Coverage: Buffett buys airline stocks

Warren Buffett’s Berkshire Hathaway Inc. disclosed Monday that it has invested in a number of publicly traded airlines, selling his stake in Wal-Mart Stores and some other investments.

Doug Cameron and Nicole Friedman of The Wall Street Journal had the news:

Berkshire Hathaway said in a regulatory filing that it had taken stakes in American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc., with the latter scheduled to hold its investor day on Tuesday. Two of the Berkshire stakes each totaled less than $500 million while that in American was almost $800 million.

Mr. Buffett told CNBC that Berkshire had also taken a stake inSouthwest Airlines Co. A Southwest spokesman Monday declined to confirm any investment by Berkshire.

The airlines’ shares rose in after-hours trading. American gained more than 3% while Delta and Southwest both added more than 2%. United was 1.7% higher.

It wasn’t clear if the decision to invest in airlines came from Mr. Buffett or one of his stock-picking lieutenants. Mr. Buffett famously derided investing in airline stocks after suffering initial losses from a foray into what was then known as USAir back in 1989.

Jonathan Stempel and Jeffrey Dastin of Reuters note the effect of Buffett on investments:

Shares often rise when investors perceive that Berkshire has given them its imprimatur.

Buffett usually handles larger Berkshire investments such as Kraft Heinz Co, Wells Fargo & Co, Coca-Cola Co and International Business Machines Corp.

His Omaha, Nebraska-based conglomerate also owns roughly 90 companies such as BNSF, Geico car insurance and Dairy Queen ice cream.

The airline investments are “really important for investor confidence” in that sector, said Adam Hackel, an airline analyst at Imperial Capital LLC in New York.

Berkshire did not respond to requests for comment.

In after-hours trading, American shares rose 3.8 percent, Delta 3.4 percent, Southwest 3.3 percent and United 2.2 percent.

Antoine Gara of Forbes.com pointed out that Buffett has changed his mind in the past three years:

When Delta Airlines was trading below $20 a share, billionaire Warren Buffett dismissed airlines as a place where his conglomerate Berkshire Hathaway would invest, stating at a May 2013 annual shareholder meeting the sector has “been a death trap for investors.”

Now, with Delta trading at far higher prices, Berkshire Hathaway is buying the stock and its peers, American Airlines, United Continental Holdings and Southwest Airlines.

On Monday evening, Berkshire Hathaway released a quarterly 13-F filing with the Securities and Exchange Commission, which showed it built new stakes in three airlines during the third quarter. Berkshire now owns 21.8 million shares in American Airlines, worth nearly $1 billion at current prices, in addition to stakes in Delta and United Continental of around $300 million apiece. CNBC separately reported Berkshire purchased shares in Southwest Airlines.

The buying marks a reversal of opinion for Berkshire Hathaway, which earlier in 2016 closed a $32 billion takeover of Precision Castparts, one of industry’s biggest parts suppliers. Three and a half years ago, Buffett was pressed by value investor Bill Miller on whether Berkshire would consider buying airlines due to the industry’s consolidation and rising pricing power. Buffett responded by stating “investors have poured their money into airlines and airline manufacturers for 100 years with terrible results,” citing the losses Berkshire took on a 1989 bet on the preferred stock of U.S. Air, a predecessor to American.