Activist hedge fund Elliott Investment Management has launched a fight to take control of Southwest Airlines’ board of directors in an effort to oust the airline’s CEO and turn around the airline’s performance, the company said.
Elliott is seeking to replace 10 of the 15 directors, intensifying a proxy fight over who should lead the airline and how it should be transformed.
The company’s nominees to the board include some of the biggest names in the transportation and aviation industries, including former Ryanair executive Michael Corey, former Virgin Air CEO David Kusch, former Air Canada CEO Robert Milton and former JetBlue executive vice president Eash Sundaram.
“The superior qualifications of these nominees contrast with the qualifications of the current board, which prior to Elliott’s June 10 letter did not have a single independent director with airline experience.” Elliott told CNBC in a statement: Tuesday.
Elliott said it plans to call an extraordinary general meeting to allow shareholders to vote for the nominees. According to the Wall Street Journal:.
The nominees will give shareholders the opportunity to choose between the existing board and a new board that “brings the right expertise, fresh thinking and accountability,” Elliott said in a statement.
“Since Elliott began his campaign against Southwest Airlines, the board has consistently attempted to negotiate constructively,” the Dallas-based airline said in a statement. “Elliott has ignored those efforts at every turn.”
Southwest said Wednesday that its board will evaluate Elliott’s candidate proposals as part of its ongoing board renewal process.
Southwest Airlines shares have fallen 24% over the past 52 weeks as the airline works to implement a restructuring plan that includes adding seats with extra legroom, moving to assigned seating and appointing a new board of directors in July.
The airline’s shares fell about 1% on Wednesday.
Elliott said in a regulatory filing last week that its beneficial ownership was 7%, close to the 10% stake needed for investors to call a special meeting. The company owns about 11% of the stock, including derivatives.
The hedge fund has been pushing to replace both Jordan, who has been CEO since 2022, and Jordan’s former CEO and executive chairman, Gary Kelly.
The activist investor recently called for struggling Starbucks to fire its CEO, a move the coffee giant made on Tuesday by appointing Chipotle CEO Brian Niccol as CEO.
Jordan said on an earnings call last month that Elliott had not indicated it was open to any meaningful discussions, adding that the airline was taking steps to transform.
Southwest responded to Elliott’s investment by implementing a shareholder rights plan, or poison pill, that would be triggered after an investor acquired more than 12.5% of the stock and allow other shareholders to buy more shares at a discount to prevent a takeover.
“We expect investors are unlikely to fire current management without considering their plans for the future, particularly as LUV’s recent actions signal an increased willingness to adapt in a way that challenges Elliott’s characterization of ‘stagnation’,” Jefferies said in a note ahead of the official announcement.
The airline expects third-quarter unit revenue to be flat to down 2 percent compared to the same period last year, but expects non-fuel operating costs to increase 11 percent to 13 percent.
Profits have been under pressure in recent quarters, in part due to delays in aircraft deliveries from Boeing that have hit revenue and exacerbated cost and pricing pressures, with airfares falling due to an industry-wide oversupply in the domestic market.
Southwest Airlines appointed a new director in July, adding Rakesh Gangwal, a decades-long veteran of the airline industry, to its board.
He is a co-founder of IndiGo, India’s largest airline by aircraft size and passenger numbers, according to Southwest.
His appointment was likely a response to Elliott’s criticism of Southwest’s board in June for not appointing industry experts.
The 10 new director candidates proposed by Elliott do not include any Elliott employees.
Elliott did not respond to requests for further comment.
