Elliott Investment Management Proposes Major Board Overhaul at Southwest Airlines

Elliott Investment Management is intensifying its campaign at Southwest Airlines by proposing to replace a majority of the airline’s board members. The hedge fund, which has been vocal about its dissatisfaction with the current leadership, suggested appointing 10 new directors out of the 15-member board, aiming to enhance the airline’s performance and strategic direction.

This move comes as Southwest Airlines struggles with a 24% decline in stock price over the past year amidst efforts to revitalize its business. These efforts include plans for more spacious seating, transitioning to assigned seating, and the recent appointment of a new board member in July. The proposed board includes experienced figures such as David Cush, former CEO of Virgin America, and Robert Milton, former CEO of Air Canada, bringing a wealth of airline industry expertise to the table.

Southwest responded to Elliott’s proposals by stating it would consider the new nominees as part of its ongoing board refreshment process. Following the announcement, Southwest’s stock saw a slight uptick of 1.5% in premarket trading.

Elliott, holding a 7% beneficial ownership and approximately 11% interest when including derivatives, is nearing the 10% stake required to call a special shareholder meeting. The fund has been particularly critical of current CEO Robert Jordan and Executive Chair Gary Kelly, pushing for their replacement to realign the company’s leadership.

In response to Elliott’s increasing stake, Southwest recently adopted a shareholder rights plan, or “poison pill,” designed to thwart potential takeovers by allowing other shareholders to purchase additional shares at a discount if any single investor acquires more than 12.5% of the stock.

Elliott’s Board Nominees: A Blend of Industry Veterans and Executives

Elliott’s proposed board includes seasoned executives from diverse backgrounds in aviation and technology:

• Michael Cawley, former COO and CFO of Ryanair, recognized for his strategic roles in one of Europe’s leading budget airlines.
• David Cush, ex-CEO of Virgin America, brings a wealth of experience from his time leading a major American airline.
• Sarah Feinberg, with her experience at the Department of Transportation and the Federal Railroad Administration, adds regulatory and administrative expertise.
• Josh Gotbaum, advisor to various corporations and labor groups, and former trustee of Hawaiian Airlines during its Chapter 11 reorganization.
• Dave Grissen, whose tenure at Marriott International saw significant global expansion.
• Nancy Killefer, who brings insights from her time at McKinsey and her current role at Meta.
• Robert Milton, former CEO of Air Canada and chairman at United Airlines, offers a strong background in airline management and corporate governance.
• Gregg Saretsky, ex-CEO of WestJet, known for his leadership in the Canadian aviation market.
• Eash Sundaram, JetBlue’s former chief digital and technology officer, could contribute to digital transformation strategies.
• Patty Watson, from NCR Atleos, brings extensive technology leadership, crucial for modernizing airline operations.

The tension between Elliott and Southwest’s management has been public, with CEO Jordan noting on a recent earnings call that the hedge fund had been reluctant to engage in meaningful discussions. This corporate strife occurs alongside operational challenges, including delays in plane deliveries from Boeing that have adversely impacted revenue and exacerbated cost pressures.

Analysts, like those at Jefferies, suggest that shareholders might be hesitant to dismiss the current leadership without a convincing future strategy, especially given recent initiatives by Southwest that demonstrate a readiness to evolve beyond what Elliott has criticized as ‘stagnant’ practices.

As Southwest navigates these internal and external pressures, the outcome of Elliott’s boardroom challenge could significantly influence the airline’s strategic direction and operational effectiveness in the competitive airline industry.

Related news: https://airguide.info/?s=Southwest+Airlines

Sources: AirGuide Business airguide.info, bing.com, Elliott Investment Management, Southwest Airlines