Analysts Are Speculating that Berkshire Will Acquire an Airline Next

Warren Buffett recently bought stock in 4 airlines, an industry that he’s called a ‘graveyard’ for money: Delta Air Lines Inc., United Continental Holdings Inc., American Airlines Group Inc. and Southwest Airlines Co.

Now analysts, namely from Morgan Stanley and Cowen, believe he might acquire one whole — just like he did with Burlington Northern.

Reading the tea leaves, Berkshire bought stock in several railroads before buying out Burlington. Perhaps he’s doing the same here, thinks Morgan’s Rajeev Lalwani.

“We view a full-scale acquisition of an airline by Berkshire as a possibility and not worth dismissing, particularly if the stocks weaken,” Morgan Stanley analysts led by Rajeev Lalwani said in a note to clients Wednesday.

Charlie Munger, the spry 93 year old partner of Warren’s, likens the current day airline industry to the railroads — perhaps suggesting an openness to being committed long term.

“It was a terrible business for about 80 years,” Munger, 93, said at an event last week in Los Angeles. “But finally they got down to four big railroads and it was a better business. And something similar is happening in the airline business.”

Buffett seems to be sucking airline dick too.

“There’s a certain romance to it,” Buffett told Rose, likening the business to Hollywood. “There’s no question that it’s been a graveyard for a lot of money.” Buffett wasn’t asked on the show about whether he’d buy an airline outright, and didn’t return a message Wednesday left with an assistant seeking comment.

Here’s Morgan’s note.

“While we have no knowledge of any potential transactions, U.S. airlines have structurally changed for the better following consolidation that has resulted in more pricing power, supply discipline, and a focus on margins over market share,” Morgan Stanley’s Lalwani wrote. “An interest in industries with structural improvement and the gradually growing stakes are fairly consistent with Berkshire’s approach to acquiring Burlington Northern Santa Fe.”

Cowen thinks the industry might surprise in 2017 — with a leveraged buyout, naming Berkshire as a possible suitor.

“Every year there is a surprise in the industry,” Cowen’s Helane Becker said in a note this week. “This year, we believe a surprise may be that a major airline gets acquired, potentially by Berkshire, or goes private on its own. Airlines are labor intensive and capital intensive, so they don’t make the best LBO candidates, but stranger things have happened.”

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