United Airlines Faces Revolt By Shareholders Led by Bethune

Gordon Bethune United Revolt

Gordon M. Bethune

United Continental is facing an insurrection among its shareholders — led by the well-regarded former chief executive of Continental Airlines, Gordon M. Bethune.

The New York Times reports Mr. Bethune is one of six director candidates put forward on 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 follows United’s announcement on Monday to add four independent directors. It also comes just days after the airline said that its chief executive and president, Oscar Munoz, would return to work full time on March 14, after undergoing heart transplant surgery in January.

“As long-term United stockholders, we have been greatly disappointed with United’s poor performance and bad decisions over the last several years,” Altimeter CEO Brad Gerstner said in a statement. “Yesterday’s last-ditch effort –- adding just three people to its now 15-person board –- is a cynical attempt to preserve power by this entrenched board.”

Friday is the deadline to nominate directors. There is still a chance the two sides could reach an agreement.

“I won’t stay for more than 2 years. I really am getting too old to do this,” Bethune, 74, said in an interview. “But I want to help the people who are my friends, who are the employees.”

United has an Underqualified, Ineffective, and Entrenched Board

Along with Altimeter’s formal minority-slate nomination notice, Altimeter and PAR today delivered a letter to the United Board highlighting concerns about the Board’s composition, the Board’s record, and the Company’s resulting long-term underperformance. The stockholders further urged the United Board to seriously and objectively consider the value that the stockholder-nominated candidates would bring to the Board.

The Letter is as Follows:

Dear Chairman Meyer and Board Members:

As you know, Altimeter Capital Management and PAR Capital Management are long-term United Continental Holdings, Inc. (“United”) stockholders that together own approximately 7.1% of United’s outstanding common stock.

Following careful consideration, we have firmly concluded that meaningful change to United’s existing Board of Directors is urgently required in order to reverse long-standing poor Board governance and the resulting many years of substantial and inexcusable Company underperformance relative to United’s competitors. In our view – given United’s valuable and industry-leading strategic asset base – this long-term underperformance directly results from an underqualified, ineffective, complacent, and entrenched Board. We believe that our conclusion is shared by many of United’s long-suffering stockholders, customers, and 80,000+ dedicated employees.

Further strengthening our own conclusions, your seemingly desperate actions yesterday appear as a transparent and cynical attempt to maintain your official privileges and power, despite your long historical record of deficient oversight on behalf of stockholders. When exactly did you determine that the Board was so inadequate as to need four new directors, all at once, and without an annual meeting or a stockholder vote?

To set a new and better course for the Company, and to give United stockholders the opportunity to elect the Board they deserve, Altimeter has delivered to you a notice today indicating its intention to nominate six highly qualified professionals – led by former Continental Airlines CEO Gordon Bethune – to the United Board at the 2016 annual stockholder meeting. Altimeter and PAR believe these experienced professionals can bring meaningful experience, objective oversight, and powerful change to United. Altimeter’s nominees are:

  • Gordon Bethune, former CEO of Continental Airlines; board member of Honeywell, Prudential Financial, and Sprint;
  • Brad Gerstner, Founder and CEO of Altimeter Capital; former board member of Orbitz Worldwide;
  • Barney Harford, former CEO of Orbitz Worldwide; former board member of Orbitz Worldwide and eLong;
  • Rodney O’Neal, former CEO of Delphi Automotive; former board member of Delphi Automotive, Sprint, and Goodyear;
  • Tina Sharkey, CEO of SherpaFoundry; former board member of HomeAway; and
  • Brenda Yester Baty, Head of Strategic Initiatives at Lennar Corp.; former SVP Revenue Management at Carnival Cruise Lines.

As you know, we have attempted to work collaboratively with the current Board to meaningfully improve governance, Board composition, and oversight. Regrettably, our efforts have led to our complete loss of confidence in the current Board, and to our firm determination that meaningful, stockholder-directed Board change is urgently required to serve the long-term best interests of United’s stockholders, customers, and employees. 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.

We are generally patient investors. We certainly are neither short-term traders nor activists. We have not made this difficult decision lightly, but after thorough, serious, and objective analysis, we feel compelled to act.

Over time, we intend to share with United’s stockholders our detailed analysis, which has led us to conclude, among other things, that:

United has a Clear Record of Sustained and Substantial Underperformance: Despite premier, industry-leading strategic assets – such as significant scale advantages, strong brand recognition, hubs in key business markets, and membership in the largest global airline alliance – United has been the worst-performing U.S. airline stock over the last five years. The lagging stock price – under this Board’s control and supervision – directly reflects substantial underperformance in terms of operational reliability, customer satisfaction, market share, profitability, and return on invested capital.

United has an Underqualified, Ineffective, and Entrenched Board: While presiding over United’s stunning long-term underperformance, we believe that the incumbent Board (and a majority of the newly-expanded 15-person Board): (1) lacks sufficient leadership, expertise, and experience to challenge management and hold management accountable, to direct an operational and financial turn-around, and to maximize stockholder value; (2) has entrenched itself by implementing various mechanisms to financially penalize stockholders for making meaningful Board changes; (3) has failed to adequately align management compensation with stockholder interests; and (4) is too stale to effectively represent stockholders. Based on yesterday’s announcement, it seems the Board now agrees that for many years it operated with a suboptimal composition. Superficial change in panicked response to rigorous scrutiny is hardly noble or a basis for stockholders to have confidence in your judgment.

United Urgently Needs a Course Correction: United’s stockholders, customers, and employees deserve better Board governance, better Board leadership, and better Board performance. Our six nominees have the necessary skills, leadership abilities, and relevant experience to catalyze a United course change and to help the Company realize its immense potential.

Ultimately, we and the Board necessarily must share the same objective: maximizing long-term value creation for United’s stockholders, customers, and employees. As always, we welcome the opportunity to engage in further discussions focused on this shared objective.


Brad Gerstner
Paul A. Reeder
Chief Executive Officer
Chief Executive Officer
Altimeter Capital Management, LP
PAR Capital Management, Inc.

[Image: Seattle Times]