Warren Buffett says Berkshire offered all its airline shares as a result of the coronavirus

Warren Buffett

David A. Grogan | CNBC

(Follow live highlights of Berkshire’s meeting here.)

Berkshire Hathaway Chairman and billionaire value investor Warren Buffett said that the conglomerate has sold the entirety of its equity position in the U.S. airline industry. The prior stake, worth north of $4 billion dollars in December, included positions in United, American, Southwest and Delta Airlines.

“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” he said during Berkshire’s annual shareholder meeting Saturday, which was virtual this year. “I don’t know if Americans have now changed their habits or will change their habits because of the extended period.”

But “I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control,” he added.

Demand for air travel has plunged since March as the virus and precautions like shelter-in-place orders keep potential passengers home. Asked by CNBC’s Becky Quick to clarify if Berkshire had sold all of its airline holdings, Buffett answered “yes.”

He explained: “When we sell something, very often it’s going to be our entire stake: We don’t trim positions. That’s just not the way we approach it any more than if we buy 100% of a business. We’re going to sell it down to 90% or 80%.”

“If we like a business, we’re going to buy as much of it as we can and keep it as long as we can,” he added. “And when we change our mind we don’t take half measures.”

Buffett reiterated that he admires the airlines and their management teams, but that sometimes there are events like the coronavirus calamity “on the lower levels of probabilities that happen” that necessitate a quick change to an investment.

As of December, Berkshire owned 42.5 million (10% stake) American shares, 58.9 million (9.2% stake) Delta shares, 51.3 million (10.1% stake) Southwest shares and 21.9 million (7.6% stake) United shares. The stocks are down 62.9%, 58.7%, 45.8% and 69.7%, respectively, in 2020.

Southwest Airlines flight 1117 from St. Louis lands at Boston Logan International Airport on March 13, 2019. (Photo by John Tlumacki/The Boston Globe via Getty Images)

John Tlumacki | The Boston Globe | Getty Images

His comments Saturday afternoon from Omaha came after Berkshire Hathaway reported first-quarter earnings that showed Buffett and his lieutenants built up the conglomerate’s cash stockpile and only nibbled at equities during the violent stock market rout in March.

In 2016, Berkshire revealed a surprise bet on the sector that Buffett had before shunned. But years of consolidation through post-bankruptcy mega-mergers and a decline in fuel prices have helped airlines rake in record profits.

Airlines posted their 10th straight year of profits in 2019 and were preparing for even more growth in travel demand early this year, just when coronavirus started to spread. The four airlines Berkshire sold out of are scrambling to save cash, slashing routes, parking hundreds of planes and urging employees to take unpaid and partial leave.

The so-called “Oracle of Omaha” had alluded to the airline sale earlier in Saturday’s meeting, when he said he’d made an “understandable mistake” when valuing the airline stocks as a near-global halt in travel due to the coronavirus sent their prices sharply lower.

“When we bought [airlines], we were getting an attractive amount for our money when investing across the airlines,” he said. “It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs. Believe me. No joy of being a CEO of an airline.”

 “I don’t know that three, four years from now people will fly as many passenger miles as they did last year,” he said. “You’ve got too many planes.”

Airline executives have called the pandemic the industry’s worst-ever crisis and expect the impact to take several years to recover from. Last month, American, United, Southwest and Delta reported their first losses in years. U.S. travel demand is down 95% on the year.

Prior to 2016, Buffett had eschewed airline investments and had been so opposed to putting money into the industry in the past that he told shareholders in a 2007 note that “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

U.S. airlines last month started receiving portions of $25 billion in federal grants and loans that require them not to lay off or cut pay rates of workers through Sept. 30. Major airline executives this week warned they will have to shrink to manage through the crisis.

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