Buffett later explained at the shareholders' meeting that he decided to sell the shares of the four major airlines because he was worried that these companies would be burdened with a heavy debt burden and dilute the rights and interests of existing shareholders. and the recent development of the situation has confirmed his prediction.

This past Sunday, American Airlines announced that it plans to sell $1.5 billion in bonds, $750 million in stocks and $750 million in convertible bonds, and introduce a $500m term loan facility. The entire financing program reached a whopping $3.5 billion. You know, by the end of the first quarter earlier, American Airlines' debt burden had reached $34 billion.

Regardless of bonds and convertible bonds, the $750 million of shares expected to be issued and the $112.5 million worth of stock options nurtured by underwriters alone mean that American Airlines will add nearly 54 million shares after the deal is completed. equivalent to about 12% of the shares currently outstanding, the interests of existing shareholders will be significantly diluted.

In fact, it's not just American Airlines. Recently, Delta, Southwest and United have all received a lot of loans from the government and raised large amounts of money through other channels. Delta CEO Ed Bastian, for example, disclosed at the company's annual shareholder meeting last week that they had raised more than $14 billion since the beginning of March. Meanwhile, Southwest Airlines has raised about $16.7 billion so far this year, while United Airlines has raised billions of dollars over the same period.

In addition, the four major airlines are also receiving bailout support from the US government under the novel coronavirus Aid, Relief and Economic Security Act. They get cash guarantees and loans at the price of selling warrants to the Treasury, which can buy and sell their shares at a fixed price in the future once their share prices recover.

At Berkshire Hathaway's annual shareholders' meeting in May, Buffett explained that aggressive fundraising was an important reason for his decision to sell shares in the four major airlines. "they will all borrow heavily, with an average of at least $10 billion or $12 billion per household. Buffett commented at the time, "these debts need to be repaid with future profits. "

"in some cases, they may have to sell shares. "he continues to explain," this will have an impact on the potential rally. "

In other words, the debts owed by these airlines will have to be repaid in the future, and there is a good chance that they will issue new shares in the future, diluting the interests of existing shareholders, which clearly means that it is not wise to hold their shares at the moment.

"they are literally telling their bondholders and equity investors:'if you don't raise more money, we won't be able to survive.' Buffett said, "whether this makes sense or not, we will see the answer sooner or later. "

Buffett also warned that if the number of passengers does not return to pre-epidemic levels in the next few years, the airline industry will face the problem of too many aircraft, which is likely to force them to make crazy discounts on fares. and this will naturally have a serious impact on profits.

In recent weeks, there has been a lot of criticism of Buffett's decision to sell the airline sector, from President Trump to billionaire investor Ken Fisher to David Portnoy, a self-styled retail spokesperson for day trading. Trump said Buffett's decision was a big mistake. Mr. Fisher said Mr. Buffett was too old to keep up with the situation, so he failed to seize the opportunity for U. S. stocks to rebound after hitting bottom. Potoy simply declared that Buffett was "finished".

Mr Portoi does quite represent the views of retail investors who have played a leading role in the recent rally in US stocks. Statistics show that on the Robinhood trading platform with a large concentration of retail investors, the stocks of the four major airlines are among the most active, with the largest number of new investors in the past 30 days. Delta Airlines, in particular, ranked fourth, adding about 100000 new shareholders last month.

The truth, however, is that it is too arbitrary to say that Buffett has completely missed the rebounding earnings, such as his large stake in Apple Inc, which has earned him more than $10 billion so far this year. Although the shares of the four major airlines have become the new favorite of many retail investors, on the whole, they have not participated in the strong rebound since the end of March, falling by 37% to 59% respectively since the beginning of this year.