USAir's mired labour negotiations and six year streak of losses have finally convinced fabled investor Warren Buffett that the airline has been a bad investment. However, the decision by his investers Berkshire Hathaway Inc to write off $268.5 million of the carrier's stock - 75 per cent of its holding - has not created a panicked selling of shares.
The move has intensified speculation that British Airways' $400 million, 24 per cent stake in USAir will be written down as well. Though BA is not commenting, it is following closely USAir's management discussions with labour over a $2.5 billion concession package. Lack of progress in these talks resulted in Buffett's decision to write down the investment and give up two seats on the company's board of directors.
Though the signal was directed towards USAir's unions, there was no renewal of talks by presstime. Sources say the sides are far apart, with the flight attendants still refusing to join a deal which would probably give employees a 20 per cent stake in exchange for concessions.
Buffett's decision may dent his reputation as a savvy investor, but will do little damage to the carrier itself. Analysts agree that it does little more than reflect a lack of confidence. In terms of USAir's prospects, 'it's not an issue,' says Renee Shaker, industry analyst at Moody's Investor Service. 'It signifies USAir's very weak position.'
That could decide the future of BA's stake. It is unlikely the UK airline will seek to end its alliance with USAir. But a year ago BA admitted that it may be forced to write down its investment, after saying it would not invest more cash until USAir's problems were resolved.
Source: Airline Business
