Finance History | USAir, 7 August 1989 — US$358 Million Bought Convertible Preferred Stock

On 7 August 1989, Berkshire Hathaway subsidiaries paid US$358 million in 1989 dollars for 358,000 newly issued shares of USAir Group Series A cumulative convertible preferred stock. Each preferred share cost US$1,000 and accrued an annual dividend of US$92.50, giving the security a stated dividend rate of 9.25 percent before considering conversion value or credit risk. The issue carried voting rights that represented about 11 percent of USAir's total voting power at the end of 1989. Beginning two years after purchase, each preferred share could be converted into 16⅔ common shares during an eight-year window. USAir could redeem the preferred shares for US$1,100 each during that period, while any shares neither called nor converted had to be redeemed at their US$1,000 issue price on 7 August 1999. This structure placed Berkshire ahead of common shareholders for dividends and redemption while preserving upside if USAir's common equity became more valuable. The senior security did not remove the airline's underlying risks because labor costs, fuel prices, fares, debt, aircraft utilization and economic cycles still determined whether USAir could meet its obligations. Berkshire later acknowledged that the purchase was based on weak analysis, an important admission because contractual protection can make a fragile business look safer than its economics justify. USAir suspended dividends during its later financial distress, showing that a preferred coupon is a promise dependent on the issuer's ability and willingness to pay rather than a bond-like certainty. The position ultimately recovered enough for USAir to catch up dividends and redeem the preferred stock in 1998, allowing Berkshire to avoid the permanent loss once feared. That favorable ending did not erase the analytical mistake because outcome and decision quality are separate measures in capital allocation. The deal therefore became a durable Berkshire case study in how seniority, conversion rights and a high stated yield can reduce some risks while leaving the operating business decisive. The photographed Boeing 737 at Miami International Airport is a public operating-network anchor rather than evidence that the investment agreement was negotiated or signed there. Its 1989 USAir livery makes visible the capital-intensive airline whose economics stood behind every preferred dividend and redemption promise. Photo: Aero Icarus, CC BY-SA 2.0, via Flickr and Wikimedia Commons.