How Rakesh Jhunjhunwala and Warren Buffett view airline stocks

Indian billionaire Rakesh Jhunjhunwala has often been compared to American magnate Warren Buffet for his investment acumen. But the two billionaires have differing takes on the aviation sector.

Rakesh Jhunjhunwala, India’s well-known investor, is planning to launch a budget airline with a fleet of 70 aircraft. He will invest $35 million in the venture, in which he will hold a 40 percent stake. Jhunjhunwala, who has often been called the ‘Indian Warren Buffet’ for his investment prowess, will be putting his money in a sector that has been flattened by the COVID-19 pandemic.

: Rakesh Jhunjhunwala to invest $35 mn for 40% stake as new airline with 70 planes to take off

On the other hand, Warren Buffet, the CEO and Chairman of Berkshire Hathaway, has famously been critical of airline stocks.

"If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money,” Buffet had said in a now-famous interview with The Telegraph, in 2002.

Also read: Rakesh Jhunjhunwala trims stake in Tata Motors

“It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in. You've got huge fixed costs, you've got strong labour unions and you've got commodity pricing. That is not a great recipe for success,” Buffet had elaborated.

Buffet had once held a sizeable portion of US Air in 1989. Though Buffet managed to get his money back along with some dividends, the stock never appreciated as predicted.

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More recently, his company Berkshire Hathaway had once again invested in airlines in 2016. Berkshire had acquired significant stakes in Delta Air Lines, United Airlines, American Airlines and Southwest Airlines, spending around $7-8 billion in the process. However, once the pandemic hit and the share prices of airlines dropped, Buffet was quick to exit his positions, incurring losses in the process. While the shares have recovered due to US Federal grants to the airlines, Buffet insists he does not regret selling the shares and having unrealised losses of nearly $5 billion.

Jhunjhunwala, on the other hand, has always been a strong proponent of the aviation sector. Back in 2014, the ‘Big Bull’ had invested in budget airline SpiceJet, a move that many felt was a mistake. Jhunjhunwala had also participated in IndiGo's IPO.

In a recent interview with Bloomberg Television Jhunjhunwala said, "I’m very, very bullish on India’s aviation sector in terms of demand." While Jhunjhunwala's stocks in airlines have gone down significantly since the onset of the pandemic last year, they still offered a substantial return on his initial investment.

For instance, Rakesh Jhunjhunwala raked in Rs 102 crore in 2019 by investing only Rs 13 crore in SpiceJet. In November 2014, he had invested Rs 13.4 crore to acquire 75 lakh shares of SpiceJet at Rs 17.88 per share. Currently, SpiceJet’s is valued Rs 74.15.

While Jhunjhunwala seems to be winning right now, only time will tell which billionaire got it right for the long term about the tricky aviation sector.