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The Rumor Mill: Will Buffett Buy an Airline Company?

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Mar. 4 2019, Published 1:13 p.m. ET

Airline company

Last week, there were rumors that Berkshire Hathaway (BRK-B) might acquire Southwest Airlines (LUV). It already holds a stake in the company. However, in the fourth quarter, Berkshire Hathaway trimmed stakes in Southwest Airlines and United Continental (UAL). It also holds a stake in American Airlines (AAL) and Delta Airlines (DAL). If Berkshire Hathaway chair Warren Buffett is indeed looking at acquiring Southwest Airlines, it could signal a huge change in Buffett’s views on the sector.

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Buffett held bearish views

In 2013, Buffett called the sector a “death trap.” Once, Buffett famously said, “If a capitalist had been present at Kitty Hawk back in the early 1900s he should’ve shot Orville Wright; he would have saved his progeny money.” However, Buffett’s opinion on the sector looked to have changed and Berkshire brought airline stock in 2016. In 2015, Berkshire also acquired Precision Castparts, which was seen as a proxy bet on aircraft manufacturers (BA) (GE).

Speaking with  CNBC in 2017, Buffett said, “It’s true that the airlines had a bad 20th century. They’re like the Chicago Cubs. And they got that bad century out of the way, I hope.” However, he also called the sector “a disaster for capital.”

Shareholder letter

In his 2018 shareholder letter, Buffett said that Berkshire Hathaway is looking at a big acquisition opportunity. Berkshire Hathaway’s last major acquisition was Precision Castparts in 2015. If Buffett is indeed looking at acquiring an airline company (ITA), it would mean a huge change in his views.

Along with airlines, Buffett has also changed his views on derivatives. We’ll discuss this in detail in the next article.

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