Warren Buffett May Simply Take Over This Airline Entirely

Airline investors are thrilled that one of the most well-respected and successful investors on Wall Street has taken a massive stake in four different U.S. airline stocks in the last two quarters.

Buffett Hits The Skies

Berkshire Hathaway Inc. BRK BRK CEO Warren Buffett recently took sizable positions in Delta Air Lines, Inc. DAL, United Continental Holdings Inc UAL, American Airlines Group Inc AAL and Southwest Airlines Co LUV. However, recent market rumblings suggest Buffett’s open market buying could simply be the first step in a major airline takeover.

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By Plane And Train...

Morgan Stanley analyst Rajeev Lawani sees parallels between Buffett’s airline buying and spree and his simultaneous stakes in several railroad stocks roughly a decade ago. After initially taking stakes in Burlington Northern Santa Fe, Norfolk Southern Corp. NSC and Union Pacific Corporation UNP, Buffett eventually opted for a full takeover of Burlington Northern.

“Accordingly – based on historical precedent and the state of the industry — we view a full-scale acquisition of an airline by Berkshire as a possibility and not worth dismissing, particularly if the stocks weaken,” Lawani explained.

Loving LUV?

Buffett and Berkshire have given no indication they are in the market for an airline buyout. However, Morgan Stanley sees overweight-rated Southwest as the best candidate among the “Big 4.”

“Of the Big 4, we highlight LUV’s domestic focus, robust and sustainable FCF, range of growth opportunities, defensible cost structure, and more tenured management team, which we are rolling through our updated bull case of $76,” Lawani added.

Lawani isn’t the only analyst speculating on a possible airline buyout.

“This year, we believe a surprise may be that a major airline gets acquired, potentially by Berkshire, or goes private on its own,” Cowen analyst Helane Becker wrote.

In the past six months, all of the Big 4 airline stocks are up between 26 and 60 percent.