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Airline Stocks Take A Nosedive

Market Crumbs wrote yesterday about Berkshire Hathaway (NYSE:BRKa)’s worst quarterly performance in the company’s history, in which chairman and CEO Warren Buffett disclosed Berkshire had sold its entire stake in a handful of airlines.

“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” Buffett said about the airline industry. “I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control.”

Yesterday, the sector took notice of Buffett’s pessimism as airline-related stocks got taken to the woodshed. The U.S. Global Jets ETF, which “provides investors access to the global airline industry,” closed down 5% after declining as much as 10%.

US Global Jets ETF Chart

US Global Jets ETF Chart

Shares of the companies Buffett sold–United Airlines (NASDAQ:UAL), American Airlines (NASDAQ:AAL), Southwest Airlines (NYSE:LUV) and Delta Air Lines (NYSE:DAL), each fell more than 5%.

Investors in troubled airplane manufacturer Boeing (NYSE:BA) appeared to quickly forget about the company’s recent $25 billion debt offering and focus on Buffett’s comment that “You’ve got too many planes,” as shares fell 1.5%.

Perhaps validating Buffett’s view on the airline industry, General Electric’s aviation unit announced yesterday that it will reduce its workforce by 25%, eliminating about 13,000 jobs. GE’s Aviation unit manufactures some of the most frequently used engines for commercial and military aircraft, as well as provides services such as engine overhauls.

“To protect our business, we have responded with difficult cost-cutting actions over the last two months. Unfortunately, more is required as we scale the business to the realities of our commercial market,” GE Aviation CEO David Joyce said.

The layoffs at GE Aviation follow news last week that Boeing will cut 10% of its global workforce, which includes a “more than 15%” reduction in jobs at its commercial jet business.

With the airline industry taking a hit as a result of Buffett’s comments over the weekend, it will be interesting to see if stocks in the sector continue to fall or find buyers who follow his mantra of being “greedy only when others are fearful.”

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