Ex-Continental Airlines CEO: Don't invest in airliners

It may seem an odd proposition for a former CEO to urge investors not to invest in the company they used to run but such is the case with Gordon Bethune, the ex-CEO of Continental Airlines

‘Depression’ for airline industry

Bethune is no stranger to the airline sector, most notably serving as the CEO of Continental Airlines for 10 years and sitting on the board of airplane maker Boeing Co (NYSE: BA). On Monday he was a guest on CNBC’s “Squawk on the Street” to comment on Warren Buffett’s weekend disclosure he divested all of his airline holdings.

According to Bethune, the entire industry will enter a “depression” era and this will impact airlines, plane manufacturers, and component makers. This all stems from the uncertainty and dangers associated with people sitting in planes next to strangers without any idea if anyone is infected with the COVID-19 disease.

The “comfort level” which existed prior to the pandemic will never return, he said. The next three years at a minimum will be “bleak” for the industry.

The CEO’s comments follow Warren Buffett’s disclosure over the weekend he no longer holds any airline stocks as the “world has changed for the airlines.” Consistent with his investment philosophy, the “Oracle of Omaha” doesn’t trim positions. Rather than taking “half measures,” he sells the entire position.

Some of the notable positions Buffett ordered to be sold include a 10% stake in American Airlines Group Inc (NASDAQ: AAL) and a 10.1% stake in Southwest Airlines co (NYSE: LUV).

Terrible timing

The global pandemic comes at a time when the global economy was firing on all cylinders and airliners were certainly taking advantage of the good times, according to the former CEO. Airliners worldwide were investing in their businesses through new routes and new planes.

The timing of the airline industry’s troubles could end up getting a lot worse in September when the U.S. government’s lifeline to pay workers expires. All of this “free money” meant to keep workers on the payroll will disappear and this could be “catastrophic” for workers and the industry.

Government responsibility

The bleak and bearish near-term picture for the airline industry begs the question if the federal government needs to come in and take over some or all of the companies. The executive said this is a possibility but government executives won’t be able to run the company any better than the people running it today.

The only solution is a return of confidence to the economy to the point where airliners are confident it will translate to a ticket sale or demand for new equipment, he said. Most notably, business travelers account for 45% of all traffic.