Warren Buffett now owns 10% of Delta Air Lines, United,American and Southwest. So why would they need a bailout? – Idaho Reporter

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Warren Buffett now owns 10% of Delta Air Lines, United,American and Southwest. So why would they need a bailout?

According to recent filings with the Securities and Exchange Commission, Warren Buffett’s Berkshire Hathaway holds a big chunk in several airlines: more than 50 million shares of Southwest , 42 million shares of American Airlines Group, 21.9 million shares of United Airlines, and 71.8 million shares of Delta Air Lines after buying almost a million new shares four weeks ago.

Why he bought those shares? Delta stock dropped about 20% four weeks ago as markets plummeted. Berkshire Hathaway acquired more than 976,000 shares for about $45.3 million, or an average price of $46.40, bringing Buffett’s ownership of Delta Airlines up to more than 11 percent and making him the largest shareholder in Delta Air Lines and the second-largest in United Airlines.

The question arises, why would airlines need a bailout when Warren Buffett has $128 billion in cash to burn? He (his company) invested money to make a profit, and now that the profit is not going to come into their pockets- airlines scream “bailout”.

Maybe he would like to loan these 4 airlines 10 billion each at an appropriate interest rate based on the risk premium structured as a (PIPE) Private Investment in a Public Enterprise like he did with his loan to Occidental and Goldman Sachs during the 2008 financial crisis.

But even back then (in 2008) Warren was not ready to invest in Goldman Sachs without a bailout. “If I didn’t think the government was going to act, I would not be doing anything this week. It would be a mistake to be buying anything now if the government was going to walk away from the Paulson proposal (bank bailout of 2008).”-Buffet said.

And according to Forbes Warren Buffett has lost almost $10 billion in seven days due to stock market selloff. But the 90-year-old investor stands to benefit if the airline industry’s plea for a $50-$60 billion bailout from the American government is successful.

Starting in 2014, major U.S. airlines have bought back shares using free cash instead of saving that cash for the rainy days. Why did they do it? Because CEOs are evaluated on Stock performance and they get ESOP (stock-based compensation scheme). Now why they want a bailout? Privatize profits and socialize losses?

As an example American Airlines Group, (AAL) spent more than $12 billion on buybacks, and all together (DELTA, AMERICAN,SOUTHWEST and UNITED) spent $42 billion in 6 years. So, they made a wrong choice, right? The CEOs of those 4 airlines received $430 million in stock-based compensation over this period, separate from their cash compensation, deferred benefits, etc.

Back to Buffett.

“One of those airlines would certainly be affordable and doable” for a Berkshire purchase, David Kass, a University of Maryland finance professor, told the Dallas News. “But then the question is, would Buffett really want to do that?”. Of course not, because according to Buffett airline industry is a “death trap” for investors . Looks like he wasn’t listening to his own advice and invested heavily over the last few years.

15 Comments

  1. Eric Loeser

    Well the Airlines didn’t just stop flying on there own. The government shut them down. Just as if the government tore down your house because of an emergency reason. They would have to compensate for it. Let’s get real folks. The Airlines are collateral damage to this pandemic.

    • Crackerjack Daniels

      Nope. They didn’t shut down the airlines, they closed their borders. That’s an operational risk, the proverbial rainy day for which they should have saved.

  2. Kay Shelley

    I don’t think we should bail them out. If they want government bail out money then they should agree to certain terms. For example, remove rows of seats to give passengers more leg room. Stop nickle and diming us to death for baggage fees, extra money for aisle seating, window seat. They started charging for baggage fees due to the high fuel charges back in the mid 2000s. They got greedy and then started charging for other things. So shame on them if they’ve invested their money poorly and buying stocks just to drive up the price so that they can get a bigger dividend later on. No bail out for them.

    • Stephanie Michaels

      Kay Shelley, I guess you don’t travel. You are an idiot

    • Jared duns

      Kay.

      Should there be stipulations on the individual stimulus checks or unemployment benefits?

      Does no one save their own safety net fund anymore? How many expensive vacations or luxury purchase are individuals making instead of saving their money. There are bad financial decisions all over the place not just at essential companies.

  3. Eileen

    Please stop using the term “shelter in place” this is a term associated with an active shooter. Hunkering down is more appropriate.

  4. ShellshellM Mclaughlin

    Who cares extra charges! Soon the people of this world will have to board up windows and use fans on air conditioning.

  5. David

    Actually Delta has $2 billion in cash l, another $5 billion readily available and less debt ratio than all other airlines. Over 15,000 employees took a partial 1-3 months leave without pay but keeps all their benefits and well preparing the past 10 years to wither a moment like this. Recovery will still be hard for everyone but Delta will shine immediately.

  6. Gg

    What a great article. NOT. This is not an event anyone could have planned for. Business doesn’t work that way. Is there a years worth of toilet paper at your house?

  7. June

    Ditto the good comments about Delta, this is not their first rodeo ! Yes, this is one of the worse crisis we have been in, and everything and everyone is suffering. So thankful for the leadership of one fine CEO!!!
    Maybe it’s a reminder that each of us needs to be better stewards of our lives!
    It doesn’t cost anything to be kind and caring to our to each other. It’s beyond time to get rid of the hate and start the love train 🚂!

  8. Mallik

    The government should bailout. But at the same time, it should get a huge stake in these airlines, which it can divest it later. The profits were used to buy back shares, so the money lent in should dilute the share holding. Govt is the shark in the shark tank.

  9. G

    Meh, why give them a government loan to give them liquidity during the crisis. Let them fail. We don’t need airplanes any way. And I’m sure the people employed at airlines, airports, and associated business can find other jobs. Sure that won’t trigger the rest of the markets to flee for cash even more so than they already are and certainly won’t cascade into greater liquidity problems across other markets. While we’re at it, why give anyone loans if they didn’t plan for a rainy day, big or small, logic is it was their responsibility to plan for the unexpected no matter if it was their fault or not or how extreme. Maybe our amazing competent government will nationalize them and run them for us Shoot let the government take over all businesses. They’ll do a great job running them. Wouldn’t that be swell.

  10. Jay-Z

    To everyone who says, “you’re an idiot”:

    You’re an idiot!

  11. Thomas Shannon

    Most American dont save. I save and work as a baggage handler 20. I live within my means. I say dont bail out the people who make above poverty level wages but don’t have money for a rainy days.

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