According to the industry group Airlines for America, 14.2 million people are expected to travel during the 2015 Labor holiday weekend. With that number steadily on the rise, air travel is booming and has just piqued business titan Warren Buffett’s interests.
Buffett’s illustrious holding company, Berkshire Hathaway Inc., recently acquired Precision Castparts in an estimated $32 billion dollar deal, which is said to be the company’s largest merger to date. Berkshire Hathaway Inc. is reported to have paid $235 per share in cash for the company, which makes metal equipment for the aerospace industry. The merger is reportedly expected to close in the first quarter of 2016.
Justifying his interest in Precision Castparts to the New York Times, Buffett said, “It is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports.” With the improved economy and steady increase in air travel, Buffett’s interest is relevant. As long as air travel is on the rise, the airline industry will need more planes, which will inevitably need more parts.
The merger further inches Berkshire Hathaway into the industrial sector along with other industrial acquisitions such as Marmon, an industrial manufacturer, and the chemical maker Lubrizol. Berkshire Hathaway, which is worth an estimated $62.6 billion, has a diverse portfolio of clients that include Heinz in the food sector, Burlington Northern Santa Fe in the railroad sector, General Re in the insurance sector and Fruit of the Loom in the retail sector, amongst others.
Buffett, often referred to as the Oracle of Omaha, isn’t exactly known for being a trend or momentum investor. Instead, he focuses on companies with longevity, who are at the forefront of their industries, and generate a large amount of revenue. Buffett isn’t the type to buy and sell often; he’s held stock for over 50 years.
Buffett made the offer at the annual Allen+Company conference with PCP Chairman and Chief Executive Mark Donegan. Buffett reportedly became aware of the company through investment manager Todd Combs’ stock in it.
The Portland, Oregon-based Precision Castparts was established in 1949 and makes turbine airfoils, valves, fasteners, and other products used in the defense, gas, energy and aerospace industries. They reportedly have an annual revenue of $10 billion and are used by airline giants such as Boeing and Airbus. The question to ponder is whether we should all shoot for the stars as Buffett has and invest in the aerospace industry? Buffett has profited from non-traditional moves before; after all, when the economic crises happened in 2008 Buffett made major investments in both Bank of America and Goldman Sachs. It will be interesting to see how Berkshire Hathaway’s largest investment yet compares with the rest of its diverse portfolio.