Buffett's Berkshire takes stakes in four major airlines

[rb]

from the 13f. Ownership id code 4 are the PAs.

[Jurgis]

from the 13f. Ownership id code 4 are the PAs.

 

I believe you're misinterpreting the filing. I believe code 4 is Berkshire proper (as opposed to one of the subs) and not Buffett's PA.

 

I don't have much data to substantiate this, just the fact that majority of positions are in 4 and the fact that there's no code for Berkshire proper. I believe code 4 says "Buffett Warren E", because he's specified as the manager for Berkshire proper.

[rb]

It's in the form header. Manager 4 is Buffett Warren E.

 

Berkshire proper is not listed because it doesn't own securities. The securities are owned by the subs. Mainly the insurance subs.

[Jurgis]

It's in the form header. Manager 4 is Buffett Warren E.

 

Berkshire proper is not listed because it doesn't own securities. The securities are owned by the subs. Mainly the insurance subs.

 

You wanna bet? :)

[rb]

Bet on what? That the SEC forms are incorrect?

[Jurgis]

Bet on what? That the SEC forms are incorrect?

 

Bet that you are misunderstanding the form.

 

I claim that positions with code 4 are Berkshire Hathaway stock positions and not private Warren Buffett stock positions.

[Mephistopheles]

Every single one of the positions is listed "4", so it can't be it...

[Jurgis]

Every single one of the positions is listed "4", so it can't be it...

 

Hey, not fair, I almost had a bet for a free beer...  :P

[Mephistopheles]

The only way I am aware of PA activity is through 13G filings of individual companies. So SRG for example: https://www.sec.gov/Archives/edgar/data/315090/000119312515399523/d103925dsc13g.htm

 

 

[rb]

Yes, notice how using that 13g Warren's SEC file id number is 28-554, same as id4 on BRks 13f? Keep going in those 13Gs and you find out that Berkshire's SEC id is 028-4545

[clayroad]

From the 2016 Berkshire annual meeting:

Q – How do you determine which investments you will make personally like Seritage Growth

Properties and Phillips 66 as disclosed on Form 13-G’s versus the investments you make for

Berkshire?

 

Warren Buffett: – I have never owned a share of Phillips 66. Maybe there’s some way when

the form is filled out that because I’m CEO of Berkshire, on some line, it imputes ownership to

me. I’ve never owned a share of Phillips.

 

[augustabound]

It's in the form header. Manager 4 is Buffett Warren E.

 

Berkshire proper is not listed because it doesn't own securities. The securities are owned by the subs. Mainly the insurance subs.

 

Every entry on the 13F has manager 4 (which we know is WEB) listed. By your logic then how owns each and every security in Berkshire's portfolio in his personal account.

 

I remember talking about this a few years ago and it was known that T&T were buying for 8 and 11, one of them being Geico and possibly a couple of other subsidiaries depending on how WEB allocates the cash.

 

[frugalchief]

I've always taken it as:

 

4= BRK (WEB is the name it's under, since he is 'manager' of BRK)

11= NICO

8= GEICO

etc.

etc.

 

For example (https://www.sec.gov/Archives/edgar/data/1067983/000095012316022377/xslForm13F_X01/form13fInfoTable.xml),

 

American Airlines (first line) - is purely owned by BRK

American Airlines (second line) - is owned by GEICO, through NICO (since NICO owns 100% of GEICO[??]), through BRK, since BRK is parent

 

That's why on AMEX, you see two lines for 4,8,11 and 4,11.  4,11 is what NICO owns directly, while 4,8,11 is what GEICO owns directly.

 

I could be wrong....

 

But let's use Biglari for example (https://www.sec.gov/Archives/edgar/data/1334429/000092189516006153/xslForm13F_X01/infotable.xml)

 

1=Sardar

2=Lion Fund

3=Lion Fund II

 

The BH stock owned through the above entities is in on different lines (no entity owns each other, except Sardar is manager of Biglari Capital, which is GP to both Lion Funds). So the first line shows ownership by 1 (Biglari Capital....Sardar recently transfered all but 1 share of BH stock from his PA to BCC).  Second line is owned through TLF.  Third line is owned by TLF II.

 

???

[augustabound]

I've always taken it as:

 

4= BRK (WEB is the name it's under, since he is 'manager' of BRK)

 

You are correct. That's why it shows up on every line.

[Uccmal]

Leaving aside the who bought it question. 

 

The better question is why?

 

Its not as if airline industry economics have gotten any better. 

 

You still have:

1) worldwide competition

2) heavy dependence on the vagaries of fuel prices

3) extremely high and inflexible fixed costs. 

4) Long lead times to expand/replace fleets, which always leaves you oversupplied, at the wrong time.

5) Deep cyclicality

6) High rates of leverage

 

And a propensity for companies run by airline buffs versus business people. 

 

We also may be nearing the top of the cycle.  Fuel prices may be or are rising.  Interest rates may be or are rising especially on long bmds where airlines need to play.  It seems like the absolute wrong time to buy into airlines. 

 

I dont get it, but who am I to question the oracle.  I will follow from the sidelines, unlike the sheeple who have jumped into the airlines because Buffett or one of his people bought in. 

[John Hjorth]

I've always taken it as:

 

4= BRK (WEB is the name it's under, since he is 'manager' of BRK)

 

You are correct. That's why it shows up on every line.

 

This cannot be the full explanation. If you compare the 2015 10-K with the year end 2015 13-F [page 109 in the 10-K - ultimate holding/parent company balance sheet and income statement] you will see that the only material listed equity security held at ultimate holding/parent company level is the KHC investment. Thus, all other material listed equity securities specified in the 13-F must be held by subsidiaries.

[KCLarkin]

Leaving aside the who bought it question. 

 

The better question is why?

 

Its not as if airline industry economics have gotten any better. 

 

You still have:

1) worldwide competition

2) heavy dependence on the vagaries of fuel prices

3) extremely high and inflexible fixed costs. 

4) Long lead times to expand/replace fleets, which always leaves you oversupplied, at the wrong time.

5) Deep cyclicality

6) High rates of leverage

 

And a propensity for companies run by airline buffs versus business people. 

 

We also may be nearing the top of the cycle.  Fuel prices may be or are rising.  Interest rates may be or are rising especially on long bmds where airlines need to play.  It seems like the absolute wrong time to buy into airlines. 

 

I dont get it, but who am I to question the oracle.  I will follow from the sidelines, unlike the sheeple who have jumped into the airlines because Buffett or one of his people bought in.

 

Yes, I should have been clearer when I started the topic. I'm interested in a discussion on why they bought the US airlines now.

 

I actually disagree strongly with your assertion that the economics of US airlines haven't gotten better. They are significantly better. The issue is that airlines are very expensive. Southwest, for example, trades at over 4 times tangible book (GuruFocus). For most of the last decade, it traded closer to 1.5 TBV.

 

The airlines look cheap based on earnings but it's doubtful that Southwest and Delta will be able to earn 30% ROIC indefinitely. Maybe 10-15% is sustainable.

 

--

 

Actually, the strongest thesis for investing in airlines is that Buffett hates them so much. Even when they are cheap, most value investors won't touch them. So they have limited appeal at the bottom of the cycle. You can find some real bargains before the MoMo guys get in. Unfortunately, the time to buy was 2012.

[rb]

I haven't spent much time reading airline 10ks. But maybe the the ROICs are (artificially?) high because of aircraft leases?

 

I agree that the economics of airlines have gotten better. But I think that's mainly due to lower capacity/number of players. Whether that's sustainable depends on whether there are higher barriers to entry now. I don't think there are.

[Uccmal]

KC, Thats fair.  I dont waste alot of time on airlines.  Maybe its my post 911 bias. 

 

 

 

I agree that the economics of airlines have gotten better. But I think that's mainly due to lower capacity/number of players. Whether that's sustainable depends on whether there are higher barriers to entry now. I don't think there are.

 

That is the problem.  Anecdotally we see this at home (Can).  New airlines hatch with fair regularity, move from being regional to national, and then international, and then they get into money trouble during downturns.  I think its because they are run by airplane buffs. 

 

The number of failed airlines is huge.  Maybe a good reason to buy a basket, I suppose, but near the top of the market?  Remember, these were bought before Trumpenomics was more than a dreamy vision. 

 

And I dont know enough to take this any further.  I would only like to hear the rationale from Buffett? 

 

[rb]

Not just new airlines. But existing ones too. The big boys maybe can keep capacity restricted with a wink and a smile. But what's to stop say Virgin America from adding routes if they're profitable? Unless they cannot get planes. But I recall a while back the CEO of Delta saying that there are plenty of planes around.

[Guest longinvestor]

What new things have they learned from owning PCP?

[KCLarkin]

But I think that's mainly due to lower capacity/number of players. Whether that's sustainable depends on whether there are higher barriers to entry now. I don't think there are.

 

It's not just a matter of capacity, consolidation also creates some narrow moats. For example, in SFO United has 44% of seats. In Atlanta, Delta has 73% of seats. In Miami, AAL has 67% of seats.

 

If you live in SFO, you probably join United's frequent flyer club since it has the most flights. You are more likely to book United because it has more frequent flights. United presumably has better economies of scale at SFO. You are still a price taker (especially for leisure travel), but at least you have some advantages.

 

--

 

There are many positives for existing airlines:

 

Consolidation, capacity discipline, oil prices, de-bundling, bankruptcy re-orgs, stronger balance sheets, capital returns, higher yields and utilization.

 

But I still don't think current returns are sustainable.

 

 

[captkerosene]

What's really changed is labor. The NLRB puts you on ice if you don't negotiate fairly. For example: your company is in bad financial shape or coming out of bankruptcy. The pilots want a 100% raise or they threaten to strike. The NLRB won't release them to "self help" so years go by ... and more years go by. Finally the pilots figure out that they can get a cost of living raise if they settle. The unions don't have the ability to shut down the companies anymore. When was the last airline strike? When was the last railroad strike? Labor was always the big problem at airlines. The unions haven't gotten nicer, they've just lost much of their power.

[rawraw]

The current airlines are getting fat from regulatory protections.  Norwegian is coming to eat the domestic carriers alive.  I wouldn't invest in this space unless you think we are becoming much more protectionist.  They simply can't compete with these new airlines without massive capex spending

 

http://www.fool.com/investing/2016/10/24/another-foreign-airline-gets-assist-jetblue-airway.aspx

 

 

 

 

[DooDiligence]

I figured it out!

 

BRK is gonna eventually own 100% of these guys & they'll divert the former dividend streams into capex for solar panels on aircraft to capture subsidies & cut fuel costs!!!

 

Crap - I got confused (that was Mid American Energy...)

 

Seriously though; maybe IBM data plus PCP (the drug - NOT the company) led to this decision? (OK so half seriously with a smattering of continued sarcasm.)