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Could Warren Buffett Bail Out The Airlines?

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Could Warren Buffett Bail Out The Airlines?

Warren Buffett has stepped into faltering economies to help prop up teetering companies in the past, and made out pretty good by buying low in times of distress. Might the Oracle of Omaha have some interest in some suddenly very turbulent airline stocks?

Buffett, whose Berkshire Hathaway Inc. (NYSE: BRK-A) is one of the largest shareholders of several airlines, has dramatically boosted his holdings in a now much cheaper Delta Air Lines, Inc (NYSE: DAL) since the coronavirus economic reaction started. That's fueled some speculation that Buffett could step in again with major investments in one or more of the airlines, or possibly even buy one outright, though Buffett has downplayed the idea.

Buffett helped shore up Goldman Sachs Group Inc (NYSE: GS) and General Electric Company (NYSE: GE) by investing huge amounts in the companies during the beginning of the 2008 financial crisis.

See Also: Airlines Plead For $50B Bailout, But Do They Deserve It?

Among Largest Airline Shareholders

Berkshire Hathaway now is the largest shareholder of Delta, at just over 11%, and the second-largest shareholder in American Airlines Group Inc (NASDAQ: AAL), United Airlines Holdings Inc (NASDAQ: UAL) and Southwest Airlines Co. (NYSE: LUV). Buffett's company owns about 10% of each of the four carriers, having started buying them in late 2016 as the industry began a run of unprecedented profitability. In all, according to the Dallas Morning News, Buffett has $9 billion in airline holdings.

"One of those airlines would certainly be affordable and doable" for a Berkshire purchase, David Kass, a University of Maryland finance professor who once ran a Warren Buffett blog, told the Dallas paper. "But then the question is, would Buffett really want to do that?"

The paper also noted Buffett wrote in his annual letter last month that he hasn't been able to make an "elephant-sized acquisition" because of high prices. In the last week, prices have come crashing dramatically down.

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Buffett Is Losing Money On Airlines

At the moment, Buffett and Berkshire are losing money quickly on the airlines. So far, Berkshire Hathaway has seen its holdings in Delta, United, Southwest and American drop by $3.78 billion in value over the past month to $5.74 billion, making the fund the fourth largest loser on the airline plunge, according to Forbes.

And as far as the survival of the airlines is concerned, Buffett may not have to intervene if the federal government goes forward with a bailout package sought by the industry that could give the troubled carriers up to $60 billion in relief.

Some of the rumor and speculation online about whether Buffett might be interested in buying an airline initially focused on Southwest, but also noted Southwest is heavily staked to troubled Boeing Co (NYSE: BA) and its grounded 737 Max. Delta doesn't have any of the planes in its fleet.

Photo credit: Fortune Live Media, Flickr

 

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