United board fight breaks out as activists turn to Bethune

Gordon Bethune, CEO of Continental Airlines, listens during a press conference in New York on September 13, 2004 announcing the addition of three airlines to the SkyTeam Alliance.  Continental, KLM Royal Dutch, and Northwest airlines are now full members of the alliance.  Photographer:  Daniel Acker/Bloomberg News.


Two United Airlines shareholders will nominate Gordon Bethune, renowned for resurrecting merger partner Continental, to head an insurgent director slate as the carrier’s top executive returns from a heart transplant.
Hedge funds Altimeter Capital Management LP and PAR Capital Management Inc. are backing six new board members led by Bethune, the former chief executive officer of Continental Airlines, which combined with United in 2010. The Tuesday announcement came a day after United Continental Holdings Inc. named three independent directors of its own — and just as CEO Oscar Munoz is set to return from medical leave.
Munoz’s October heart attack and subsequent transplant highlighted leadership gaps at United, with a CEO and directors who have little airline experience. Munoz took over the carrier in September, leaving railroad CSX Corp., and fell ill about a month later. The investors see Bethune as providing a steady hand while Munoz recovers and masters the company.
During the chief executive’s medical crisis, United was a “ship without a tiller,” Bethune said in an interview Tuesday. “They’re not against the management or Oscar,” he said, explaining that the funds are angry “about the board not being responsive to shareholders.”
The developments set up a boardroom brawl as Munoz works to mend labor relations and catch up with Delta Air Lines Inc. and American Airlines Group Inc. in on-time arrivals and profit margins. A proxy fight could resonate with investors dismayed by United’s stock performance, lack of succession planning and the board’s radio silence immediately following Munoz’s heart attack.
“The activists have a good chance of winning the board seats because the company has performed badly and the board botched the CEO absence episode,” Erik Gordon, a professor who specialises in entrepreneurship at the University of Michigan’s Ross School of Business, said by e-mail.
The two Boston-based funds, which control 7.1 percent of United, are heavy investors in US carriers and don’t have a history of activism. They had been in talks with management over steps to bolster United’s board, but disagreed over the shareholder ultimatum that Bethune replace Henry Meyer III as nonexecutive chairman.
“You can’t be effective as one guy unless you come in as chairman,” said Bethune, 74. “I would not go, nor think about going in, just as a board member. I don’t need a job.”
The funds were prompted to act because of concerns with United’s financial performance and the board’s decision making, Altimeter CEO Brad Gerstner said in a statement. He criticized directors for voting to expand the board to 15 members in the midst of the negotiations, terming the move “a cynical attempt to preserve power.”

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