Will Buffett buy AA or SWA?
 

Billionaire Warren Buffett may buy American Airlines or Southwest | The Star-Telegram


Will Warren Buffett buy American Airlines? Or Southwest?

Warren Buffett’s decision to take stakes in the four largest U.S. airlines could be a first step to eventually taking over one of the companies, analysts said, citing his history in the railroad industry.

“We view a full-scale acquisition of an airline by Berkshire as a possibility and not worth dismissing, particularly if the stocks weaken,” Morgan Stanley analysts led by Rajeev Lalwani said in a note to clients Wednesday.

Buffett’s Berkshire Hathaway jumped into airline stocks in the second half of 2016, becoming one of the top two investors in Delta Air Lines, United Continental Holdings, Fort Worth-based American Airlines Group and Dallas-based Southwest Airlines. According to the filing, Buffett owned 8.79 percent of American as of Dec. 31 and 7 percent of Southwest.

While the investments surprised observers who were accustomed to the billionaire’s skepticism about the business, Berkshire Vice Chairman Charles Munger has likened his company’s new stance to its shift on railroads a decade ago.

“It was a terrible business for about 80 years,” Munger said at an event last week in Los Angeles. “But finally they got down to four big railroads and it was a better business. And something similar is happening in the airline business.”

Berkshire paid more than $26 billion in the 2010 buyout of Fort Worth-based Burlington Northern Santa Fe, acquiring the 77.5 percent of the railroad that it didn’t already own. Buffett had previously purchased minority stakes in BNSF, Union Pacific and Norfolk Southern. After the BNSF deal, he sold the stocks of its rivals.

The six biggest U.S. carriers — bolstered by lower jet-fuel prices and years of dealmaking that left fewer major competitors — posted their fifth straight year of profits in 2016, earning about $14 billion on an adjusted basis, according to data compiled by Bloomberg. That followed more than $50 billion of losses in the previous decade.

Lalwani wrote that Southwest could be a “plausible candidate,” given its free cash flow, cost structure and management. Buffett has publicly expressed his admiration for Southwest and Herb Kelleher, its co-founder.

Southwest has no response to “rumors and speculation,” the company said in an emailed statement. Representatives for the other airlines also declined to comment.

Cowen & Co. told investors as well not to rule out the chance of Buffett buying an airline, and also raised the possibility of a leveraged buyout.

“Every year there is a surprise in the industry,” Cowen’s Helane Becker said in a note this week. “This year, we believe a surprise may be that a major airline gets acquired, potentially by Berkshire, or goes private on its own. Airlines are labor intensive and capital intensive, so they don’t make the best LBO candidates, but stranger things have happened.”

The last thing you want is this to happen. These guys buy companies to suck the cash out of them and then demand employee concessions because the business has to much debt. Read about Icon and Lorenzo.

Icahn.

List some companies Warren Buffett did that to.

At the end of the day there is nothing we can do to stop it.

Agreed. This happened at NetJets and I didn't see it as a positive. A BK A share is $100,000+ each. BK investors want their 6% return. Now. Tomorrow. And forever. 5.9% won't cut it. So, that means you will work more, harder, for less, and with less. Suck it up buttercup, perform for uncle Warren.

I doubt he could afford either. (Or at least wouldn't want to risk that big of a bet.)

I doubt regulators would be cool with any private fund controlling such a large share of the US market.

I'd look for him to possibly buy something like Jet Blue.

So far as I know, there is no rule which requires large operating companies to be publicly held....

http://www.skygod.com/quotes/airline.html

Maybe not-but I bet they could dream something up if they wanted to.

Each of the legacies control a very significant part of the economy.

If they wanted to, I bet they could dream up some reason to block it.

That's not how Berkshire works.

Ichan was an LBO flipper. Buffett buys and holds forever. He buys companies that he think can produce a small stable check forever. It would be great for an airline as opposed to current management which focuses on the next quarterly report.

He doesn't hold on to them forever but he doesn't buy a company, flip it and then sell right away.

Buffett buys and holds on for quite some time and when he does sell, he will sell off small portions over time to not alarm people (mass selling) and in turn destroy the company.

Warren Buffet just dumped $900 million worth of Walmart stock all at once. Traders and investors could care less about the well being of a company. Let's not be so naive

The article just said he paid over 26 billion for BNSF and AAL's market cap is just under 24. BRK's market cap is 417 billion. Would you own 6% AAL in your portfolio and consider is a unsuitable risk? And Buffett is worth enough to afford any one of the legacies personally, let alone BRK.

So youre sayin theres a chance:D

He owns BNSF which is far more important to the economy than AA.

AA is the better turnaround candidate after the sloppy USAirways merger. He could just take Parker to dinner, buy him 12-15 beers and a deal will be struck!

Just how old is Buffett?

Perhaps you should look at the companies he has taken private, considering that is what's discussed here. He's looking for moats.

He trades in the public markets like anyone else.

---This---

Doubt it.

People need to get places to facilitate commerce-just as coal and iron ore do.

The economy would take a massive dump if either one were to falter.

Apples and oranges-but AA is the world's largest airline-saying that it is less important than some airline doesn't make it so.

O that Buffett.

And here I thought we might end up flying in Hawaiian shirts and flip flops. Bet the uniform nazis heads would explode if that were to happen.

86 years old, I was just thinking the same thing. His "long game" can't be as long as it once was, he hasn't much time left. Sometimes it makes you wonder if these old investors will take one final swing for the fence!

BNSF and all the railroads are hurting right now.

The coal market, booming just a couple of years ago, has practically dried up.

Continued low oil prices are killing the industry, too.

Sure, it's cheaper to run the locos, but it's also cheaper to run trucks. And it's also cheaper to import foreign oil to East Coast ports at these prices than to extract and transport domestic oil across the country, especially with the more stringent standards for tank cars after several high-profile accidents.

And the green light for the two big oil pipelines will see hundreds of idle tank cars parked on sidings, along with the empty coal hoppers that are there now.

So, one wonders if that is why Mr. Buffett is looking at other transportation sector options.

Being originally from Omaha and a Berkshire share holder, I think Buffett has a lot of time left. Even if he doesn't, Berkshire as a company will be just fine. They've started preparing for the inevitable and the business will go on.

It's going to be SWA. Largest domestic carrier, free cash flow, solid financials, he loves Herb, etc etc.

Buffet doesn't buy companies to turn them around, he buys companies that are already stable.

Well that leaves out B6:mad:

Maybe. But there are only two western US railroads; BNSF and Union Pacific. Eliminating 50% of the rail capacity from seaports such as Long Beach, Houston, and Seattle would be significant. I'm not saying AA isn't significant but DAL/UAL/WN/NK/Alaska, etc could shift routes and planes far easier than the railroads can.

If Warren Buffet can't afford it, who can?
Lol

Berkshire Hathaway has $84 Billion dollars in cash.

Market Caps for airlines:
AA $24Bil
DL $37Bil
UA $24Bil
WN $35Bil

They could offer double the current market price for any of the Big 4 and still have Billions left over without having to take on any financing debt to make the purchase.

If they were willing to take on a small amount of debt, then Berkshire could buy all 4 of them.

Any inputs from the NetJet guys? Rumor had it things went south there in '08 after Buffet hired Dave Sokol to run it(?). In fairness, was it more a result of the 08-09 market crash? Business jet travel would have been the first among discretionary spending accounts to be slashed? I recall NJ pilots got a nice contract (teamsters? '07?). Did Buffet own it then too? Honest questions.

Thoughts?

Having flown the corporate jet of one of these old investors I can tell you I highly doubt he'd make a swing for the fences. Guys like Buffet and the gentleman I worked for figured out a formula for success a long time ago and they tend to stick to it. For them it's not about amassing money. My guess is Buffett spent his entire life building and reinforcing his reputation, the last thing he wants to do is tarnish it with a swing for the fence.

Well, $254,900 at close today, but who would quibble over $150K!:)

He has been good to , and for Netjets, it was a combination of the crash, and Bernie Madoff , that smacked NJ good back in '08.

BK will go for Delta.

Buffet obviously liked what Grinstein did to BNSF. I suspect he thinks Grinstein's faux-bankruptcy at Delta was a great feat.

Delta stock has stalled at the $50 level. I wonder what even a rumoured BK play will do to it.

Are private companies subject to M&A regulatory oversight from the DOJ?

Buying two of them and merging would be huge.

Yes, same regulatory review would be required from DOJ/DOT

My guess: Buffett will buy Delta and then merge Netjets/EJM with Delta Private Jets. Two for one deal.

AAL has $23B in debt. Just sayin'

What does that have to do with anything he said?

Debt is very useful to a corporate raider. You don't seriously think he would pay retail for anything do you?