Buffett Admits Error in Paying Too Much for Precision Castparts

Warren Buffett conceded a mistake with one of his biggest deals in recent years: the $37.2 billion purchase of Precision Castparts Corp. in 2016.

“I paid too much for the company,” the billionaire investor said Saturday in his annual letter. “No one misled me in any way -- I was simply too optimistic about PCC’s normalized profit potential.”

Buffett’s Berkshire Hathaway Inc. took an almost $11 billion writedown last year that was largely tied to Precision Castparts, the maker of equipment for aerospace and energy industries based in Portland, Oregon.

Precision Castparts has struggled as the coronavirus pandemic slashed demand for flights, prompting airlines to park jets and reduce schedules. That means less need for replacement parts and a big drop in aircraft purchasing. Precision slashed its workforce by about 40% last year, according to Berkshire’s annual report.

And the slump in travel is expected to persist, leading to more pressure on the supply chain, according to the International Air Transport Association. Passenger traffic may be limited to as little as a third of pre-pandemic levels, the group said.

Buffett said in 2020 that the airline industry had probably changed for good, explaining his decision to drop his holdings in four major carriers.

“Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC’s most important source of customers,” Buffett said.

©2021 Bloomberg L.P.

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