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Buffett: Planes, Trains and Investment Pains

At the May 4 meeting, Buffett compared the consolidated airline industry to that of government-sponsored mortgage agencies Fannie Mae (FNMA) and Freddie Mac heading into the financial crisis.

"They were enormous companies who had a huge advantage over everyone else," Buffett said of Fannie and Freddie, however, it didn't keep them from making poor economic decisions such as lowering credit standards to chase mortgage market share during the housing boom.

Buffett said airlines remain a "sexy" business that perpetually attracts new entrants to undercut price and profit margins. The 'Oracle of Omaha' added he's turned down many pitches related to the airline industry.

Berkshire vice chairman Charlie Munger noted airlines aren't moated from competition, in contrast to the recently consolidated railroad industry, which Berkshire is a large investor in by way of a $26 billion acquisition of BNSF Railways, the firm's largest-ever deal.

"You couldn't create another railroad and you can create another airline," Munger said.

Still, railroads outperformed the broader S&P 500 Index for about a decade, amid consolidation, before Berkshire Hathaway made its 2009 deal for BNSF. Buffett and Munger both said they could, similarly, be missing early signs of a turn in the airline industry.

Munger said Bill Miller of Legg Mason could very well be correct in anticipating a new era for the industry. Miller, a prominent value investor, runs the Legg Mason Capital Management Opportunity (LMOPX), the top performing mid-cap value fund in the first quarter of 2013 after a 20%-plus rise, according to Morningstar.

According to Morningstar data, United Continental, Delta Air Lines and US Airways are among the Legg Mason Opportunity fund's top 10 holdings.

Berkshire may have the airline industry on its radar after boosting spending on NetJets in recent years, however, a major acquisition or new investment is unlikely at this point.

"It goes into my too hard pile," Munger said of airline investments.

-- Written by Antoine Gara.

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