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- The US government could join Warren Buffett as a shareholder in American Airlines, United Airlines, Delta Air Lines, and Southwest Airlines.
- The Treasury is demanding the airlines repay 30% of the grants they receive as part of the bailout approved by Congress, and hand over warrants equal to 10% of the loan amount, the Associated Press reported.
- If the government exercises those warrants, it could own 1% of both Delta and Southwest, 2% of United, and 3% of American, the AP reported, citing a Raymond James analysis.
- Buffett’s Berkshire Hathaway owns between 8% and 11% of the “big four” airlines.
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The US government could join Warren Buffett as a shareholder in America’s four largest airlines after demanding future equity as a condition of bailing them out.
Treasury Secretary Steven Mnuchin told industry bosses — including the CEOs of American Airlines, United Airlines, Delta Air Lines, and Southwest Airlines — that they will have to repay 30% of the grants they receive as part of the $25 billion in payroll assistance approved by Congress, the Associated Press reported on Friday.
The Treasury is also demanding warrants equal to 10% of the loan portion of the grants, which the government could convert to shares in the airlines at a fixed price in the future, Reuters said on Monday. All of the major airlines are “increasingly resigned” to the terms and should accept them within days, industry officials told the newswire.
Each of the “big four” airlines is eligible for roughly $4 billion to $6 billion in grants based on their payrolls and benefits in the second and third quarters of 2019, Reuters said.
If the government gives them the full amount and fully exercises its warrants, it could end up owning about 3% of American, 2% of United, and 1% of both Delta and Southwest, the AP reported, citing a Raymond James analysis.
Buffett’s Berkshire Hathaway, which owns between 8% and 11% of all four carriers, would see its stakes diluted if the government converts its warrants into stock.
Shades of Buffett
Berkshire struck a similar deal with Bank of America in August 2011, when it paid $5 billion for preferred stock in the bank and warrants to buy 700 million shares at any time in the next decade.
The conglomerate exercised the warrants in 2017, netting a roughly $12 billion return as Bank of America’s stock price had more than tripled by then.
The US government’s demand for warrants will undoubtedly please billionaire Mark Cuban. The “Shark Tank” star called on officials to use Buffett’s deal as a template on the “Worst Year Ever” podcast earlier this month.
“Look at the deal that Warren Buffett did when he bailed out Bank of America 10 years ago,” he said. “Whoever’s negotiating for the United States taxpayers should be asking for the same thing.”
