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 The funds, PAR Capital Management Inc and Altimeter Capital
Management LP, on Tuesday described United's performance as
"inexcusable" and asked shareholders to consider six new directors
for the company's board, including former Continental Airlines chief
Gordon Bethune.
They are expected to lay out more specific claims about the company
in coming weeks that address what they believe are the causes of the
No. 3 U.S. airline's low customer satisfaction scores and its
sagging stock, down almost 14 percent in the past 12 months.
The funds, which together own 7.1 percent of United, have said they
support Munoz as CEO, but their doubts about United's pay policies
and its plan to make him chairman could become a flashpoint as the
long-running struggle over the airline's management develops.
United has refused to appoint Bethune as chairman, ending months of
talks with the funds in early March, the source and two other people
familiar with the matter said. That refusal led the funds to take
their objections public last week, the sources said.
United declined comment on the talks.
The activist investors question whether Munoz, a former president at
railroad operator CSX Corp <CSX.O>, was guided well by United's
board in allowing him to spend his first weeks after starting the
job in September talking to the media and workers rather than
focusing on capital allocation, for example, the first source said.
The two funds called the board "underqualified" last week because it
lacked what they consider experienced airline executives.
United rejected the criticism, saying Munoz was "focused on getting
out on the front line to enhance the customer and employee
experience at United, and the results are evident in our improved
operational and financial performance."
United's unions representing pilots, machinists and flight
attendants are supporting Munoz.
PAR and Altimeter also believe the board's decision to give Munoz a
signing bonus of $12 million should have been tied to performance
goals, the person familiar with the situation said. United declined
to comment on that criticism, though in a filing it had said the
award partially accounted for pay Munoz forfeited at CSX.
The funds are set to oppose United's plan to make Munoz chairman by
2017, as specified in his employment contract signed while Munoz was
on medical leave after a mid-October heart attack, the source said.
Such an arrangement has been criticized by corporate governance
experts, but it is not unusual in the United States. Just over half
of S&P 500 companies had the same CEO and chairman last year, down
from 71 percent a decade ago, according to executive search firm
Spencer Stuart.
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United's current chairman, Henry Meyer, is a retired financial
services executive.
DISPUTE OVER DIRECTORS
United has tried to placate shareholders, recently doubling its
forecast for stock buybacks in the first quarter to $1.5 billion,
and expanding its board by three new directors last Monday.
The two board additions with airline expertise - James Whitehurst,
former chief operating officer of Delta Air Lines Inc <DAL.N>, and
Robert Milton, former CEO of Air Canada <AC.TO> - were previously
vetted and mentioned as potential directors by PAR and Altimeter,
the people familiar with the situation said.
United also offered to extend a deadline for PAR and Altimeter to
propose names to be interviewed for the board, which the funds
declined, and United on Feb. 18 amended its bylaws in line with
shareholder interests, two of the people said.
Brad Gerstner, CEO of Altimeter Capital, called United's proposal "a
cynical attempt to preserve power by this entrenched board," in a
statement on Tuesday.
However, United and the hedge funds are open to a settlement that
avoids a vote on the shareholder nominees, according to the sources.
The two hedge funds' frustration with United's board stretches back
to August 2015, when the airline's well-liked chief financial
officer left to join PayPal Holdings Inc <PYPL.O>, one of the
sources said. United has yet to announce a permanent CFO.
Worries about succession planning and insufficient disclosures by
the board escalated in September when then-CEO Jeff Smisek stepped
down after an investigation into the airline's dealings with the
Port Authority of New York and New Jersey.
(This version of the story corrects paragraph 17 to reflect that
United did not extend a deadline for nominations to its board
because the funds declined the offer)
(Reporting by Jeffrey Dastin, Alwyn Scott, Gregory Roumeliotis and
Michael Flaherty in New York; Editing by Joe White and Bill Rigby)
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