Christine Boynton July 08, 2024
Veteran To Board; Elliott Calls For CEO Transition
Credit: Joe Pries
Former US Airways Group CEO and IndiGo co-founder Rakesh Gangwal has joined the Southwest Airlines Board of Directors, the carrier’s latest move to be announced in a contentious back-and-forth with its newest large shareholder – Elliott Investment Management.
“Having co-founded IndiGo and grown it into India’s largest airline, Rakesh knows the importance of building a business that has both a distinct culture and enduring profitability,” Southwest Executive Chairman Gary Kelly said. He also nodded to Gangwal’s “expertise in travel technology” as being valuable to the carrier’s operational investments.
“Together with the rest of the board, I look forward to supporting the company’s strategic direction and building on its well-earned reputation as one of the world’s most admired and respected airlines,” Gangwal said.
Elliott announced its 11% stake in June, outlining a go-forward vision for the airline centered on leadership change. The company sees the director appointment – along with Southwest’s recent adoption of a “poison pill” defense – as only solidifying its case.
Southwest’s Shareholder Rights Plan announced July 3 would activate if anyone acquires 12.5% or more of the company without prior approval from the board, allowing for the acquisition of shares at a 50% discount. The move was made, Southwest said, in part due to Elliott’s ability to acquire a “significantly greater percentage” as early as July 11.
“Contrary to the company’s statements, Elliott is not seeking control of Southwest,” the fund said in its July 8 response. “Quite simply, we are seeking to strengthen oversight, upgrade management and improve company performance.”
The fund described the appointment of Gangwal as “a clear attempt to entrench itself and the current management team.”
In its July 8 letter to Southwest’s Board, Elliott again advocates for three measures: a comprehensive business review, changes at the board, and new leadership – calling for immediate action.
“The company should immediately announce a CEO transition and select an interim CEO who can earn the trust of investors,” it writes. “We believe the new CEO should be sourced from external candidates and possess relevant airline or other transportation industry experience, strong operational capabilities and a demonstrated track record.”
The airline’s Board has described efforts to engage with the fund as it focuses on restoring financial performance. Southwest has been making moves to adjust its network, modernize its fleet, and bolster revenue through operational initiatives, but recently lowered its guidance for the June quarter, citing complexities in adapting its revenue management to current booking patterns.
Elliott is willing to collaborate with the airline Board on a path forward, it says – if it is consistent with the three-pronged framework it outlined, “but absent alignment, we intend to move expeditiously to give shareholders a direct say on the necessary leadership changes.”
According to Southwest’s bylaws, special meetings of the shareholders may be called upon written request by one or more shareholders that collectively own at least 10% of the company’s shares.
“Despite Southwest Airlines’ good faith efforts to meet with Elliott to better understand their views, Elliott has focused on personal attacks on our leadership team and board, conditioning any serious discussions on an immediate CEO change,” Southwest said in reaction to the fund’s latest letter. “We remain open to constructive conversations with Elliott, including evaluating additional strong and independent director candidates, as we continue to solicit candid feedback from all shareholders.”
The airline describes Gangwal’s appointment as “further evidence that the board and leadership team are committed to a strategy of driving sustainable value for all shareholders” while staying true to its brand and culture. Southwest has “bolstered the breadth of experience and expertise in our boardroom,” by appointing eight new independent directors over the last three years, the airline said.
Southwest is set to report its second quarter earnings on July 25; its annual shareholders’ meetings are typically held each May.
Christine Boynton is a Senior Editor covering air transport in the Americas for Aviation Week Network.