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Did Warren Buffett Really Sell These 2 Airline Stocks?

By Dan Caplinger – Apr 4, 2020 at 12:33PM

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The move seems to run counter to everything the Berkshire Hathaway value investor stands for. Is there an explanation?

The coronavirus pandemic has turned the global economy upside down, and stock markets have felt the effects around the world. Even legendary investor Warren Buffett hasn't been immune, as shares of the Berkshire Hathaway (BRK.A -0.06%) (BRK.B -0.95%) conglomerate that he leads have fallen, along with the value of the stocks that Berkshire holds in its portfolio.

Most investors have expected that Buffett would be a big buyer of stocks during the market downturn, even perhaps adding to his holdings of hard-hit airlines. Yet on Friday, investors got their first inkling of what Berkshire Hathaway has been doing with its stock portfolio, and to many people's surprise, it involved the insurance giant selling stocks rather than buying them. Below, we'll look at the two airline stocks that Berkshire chose to sell -- and what it likely says about Buffett's view on airlines generally.

Airplane just off the ground over a lit runway, with sun just below the horizon.

Image source: Getty Images.

The evidence

Berkshire Hathaway filed two disclosure forms with the U.S. Securities and Exchange Commission on April 3, after the market closed. The need to file the disclosures was somewhat of a shock, as Berkshire has 45 days to disclose its end-of-quarter holdings as of March 31.

However, rules are different from companies in which an owner has a 10% or greater stake, prompting the need for the filings.

The forms included two sets of sales:

  • Berkshire sold about 2.3 million shares of Southwest Airlines (LUV -2.53%) on April 1 and 2, raising about $74 million in sale proceeds.
  • The Buffett-led company also reduced its holdings in Delta Air Lines (DAL -1.34%), selling almost 13 million shares over the same two-day period and generating $314 million in cash from the sales.

The two stocks took massive hits in after-hours trading Friday after the disclosures. Delta stock was down 11%, while Southwest took a 5% hit. Investors clearly saw the moves as a vote of no confidence from Buffett about the two airline holdings.

Did Buffett make the sales?

Berkshire has a more complex management structure than it used to, with other portfolio managers having some responsibility for the insurance giant's holdings. However, Buffett has said that he manages three of the company's four airline stock holdings, so at least one of the sales would have come under his purview.

Interestingly, the two transactions look fundamentally different from each other. The Southwest sale was relatively small, reducing Berkshire's holdings of the airline by just 4% and leaving a stake worth more than $1.5 billion. The remaining stake is just slightly below 10% of the outstanding shares, making it seem as though the reason for the sale was to get under that key 10% reporting threshold.

The Delta sale, though, is potentially more meaningful. If moving below the 10% ownership threshold were the motivation there, then Buffett could have sold far fewer shares. In that sense, the sale is more reminiscent of what Berkshire has done recently with its stake in bank stock Wells Fargo (WFC -0.69%). With Wells, Buffett has been reducing Berkshire's stake at a measured pace for several quarters now, seemingly responding to the ongoing troubles the banking giant has had in bouncing back from reputation-busting scandals in recent years.

It's possible that the reduction in Delta stock holdings expresses the same skepticism in the airline's prospects. As Berkshire's biggest airline holding, it'd be natural to assume that Buffett would be the responsible party -- but without confirmation from the CEO, there's no way to be sure.

What's next?

Because the sales of Southwest and Delta took Berkshire's overall position in the two airlines below the 10% threshold, the insurance giant won't necessarily have to disclose further sales immediately. We therefore won't necessarily know anything more about what Buffett does with his airline stocks until disclosures for the quarter ending June 30 come out in mid-August.

Given the way in which Buffett justified his purchase of airline stocks back in late 2016 after having panned them for much of his investing career, the apparent about-face now is jarring. With airlines now going to the federal government for assistance, their future is very much in doubt -- and that could create further losses for Berkshire's remaining airline stock holdings.

Dan Caplinger owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Delta Air Lines, and Southwest Airlines and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
LUV
$30.84 (-2.53%) $0.80
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$28.06 (-1.34%) $0.38
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$406,470.00 (-0.06%) $-230.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$267.02 (-0.95%) $-2.56
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$40.22 (-0.69%) $0.28

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