lost some cash - most of us in the industry will lose our livelihoods.

Move on, nothing to see here.

[macdo]

Why oh why is this even being given the air time? He thought he was investing in safer times for a return. Oh well Mr Sage, you failed on this one.

Who cares, you've lost some cash - most of us in the industry will lose our livelihoods.

Move on, nothing to see here.
There is something to see and worry about here, probably for you. Buffett holds billions of dollars of peoples retirement savings in Berkshire Hathaway and it is entirely possible that your own pension provider holds airline shares directly or indirectly. If Buffet and Munger have dropped a clanger in holding airline shares, then the less talented managers of UK pension funds have probably done the same or worse. There are no winners here.

[Clop_Clop]

Seeing some similarities to the oil service industry. Really hope it's not going to be the case as well with overcapacity and little demand where newly built ships to drill cannot find work and are scrapped eventually... Buffett was spot on earlier though as airlines for a brief period was able to deliver some decent returns for a few years at least Delta and UAL in the US.

[eimin]

Just wanted to add this. Warren said the same 20 years ago.

In other words, how to push retail investors into selling, so he can scrap cheap. I might be wrong as well, of course.

https://www.theglobeandmail.com/report-on-business/buffett-says-never-again-to-airline-business/article25435835/

[Tartiflette Fan]

Why oh why is this even being given the air time? He thought he was investing in safer times for a return. Oh well Mr Sage, you failed on this one.

Who cares, you've lost some cash - most of us in the industry will lose our livelihoods.

Move on, nothing to see here.
Isn't this taking navel-gazing to an extreme, even for this forum ? A huge investor who has said that his preferred time to hold an investment is "forever " has sold 10% stakes in the four biggest US airlines and you say "so what " ? His words and actions are intensely scrutinised by large numbers of economic observers, politicians, journalists and fund managers and will have a massive impact in the way many of these folk speculate/invest/legislate for post-covid. Those brave folk who have recently bought EZY shares and made up to 40% gain from the low-point may well be wondering whether it would be a good idea to take profit rather than hang on. I would say one thing is certain though, and that is there will be very few people saying " so what " ?

[Deltasierra010]

Surprised he owned airline stock , on record saying airlines are crap businesses .

Trading the stock market or futures is nothing to do with profitability, it’s all based on buying for less than you sell or vice versa, no sentiment or loyalty, if you get it wrong, take it on the chin and move on. A week ago oil was being traded at a negative value because sellers could not find buyers at any price when the contract ended, it was only virtual oil there was no intention of delivering physical commodity.

Buffett is big enough to push the market price in either direction he may even have bought them for less and was taking a profit.

[unworry]

Buffet has a huge war chest of cash (~$50B) ... which he DIDN'T spend during the stockmarket lows in March

More investors are concerned about these implications than the Berkshire Hathaway losses this quarter.

[OldLurker]

A week ago oil was being traded at a negative value because sellers could not find buyers at any price when the contract ended, it was only virtual oil there was no intention of delivering physical commodity.No, there was intention of delivering physical commodity – that's why prices went negative. Producers had nowhere to put the stuff, so they were paying traders to take it away. The alternative was to shut in wells and stop producing, but if you shut in oil wells of the kind that you find all over the main US oil-producing region, they tend to clag up and need expensve workover to get going again. Rock and hard place. It was a brief dip, and happened only in the US market (West Texas Intermediate). Elsewhere in the world, prices didn't go negative (e.g. Brent crude).

[Denti]

Buffet has a huge war chest of cash (~$50B) ... which he DIDN'T spend during the stockmarket lows in March

More investors are concerned about these implications than the Berkshire Hathaway losses this quarter.
Indeed. That is worrying.

And funny enough chimes in with my own gut feeling that we will see much lower prices in the not too distant future, and that might be a good time to buy (except Amazon probably).

[Airbubba]

Just wanted to add this. Warren said the same 20 years ago.

Yep, I quoted the 2001 Reuters article a few posts earlier in this thread. :ok:

"Now if I get the urge to invest in airlines, I call an 800 number, and I say: 'Hello, my name is Warren, and I'm an air-o-holic,' " he said.

Two decades later his quip would probably be deemed insensitive to the challenges of recovering ethanol inebriates who disproportionately come from disenfranchised indigenous communities of color.

My money is on AA entering Chapter 11 in the coming months then restructuring to a leaner model.

Will the Big Three U.S. airlines be BK qualified once more and shed their 'onerous' contractual obligations to the employee groups? 'Too big to fail, etc...'

And funny enough chimes in with my own gut feeling that we will see much lower prices in the not too distant future, and that might be a good time to buy (except Amazon probably).

American Air’s $1 Price Target at Evercore Implies 92% CollapseBy Esha Dey
May 1, 2020, 9:44 AM EDT

American Airlines Group Inc. received a big blow from Wall Street on Friday as Evercore ISI analyst Duane Pfennigwerth slashed his price target on the Fort Worth, Texas-based carrier to $1 from $10.

That would imply a 92% rout in the stock, which closed at $12.01 on Thursday.

The airline, which entered the coronavirus-fueled crisis with the weakest balance sheet in the group, may not see “meaningful” recovery in its share price, the analyst said. As American, and the entire industry, tries to raise additional liquidity, Evercore estimates its net debt will far exceed revenue by the end of this year.

American’s total debt stood at a little more than $34 billion as of March 31.


https://www.bloomberg.com/news/articles/2020-05-01/american-air-stock-price-target-falls-to-just-a-buck-at-evercore

[mngmt mole]

...perhaps these number from A Major US Carrier will explain the depth of disaster the airlines around the world are experiencing. Multiply this by all the other US carriers, and then extrapolate onto the European airlines etc...
https://cimg1.ibsrv.net/gimg/pprune.org-vbulletin/750x1334/69b7b037_eb6d_498c_8028_11f5965d8057_930cef5debd2d138d64ef07 f6c238fa7144045b5.png
https://cimg2.ibsrv.net/gimg/pprune.org-vbulletin/750x1334/35624983_c0d9_4f5a_aae8_c0ad1ba784ef_21ad34ea35ebe8a64d7d1d3 07244e932d2a2e8bf.png
https://cimg3.ibsrv.net/gimg/pprune.org-vbulletin/750x1334/725674be_3751_4da0_a050_3c777bae2396_c9dad61464dc9babab3e185 6d70ad05f475b8f59.png
https://cimg5.ibsrv.net/gimg/pprune.org-vbulletin/750x1334/5474880d_0e35_44a4_b879_84b1078310c3_8c96989ef964a942661e6ab 058e6af6194e2c2b5.png
https://cimg6.ibsrv.net/gimg/pprune.org-vbulletin/750x1334/bfe675ea_3e1b_484e_bd93_23ec6129d414_0a9a45debf665db37fa313c 1eff86709509e1e40.png

[Airbubba]

...perhaps these number from A Major US Carrier will explain the depth of disaster the airlines around the world are experiencing. Multiply this by all the other US carriers, and then extrapolate onto the European airlines etc...

And this is only the initial displacement bid in a seniority based system. More to follow... :eek:

The European carriers and the expat carriers can do 'redundancies' out of seniority order and unlike a U.S. airline furlough, there is no guarantee of being rehired if things ever pick back up. Or, as BA suggests for an opener, sack everyone and rehire them at greatly reduced wages and benefits. If at all.

[Airbubba]

My sea lawyer pilot friends over at United think this displacement will cause around 4000 pilots out of 13000 to hit the streets on October 1 when the CARES Act protectees turn into pumpkins. But that's just a SWAG (apologies for using that technical pilot term here on PPRuNe).

A lot can happen between now and then...

[GoldenGooseGuy]

Buffet is no stranger to aviation, and he's still holding a lot of exposure to the industry with Netjets, but there is only so much risk that a money manager can take. The risk for the airline stocks isn't that they just go down considerably and he loses money - if that was only the case he'd hold on like many other money-losing stocks he holds for the long term.

The risk here is that common stock is subordinated debt in the event of a bankruptcy filing, which has a higher likelihood as the coronavirus shutdown causes longer-term disruption than originally forecast. If that happens, your stock never bounces back and it's written off after bankruptcy filing, as even the bondholders will be lucky to be paid at that point.

[Old Dogs]

Two decades later his quip would probably be deemed insensitive to the challenges of recovering ethanol inebriates who disproportionately come from disenfranchised indigenous communities of color.

What an awful thing to say.🙄

[Airbubba]

Some more analysis of the United displacement bid in a Forbes article by Dan Reed today. I would agree that this is only the beginning of a massive airline pilot layoff cycle in the coming months.

By announcing its initial pilot “displacements” planning in a letter emailed to all United pilots on Saturday, United became the first U.S. airline to disclose its staff reduction plans in response to the COVID-19 pandemic and its staggering impact on travel. United, like nearly all U.S. carriers, received large grants and low interest loans from the federal government aimed at keeping their staff employed across the summer and ready for a swift return of travel demand. United’s share of those grants and loans totaled about $5 billion, roughly half of which already has been received with balance to arrive in a few weeks.

Now, a quick rebound in travel appears highly unlikely.

Thus, when the restriction on layoffs expires after Sept. 30, huge number of job cuts are expected through the U.S. airline industry and related businesses.

In his note to pilots on Saturday that was shared with this reporter, Bryan Quigley, United’s chief pilot and senior vice president for flight operations, wrote that this step in preparation for layoffs in the fall likely won’t be the last such move.

“Even though the volume of this displacement is enormous, and its impact on the lives of many of our pilots significant, none of us should believe it solves all of our problems,” Quigley wrote. “This displacement bid aligns pilot staffing to a schedule reduction of around 30%, yet our schedule in May, and our expected schedule for June, is reduced by 90%. No one knows when travel demand will return, so unfortunately, the results of this displacement are likely to be a baseline from which future displacements are conducted.”

Quigley wrote that the airline currently is carrying fewer than 10,000 passengers a day, meaning it now has more pilots on staff than it has daily passengers.

Under the terms of their contracts, airline pilot layoffs are determined by seniority: the last one hired is the first one laid off, or in industry parlance, furloughed. For pilots at United, that means the 4,500 or so lowest-ranking pilots in terms of seniority will be the ones eventually put on the streets, at least initially. Virtually all of the first officers (co-pilots) who remain at United after Oct. 1 will then fall to the bottom the remaining seniority list and become the next group to be laid off, in the likely event additional staff cuts are necessary.

Additionally, hundreds of lower-seniority captains also are likely to displaced from the left seats of United’s planes and forced to “bid down” into lower-paid first officer (co-pilot or right seat) positions. And all but the most senior captains remaining could be required to “bid down” from large, widebody jets, where the pay is highest, into lower-paid captain positions on smaller widebody jets or even smaller single aisle planes.

For those pilots who remain with United after Sept. 30, all that shifting of flying assignments among them will trigger widespread retraining. For example, a “senior” first officer now flying a widebody plane like the Boeing BA (https://www.forbes.com/companies/boeing) 777 likely will have to “bid down” into a smaller Boeing 737 and be retrained on that smaller aircraft. The same thing could happen to captains of 767s who have to move down into a 737 captain’s seat.

Such retraining is expensive and time consuming. Airlines are loath to trigger lots of training events at once and have been known to carry an excess number of pilots at times when they expect any over-staffing problem to work itself out in a relatively short time. Thus, United’s actions this weekend make it plain that the company does not expect there to be any quick recalls to service of all those cockpit crew members who’ll be cut loose in the fall.

The situation for pilots at United will be further complicated by the pilots’ rights to move from base to base, called domiciles in the industry. Thus, a first officer flying a 767 based in Los Angeles could have the right to take a 737 first officer’s position in Los Angeles, or perhaps remain a 767 first officer by bidding into a position at another United domicile in Houston, Chicago or elsewhere. Similarly, a 767 captain in Los Angeles might have the choice between remaining a captain by taking a 767 captain’s position at a less popular domicile, like Chicago or Newark, vs. bidding down into a 767 first officer’s position in Los Angeles. In such cases pilots will have to weigh lower pay vs. lifestyle concerns, including the extra day each way it could cost them to commute between homes on the West Coast and work domiciles in the East.



https://www.forbes.com/sites/danielreed/2020/05/03/united-launches-plan-to-eliminate-at-least-a-third-of-its-pilots-jobs-other-work-groups-there-and-at-rival-carriers-are-likely-to-follow/#3cee78a2bf58

[Herod]

Wasn't Buffett's mantra "When everyone else is selling, buy. When everyone else is buying, sell"? In that case maybe the answer is to buy now.

[Deltasierra010]

No, there was intention of delivering physical commodity – that's why prices went negative. Producers had nowhere to put the stuff, so they were paying traders to take it away. The alternative was to shut in wells and stop producing, but if you shut in oil wells of the kind that you find all over the main US oil-producing region, they tend to clag up and need expensve workover to get going again. Rock and hard place. It was a brief dip, and happened only in the US market (West Texas Intermediate). Elsewhere in the world, prices didn't go negative (e.g. Brent crude).

No the “hedge funds” ( not producers) that held the oil on open contracts over the weekend had nowhere to put it, on Monday morning it dawned on them all the storage capacity had been leased and nobody wanted it. So they panicked and sold at any price until those that had storage picked up the contracts at -$40 a barrel and presumably held until a stable price at $20 a barrel. The main storage terminal at Cushing was at 70% capacity no doubt some of the 30% was leased to those who eventually held the contracts when they closed.

The hedge funds, what ever commodity they are trading have no intention of delivering, it is purely gambling on rises or falls in whatever market, holding any position over a weekend is risky, holding at the end of a contract is dangerous and they got badly burned. Someone else foresaw the potential, made sure there was no storage and made a killing, very well set up.

In the meantime we have the cheapest gas in a generation - and nowhere to go to use it

[Tartiflette Fan]

Wasn't Buffett's mantra "When everyone else is selling, buy. When everyone else is buying, sell"? In that case maybe the answer is to buy now.

The two commonly quoted variants of that "Buy when there's blood in the streets " and "Buy to the sound of the cannons " are normally attributed to Sir John Templeton and Lord Rothschild. I think Buffett is best known for " It's only when the tide goes out that you can see who's been swimming without a costume "

Edit: On reflection, I believe he did say "When others are greedy, be fearful and when others are fearful be greedy ". Not quite as memorable as the other two, but gets the meaning across.

[Twitter]

Wasn't Buffett's mantra "When everyone else is selling, buy. When everyone else is buying, sell"? In that case maybe the answer is to buy now.

Viruses don’t understand mantras though...

[Less Hair]

He sold airline shares before "forever" and then returned buying them quietly and dropping them now. So he might buy again later? It has to be a bit of a show obviously.

[Deltasierra010]

Originally Posted by Herod View Post (https://www.pprune.org/rumours-news/632138-warren-buffett-sells-6-billion-airline-stock-2.html#post10772595)
“Wasn't Buffett's mantra "When everyone else is selling, buy. When everyone else is buying, sell"? In that case maybe the answer is to buy now.”

Far too simplistic, buy when you’re very sure the market has bottomed, sell when you think value has topped, its never wrong to take a profit.
Beware trading against the herd, most hedging traders loose money. Best option leave it to Buffett and Co.

[fdcg27]

Just a few months back, all of these airlines looked like a good bet going forward.
They were making money flying largely full planes and they had global reach collectively.
The virus changed all of that for both these US carriers and every other around the world.
The Sage of Omaha got in when things looked good and got out when the outlook turned very cloudy.
Makes perfect sense.
Even with federal assistance, not all of these airlines are likely to survive and those that do will likely need to avail themselves of a cleansing bath through the Chapter 11 process which kills shareholder equity.
To think that less than five months ago we were traveling on full airplanes at quite reasonable fares without a worry in the world.

[W9SQD]

Bet if he could he'd buy more NetJets and FlightSafety. But, he can't since he already owns both, I believe. :)