Buffett to depart from USAir board

March 14, 1995|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

In a further sign of his disillusionment with USAir Group Inc., billionaire investor Warren Buffett said yesterday that he will leave the board of the financially struggling airline at its next annual meeting.

Mr. Buffett, chief executive of Berkshire Hathaway Inc., blamed USAir's failure to reach a "timely agreement with its organized labor groups" that would allow the airline to cut costs and survive in an airline market marked by fierce price competition. Berkshire Vice Chairman Charles T. Munger also will leave USAir's board.

Berkshire Hathaway, which controls a 10.3 percent voting stake in USAir, also said yesterday it had written off $268.5 million of its $358 million investment in the company.

The stock's value has plummeted as the airline has piled up losses and been stymied in its efforts to win wage concessions from all of its unions. USAir officials have said they hope to cut $500 million from annual operating costs by persuading the three major unions at the airline to accept pay cuts in exchange for stock in the company.

USAir also has planned changes in its operations to save another $500 million to $600 million a year, including a move announced last week to cut about 5 percent of the airline's daily flights, spokesman Rick Weintraub said. USAir will retain the largest share of the Baltimore-Washington International Airport market.

Mr. Weintraub denied that the labor talks are behind schedule.

"Nobody has ever set a target date" for a deal, he said. Officials of the Air Line Pilots Association, which is leading the union delegation to the talks, did not return calls yesterday.

Berkshire Hathaway, an Omaha, Neb.-based company that has been the vehicle for Mr. Buffett's investments, said it marked down the stake in order to reflect an "other than temporary" decline in the value of its 358,000 shares of USAir preferred stock.

The preferred stock is now worth $89.5 million, Berkshire Hathaway said. Last fall, USAir stopped paying the 9.25 percent annual dividend on the Buffett stake, which is convertible into USAir common.

Mr. Weintraub said yesterday's accounting move does not affect Berkshire Hathaway's ownership of the securities.

The move did not immediately draw much reaction from British Airways PLC, the other major investor in USAir and its partner in jointly operated trans-Atlantic service and other ventures.

Spokeswoman Margaret Vodopia said the company's board of directors reviews its $400 million investment in USAir regularly and sees no reason to conclude that the company's book value has permanently eroded. British Air invested $300 million to buy nearly 25 percent of USAir in 1993, and it later invested a reported $86 million more.

"The alliance [between the airlines] is working well from British Air's standpoint," Ms. Vodopia said. She said the alliance adds $100 million annually to British Air revenue.

Mr. Buffett's initial decision to invest in USAir was greeted with elation because he has a reputation for becoming a close adviser to the management of companies in which he has a major stake. But his managerial touch has not been enough to save USAir from wrenching losses in the years since. Since 1989, USAir has lost more than $2.6 billion.

The losses in 1994 alone reached $684.9 million. USAir's book value fell from nearly $43 a share in 1989 to negative territory by 1992.

USAir's shares closed yesterday at $5.875, unchanged from Friday. Berkshire Hathaway's shares closed at $22,450, up $250.

Mr. Weintraub said the airline's revenue held up well last year in the face of several disastrous setbacks that wrecked profits: a severe winter that forced widespread flight cancellations, customer anxiety after the airline had two planes crash in the same year, and tough competition from the Continental Airlines' Continental Lite no-frills service.

"It speaks to a rather extraordinary strength in this core franchise," Mr. Weintraub said.

Smith Barney airline analyst Leslie Hardin was more skeptical.

"If you put all the numbers together that they say they are going to [save], it still doesn't make a gain, as in an operating profit," said Ms. Hardin. She thinks USAir will lose more than $9 a share this year, compared with $12.73 a share in 1994.

She said the remaining value of USAir's stock reflects speculation that the company will make a deal with its unions, and that British Air will do what is necessary to prop up the U.S. carrier. But she said the unions have little reason to move quickly.

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