United Board Fight Extends to CEO Position

Activist shareholders blast board over executive planning, accusing airline of lacking foresight.

Two hedge funds, controlling a combined seven percent of United Airlines, are taking their fight over the carrier’s future direction out of the boardroom and into the chief executive’s office by demanding “meaningful change.” Newly leaked details to Business Insider reveal the latest fight raised by the investors could involve the future of newly returned chief executive Oscar Munoz.

In a joint letter sent by Altimeter Capital Management and PAR Capital Management on March 8, the two investors accused the airline of having an “underqualified, ineffective, and entrenched board,” which has allowed the Chicago-based carrier to underperform. The letter spelled out their justification for nominating six people to the United board at the 2016 annual meeting. However, their bigger target may involve Munoz and the chairman’s seat.

The anonymous source told the magazine the funds are frustrated by a combination of factors at United, including allowing Munoz to begin his tenure at United focused on media and employee relations instead of capital allocations. Furthermore, the sources claimed both funds were disappointed in allowing Munoz to have a $12 million signing bonus instead of tying the bonus to performance-based goals.

According to the source, the two funds are planning to oppose the planned elevation of Munoz to board chairman in 2017, as spelled out in his employment contract. To allegedly stop the ascension, the funds are nominating the former travel executives to the board at the meeting, lead by former Continental Airlines CEO Gordon Bethune. Business Insider reported the airline’s board refused to allow Bethune to occupy the chairman’s seat.

In a public response to the investor letter, Henry L. Meyer III, current non-executive chairman, expressed disappointment with the decision of the investors. “PAR and Altimeter have unilaterally taken this hostile action with no concern that a proxy fight could distract the Company from executing on Oscar’s strategic plan,” Meyer wrote in a statement.

The board challenge is the most recent situation awaiting Munoz, who returned to work today. Two of United’s major labor unions, the Air Line Pilots Association and the Association of Flight Attendants, expressed their support for the returning executive.

[Photo: Wall Street Journal]