A foundry operator at Precision Castparts pours an element into the molten metal alloy to make it even hotter so that it will completely expand and grow into the mold.Benjamin Brink/The Oregonian

Warren Buffett stated plainly Saturday what had been obvious for some time – he overpaid, by a lot, for Precision Castparts Corp.

“PCC is far from my first error of that sort,” Buffett told investors in his annual shareholder letter. “But it’s a big one.”

Berkshire Hathaway, Buffett’s investment firm, paid $37 billion for the Portland company in 2016. It’s the largest sum ever paid for an Oregon business and it remains Buffett’s largest outright acquisition ever.

But Precision Castparts’ revenues stalled in the years following the deal, then plunged 29% last year. The pandemic and Boeing’s 737 MAX crisis took a profound toll on aerospace manufacturing, one of Precision Castparts’ key markets.

The Portland company reported $7.3 billion in sales for 2020, according to financial results Berkshire Hathaway released Saturday, Precision Castparts’ lowest revenue since 2011.

Last year, Berkshire Hathaway wrote down the value of the 2016 deal by $10 billion and Precision Castparts eliminated 13,000 jobs worldwide, an astonishing 40% of its total workforce. The company laid off 717 Oregon workers last spring. It remains among the state’s largest industrial employers.

“No one misled me in any way – I was simply too optimistic about PCC’s normalized profit potential,” Buffett wrote. “Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC’s most important source of customers.”

Precision Castparts makes large metal components for aircraft, electrical generators and other heavy industry.

There’s some cause for optimism in the months ahead. Boeing’s 737 MAX, grounded for 19 months after two tragic crashes, is again flying and the company is delivering new jets. And with the pandemic in steep decline across the U.S., air travel is poised to pick up this year.

In Saturday’s mea culpa, Buffett took all the blame for Precision Castparts’ disappointing performance and stood by CEO Mark Donegan, who has led the Portland business since 2002. Buffett called Donegan “a passionate manager who consistently pours the same energy into the business that he did before we purchased it.”

“We are lucky to have him running things,” Buffett said.

-- Mike Rogoway | mrogoway@oregonian.com | twitter: @rogoway | 503-294-7699

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