Buffett’s next big buy: An airline?
With $116 billion in cash, Berkshire Hathaway Chairman and CEO Warren Buffett said in an annual letter that the company is poised to make “one or more huge acquisitions.”
So, what might that purchase be? Perhaps an airline.
Buffett, whose company already owns shares of Southwest, American, Delta and United, said he “wouldn’t rule out owning an entire airline,” during an interview Monday on CNBC. Delta is valued at $40 billion—the most expensive airline—while United is the cheapest of the four, with a valuation of $20 billion. Berkshire is one of the largest shareholders in those airlines, which it began investing in back in 2016.
The Oracle of Omaha’s comments were not shocking, as analysts have said in years past it wouldn’t be a surprise to see the company buy an entire air carrier.
“We view a full-scale acquisition of an airline by Berkshire as a possibility and not worth dismissing, particularly if the stocks weaken,” a group of Morgan Stanley analysts, led by Rajeev Lalwani, wrote in a note to clients in February 2017.
Cowen & Co.’s Helane Becker echoed that sentiment, writing in a note to investors last year that a purchase could happen.
“Every year there is a surprise in the industry,” Becker said. “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.”
If Buffett did decide to buy one of the airlines in its entirety, it wouldn’t be the first time his company has made such an acquisition. Berkshire agreed to purchase the remaining 77% of Burlington Northern Santa Fe Corp. (BNSF) that it didn’t already own, in a 2009 deal worth $26.3 billion. However, despite the similarities, the two businesses are very different.
“You can't build a new railroad from Omaha to Chicago tomorrow or something of the sort,” he said. “But you can add a flight--if you're one of the airlines already there or you can perhaps come in and get in the gate and then fly. So it's a way different set of economics between the two industries.”