United Gears Up For Power Struggle As Munoz Returns to Work

by Josh Lew
Last updated: 3:00 AM ET, Thu March 10, 2016

Photo courtesy of United Airlines

United Airlines has promised to improve going forward; a comprehensive plan that was temporarily halted when CEO Oscar Munoz was sidelined by a heart attack and subsequent heart transplant in October of last year. He will be returning to work on March 14 and still promises to rebuild the airline's image and return it to financial success, but some of the largest shareholders apparently aren't willing to wait for him to carry out his plan.

Two large hedge funds, PAR Capital Management and Altimeter Capital Management, which own 7.1 percent of all the airline's shares, are attempting to take matters into their own hands.

Forcing new directors into the boardroom

The two firms are urging people who attend the next shareholders' meeting to elect new board members who they think are more qualified to steer the airline back to success. Altimeter CEO Brad Gertsner released a statement explaining this aggressive move: "As long-term United stockholders, we have been greatly disappointed with United's poor performance and bad decisions over the last several years."

The new executives that the hedge funds want to force into the boardroom include Gordon Bethune, who was the CEO of Continental Airlines. Gertsner's statement said that the main reason for the move was that United was continuing to underperform compared to the other airlines in the industry and that it has already had plenty of time to right the proverbial ship.

Already on a profitable path?

Munoz, who is not officially starting back to work full time until next week, said that he merely wanted to continue implementing his plan to improve the airline's fundamentals: customer service and employee relations.

United did make a move that was perhaps meant to preemptively counteract any success that the hedge funds' move might have. The airline appointed three new directors, bringing the total number of boardroom members to 15, at least temporarily. Even if the six new members are elected, they will not have a majority.

Patience is the best policy

Henry Meyer, the airline's non-executive chairman, explained that he thinks the move by Altimeter and PAR Capital is ill-timed because it does not give the airline time to improve now that Munoz is back at the helm. "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."

Even if he had not had the heart problems, no one expected Munoz to right the ship immediately. His predecessor, Jeff Smisek, left the airline in poor shape when he was forced to step down in disgrace last September following a corruption probe.

United will need to improve if it wants to keep pace with the other legacy carriers. The only question is whether that improvement will come as a result of Munoz's focus on the fundamentals or from moves made by others who will come into power if the hedge-fund shakeup is successful.

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