- Boeing stock fell sharply on Wednesday. Currently, the stock is trading at the lowest level since 2017. The stock was under pressure last year due to the fatal 737 crashes.
- Berkshire Hathaway has considerable exposure to the aviation sector. The company holds stakes in four major airline companies. Berkshire also owns Precision Castparts, which builds parts for aircraft manufacturers. As Boeing stock tumbles amid the market crash, are Buffett and Berkshire interested in the company?
Berkshire Hathaway and Warren Buffett
In the past, Berkshire Hathaway’s (NYSE:BRK.B) chairman, Warren Buffett, had a pessimistic view of the airline industry. However, he changed his view of the sector. Now, Berkshire Hathaway owns stakes in Delta Airlines, American Airlines, Southwest Airlines, and United Airlines. The company increased its stake in Delta in the first quarter of 2020 as well. Apart from holding shares in four leading airline companies, Berkshire also owns Precision Castparts, which it acquired in 2016. Precision Castparts was the last major outright acquisition that Buffett completed. Last year, he talked about the possibility of a significant acquisition. However, the legendary value investor hasn’t been able to find a target.
Are Berkshire and Boeing a good match?
Earlier this year, there were rumors that Berkshire Hathaway might buy a stake in Boeing (NYSE:BA). In a recent interview with CNBC, Buffett was asked about Boeing’s recent debt issue. He said, “They’re looking for– they’re– they’re looking for traditional bank loans. And we don’t make traditional bank loans.” Instead, the company looked at preferred shares that give a good yield. Would Berkshire Hathaway and Boeing be the perfect match?
Berkshire Hathaway has exposure to Boeing’s buyers and suppliers. An investment in Boeing would mean that Berkshire gets exposure across the value chain of an aircraft. Also, aircraft manufacturing is the kind of industry that Buffett likes. Aircraft manufacturing is a duopoly industry dominated by Boeing and Airbus. Despite the fallout from the 737 crashes, Boeing has a strong moat. President Trump is working to lower the US trade deficit by signing new trade deals. Boeing could benefit if other countries consider buying more aircraft to bridge their trade surplus with the US.
Buffett and troubled companies
In the past, Buffett has invested in companies that face trouble. Most of the investments have fetched good returns for Berkshire Hathaway. The company has a record cash pile. Boeing’s valuation has also come down amid the recent crash in its stock price. In my view, the company could be a good fit for Berkshire after the recent crash. Will Buffett consider Boeing? Read After Big Aviation Bet, Buffett Is Cautious on Next Acquisition to learn more.