Warren Buffett looks to cash in on aerospace industry

Posted on 17 Aug 2015 by Aiden Burgess

Warren Buffett, through his firm Berkshire Hathaway, has purchased Precision Castparts for $37.2bn – one of the company's most expensive acquisitions to date.

Warren Buffet is reportedly looking to capitalise on the boom in the aerospace industry from increased world travel.

Precision Castparts supplies components such as turbine blades for jet engines and fasteners for airplanes, with two-thirds of its revenue coming from the aerospace industry.

Precision Castparts is the major producer of castings for aircraft engines, industrial gas turbines, airframes and other applications for aerospace, power and industrial companies.

The company’s clients include Boeing, Bombarider, Lockheed Martin, Mitsubishi Heavy industries, Northrop Grumman and Spirit AeroSystems.

The acquisition of Precision Castparts adds to the list of brands Berkshire Hathaway already owns and operates, which includes Fruit of the Loom, Dairy Queen and Geico.

The acquisition also adds to Berkshire Hathaway’s current stable of aerospace industry companies, as it owns NetJets – the largest provider of fractional ownership of private jets, and FlightSafety International, which trains pilots, flight attendants, maintenance technicians and dispatchers.

Warren Buffett is banking on global economic expansion with the Precision Castparts aquisition, with some drawing parallels to his prediction on domestic economic growth which saw him acquire the BNSF Railway, the largest US railroad by carloads, in 2010.

Warren Buffett is hoping a demand for global travel in the early 21st century will make his latest billion dollar venture a success.

Aerospace analyst with consulting company Teal Group, Richard Aboulafia, said airlines had been pushed to meet the increasing demands for global travel.

“Airlines have been ordering new planes to meet growing demand for travel and replacing less efficient and less comfortable jets, pushing production backlogs to a record eight years,” he said.

As Buffett looks to capitalise on the growing global aerospace industry and increasing world travel, Deloitte’s global aerospace and defence leader Tom Captain said the industry had been a good financial investment for the past three decades.

“It’s very clear that the emerging economies and the new wealth being created outside of Europe and the US are driving the travel demand for both leisure and business,” he said.

“India, China, Indonesia and many of the new-found wealthy countries demand travel, the number of kilometres flown by paying customers has jumped more than sixfold to 6 trillion now from 900 billion in 1981, that type of passenger growth is expected to continue.”

According to Deloitte’s 2015 global aerospace and defence outlook, the growth rate of commercial aircraft production has slowed every year since 2011 and is expected to decelerate this year to 2%, but is expected to pick up to 5% in 2016.