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Warren Buffett sells $6 billion in airline stock

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Warren Buffett sells $6 billion in airline stock

Old 3rd May 2020, 17:03
  #21 (permalink)  
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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...
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Old 3rd May 2020, 17:44
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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.
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Old 3rd May 2020, 21:02
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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.🙄
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Old 3rd May 2020, 23:03
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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 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.
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Old 4th May 2020, 20:33
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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.
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Old 4th May 2020, 20:42
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Originally Posted by OldLurker
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
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Old 4th May 2020, 22:12
  #27 (permalink)  
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Originally Posted by 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.
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.

Last edited by Tartiflette Fan; 5th May 2020 at 11:55. Reason: Memory returned
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Old 5th May 2020, 05:49
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Originally Posted by 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.
Viruses don’t understand mantras though...
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Old 5th May 2020, 10:04
  #29 (permalink)  
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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.
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Old 6th May 2020, 16:24
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Originally Posted by Herod View Post
“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.
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Old 9th May 2020, 00:24
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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.
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Old 9th May 2020, 19:47
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Bet if he could he'd buy more NetJets and FlightSafety. But, he can't since he already owns both, I believe.
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