1994: Can US Air cut its costs enough?

AUDIENCE MEMBER: Mr. Buffett, Greg Elright (PH) from Washington, DC.

In the last year, United Airlines and Northwest have resolved some of their financial problems by moving ownership over to the employees.

With USAir’s current positions — uh, problems — what do you see as occurring with USAir and do you see any movement toward employee ownership? And how will that affect Berkshire’s interest in the company?

WARREN BUFFETT: USAir has a cost structure which is non-viable in today’s airline business. Now that, in an important way, involves its labor cost, but it involves other things, too. But it certainly involves its labor costs.

And they’ve stated this publicly. And I think — and they have — they are talking with their unions about it and they’re talking with other people about other parts of their cost structure.

And I think you’ll just see what unfolds in the next relatively few months, because there isn’t any question that the cost structure is out of line. I think the cost structure could be brought into line. But whether it will be brought into line or not is another is another question.

And, looking backwards, the answer is not to get into businesses that need to solve problems like that. It’s to — but — that was a mistake I made.

And I think in Seth Schofield you’ve got a manager who understands that business extremely well, who probably is as — in my view, anyway — is as well regarded and trusted by people who are going to have to make changes as anyone could be in that position. But that may not be enough. I mean that — there’s enormous tensions when you need to take hundreds and hundreds of millions of dollars out of the cost structure of any business.

And when you need cooperative action, all by various groups, each one of which feels that maybe they’re having to give a little more than some other group, and understandably feels that way, you know that is an enormously tough negotiating job.

I think Seth is as well-equipped for that as anyone. But I would not want to — you know, I cannot predict the outcome.

WARREN BUFFETT: Charlie, do you —?

CHARLIE MUNGER: Well, if I were a union leader, I would give Seth whatever he wants because he’s not the kind of a fellow who would ask for more than he needs. And, it’s perfectly obvious that’s the correct decision on the labor side. But whether the obvious will be done or not is in the lap of the gods.

WARREN BUFFETT: It’s a lot of people with a lot of different motivations and, I mean, those are really tough questions. I mean, we — Charlie and I’ve been involved in that sort of thing a few times and frequently it works out, but it’s not preordained.