• Market Crumbs

Airline Stocks Take A Nosedive

Image via Lennart Heim on Unsplash

Market Crumbs wrote yesterday about Berkshire Hathaway'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%.

Shares of the companies Buffett soldUnited Airlines, American Airlines, Southwest Airlines and Delta Air Lines, each fell more than 5%.

Investors in troubled airplane manufacturer Boeing 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."

Leftover Crumbs

  • "Bye, Amazon." Tim Bray, a senior engineer and VP at Amazon, resigned from the company in a fiery blog post, citing Amazon's response to employees who feared for their safety over the coronavirus. "I quit in dismay at Amazon firing whistleblowers who were making noise about employees frightened of Covid-19," Bray wrote. "At the end of the day, the big problem isn’t the specifics of the Covid-19 response, it's that Amazon treats the humans in the warehouses as fungible units of pick-and-pack potential."

  • $3 trillion. The U.S. Treasury is seeking to borrow $3 trillion this quarter to fund the stimulus that has been enacted as a result of the coronavirus. The amount would be nearly six times the previous record from the third quarter of 2008. "The increase in privately-held net marketable borrowing is primarily driven by the impact of the COVID-19 outbreak, including expenditures from new legislation to assist individuals and businesses, changes to tax receipts including the deferral of individual and business taxes from April – June until July, and an increase in the assumed end-ofJune Treasury cash balance," the Treasury said.

  • J.Crew files for bankruptcy. J.Crew filed for bankruptcy yesterday, becoming the first major retailer to do so as a result of the coronavirus. J.Crew, which operates 182 J.Crew stores as well as 140 Madewell stores, has struck a deal to convert $1.65 billion of its debt to equity. J.Crew said it will "continue all day-to-day operations, albeit under these extraordinary COVID-19-related circumstances" and hopes "to reopen our stores as quickly and safely as possible."

  • Meat supply issues will linger. Tyson Foods believes disruptions to the food supply will continue as a result of the coronavirus. "We have and expect to continue to face slowdowns and temporary idling of production facilities from team member shortages or choices we make to ensure operational safety," Tyson said. "The volume increases in retail have not been sufficient to offset the losses in foodservice and as a result, we expect decreases in volumes in the second half of fiscal 2020."

  • Uber subsidiary slashes jobs. Careem, Uber's Middle East subsidiary which it acquired for $3.1 billion in 2019, is cutting 536 jobs, or about 31% of its workforce. "As we have discussed several times in the last few weeks, the crisis brought on by COVID-19 has put our dream and future impact at significant risk," Careem CEO Mudassir Sheikha said. "In this new reality, the surest way to secure Careem for the long term is to drive towards self-sustainability within a reasonable time frame."