United Continental is facing an insurrection among its shareholders — spurred by two activist hedge funds and led by well-regarded former Continental Airlines CEO Gordon Bethune.
United Continental is facing an insurrection among its shareholders — led by the well-regarded former chief executive of Continental Airlines, Gordon Bethune.
Bethune is one of six director candidates put forward Tuesday by two hedge funds, Altimeter Capital Management and PAR Capital Management, which together own about 7.1 percent of United’s shares.
The decision by the activist hedge funds to raise a public challenge to the airline’s board comes after United’s announcement on Monday that it was adding four independent directors.
The contest comes at an awkward time for United, which appointed a new chief executive in September after the surprise dismissal of Jeff Smisek during a corruption investigation involving officials at the Port Authority of New York and New Jersey.
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It also comes just days after the airline said that the new chief executive, Oscar Munoz, would return to work full time March 14, after undergoing heart-transplant surgery in January.
In a statement, Altimeter and PAR said that they chose to begin their proxy fight after weeks of discussions with United’s board. The hedge funds also described the airline’s board expansion as “a knee-jerk response to the stockholders’ efforts.”
The activists argue that United, despite its name recognition and size, has underperformed over the last five years, which the hedge funds argue arises from its board.
“We have no more confidence that you will act responsibly in the future (even with yesterday’s announcement) than we have evidence that you have done so in the past,” Brad Gerstner, the chief executive of Altimeter, and Paul A. Reeder, the chief executive of PAR, wrote in a public letter to United’s board.
Henry L. Meyer, the airline’s nonexecutive chairman, replied in a statement, “We are deeply disappointed that after United attempted to engage in a constructive, good-faith dialogue with PAR and Altimeter, repeatedly communicated our willingness to make meaningful changes in our board, publicly announced our intention to name four new independent directors with deep relevant experience and named three of them yesterday, 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.”
In an interview, Bethune said he had agreed to join the slate to become nonexecutive chairman for two years to help the board set clear goals and motivate employees. He said that before United’s latest nominations, the company’s board lacked directors with experience running an airline.
Bethune wrote a book called “From Worst to First,” about his experience turning around Continental Airlines in the 1990s. He said United needed to perform better than its three main rivals — Delta, American and Southwest.
“They need to beat the competition,” he said. “If you’re in a horse race and you’re in fourth place, you’re not winning.”
“I am willing to help,” he said. “And I do know the front end from the back of an airplane, and that would be a novel experience for the board.”
Bethune was a Boeing executive before joining Continental and ran the 757 and 737 jetliner programs at Boeing’s Renton plant.
Bethune, who is 74, said his age would not be an issue despite the company’s mandatory retirement limit of 75. The board, he said, could simply extend the limit for one year to allow him to stay on.
Bethune, who is serving on the boards of three companies — Honeywell, Prudential and Sprint — plans to retire from two this year but will remain on the board of Sprint. When he ran Continental, he appointed both Munoz and Meyer, the current chairman of United, to the airline’s board.
“I don’t need this,” he said, and added that United employees were demoralized and he wanted to help. “There is nothing wrong with the people. They just need leadership. And they don’t have it.”
Munoz, who has no previous airline-management experience before United, came from the railroad operator CSX, where he was chief operating officer.
Munoz had been a director at United and before that at Continental, where he was named by Bethune.