- U.S. airlines are in dire straits as a result of the coronavirus global pandemic.
- Berkshire Hathaway has a significant stake in four major U.S. airlines.
- A previous bailout earned Warren Buffett $10 billion five years after the fact.
The coronavirus global pandemic has heavily impacted the travel industry. U.S. airlines, including those owned by Berkshire Hathaway, have been especially hard hit as a result of passenger numbers plunging.
Currently, flight cancellations outnumber bookings. Idle capacity is estimated to be in the range of 70-80%.
Delta Air Lines (NYSE:DAL), for instance, is making the biggest flight cuts in its entire history and is parking 300 commercial jets.
Some airlines such as United Airlines Holdings Inc (NASDAQ:UAL) already expect to post a loss this quarter.
Airlines have hit turbulence – Will Uncle Sam help?
The sector’s trade group, Airlines for America, has characterized the current predicament as being worse than the aftermath of the 9/11 terrorist attacks. The carriers, which employ around 750,000 combined, are now asking Uncle Sam for help. They require over $50 billion in grants, loans and tax relief.
The airlines are unlikely to be disappointed. President Donald Trump assured them of his administration’s support on Monday:
We’re going to back the airlines 100%. We have to back the airlines. It’s not their fault.
Berkshire Hathaway’s airline stock holdings
If the bailout program for the airlines is rolled out, Warren Buffett will surely be in for criticism. Berkshire Hathaway enjoys heavy cross-ownership in the airline sector. Expect to hear more accusations that Buffett is dependent on taxpayer largesse, especially in disruptive economic times.
Currently, Berkshire holds significant stakes in four major carriers – American Airlines (NASDAQ:AAL), Delta, Southwest Airlines (NYSE:LUV) and United.
In percentage terms, Berkshire owns between 8.8% and 11.2% in the four carriers.
At American, Southwest and United, Berkshire is the second-largest shareholder.
Berkshire is Delta’s largest shareholder with an 11.23% stake in the airline.
Even before government support is implemented, the idea come under fire. Some carriers have been accused of not preparing for tough economic hardships when the times were good.
In the case of American, critics have noted that since 2014, the carrier spent over $15 billion in share buybacks as it borrowed to finance the purchase of new planes.
Currently, its debt stands at around $30 billion, making it one of the most susceptible to default due to coronavirus.
Warren “Bailout” Buffett
This won’t be the first time Buffett will be under fire over government bailing out struggling corporations.
During the global financial crisis, firms in the Berkshire Hathaway portfolio received over $130 billion under the Trouble Asset Relief Program (TARP). This even led one online publication to hand the Oracle of Omaha another moniker: Warren “Bailout” Buffett.
But even as Uncle Sam was bailing out banks and other financial institutions in the aftermath of the global financial crisis, Buffett was also cutting checks to some of the firms to offer them a lifeline. This includes household names such as Goldman Sachs, GE and Bank of America.
Buffett reaped handsomely from the deals. As of late 2013, Berkshire Hathaway had made $10 billion from these crisis-era investments.
Last modified: September 23, 2020 1:40 PM