(Bloomberg) — Southwest Airlines Co. said it remains confident in its current leadership team after Elliott Investment Management proposed replacing a majority of directors on the struggling airline’s board amid a looming proxy war.
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The airline remains open to discussions with Elliott and will consider the activist’s candidates, which include several former airline CEOs, it said in a statement Wednesday.
Elliott nominated 10 candidates for Southwest’s board late Tuesday, stepping up pressure for change, including the ouster of CEO Bob Jordan and Chairman Gary Kelly. The activist criticized the airline for refusing to embrace changes that have spread throughout the industry and caused its stock price to plummet in recent years.
The nominees include former Virgin America CEO David Cush, former WestJet chief Gregg Saretsky and former Air Canada CEO Robert Milton. The company, which said in a separate filing that it holds an 8.2 percent stake in the airline, must build up a 10 percent stake before it can call a special meeting to allow investors to vote on the nominees. It expects to do so before the airline’s annual meeting next spring.
The 10 candidates “give shareholders a choice between the existing board, which has delivered poor returns to shareholders and has failed to hold management accountable for Southwest’s unacceptable performance, or a new board that brings appropriate expertise, fresh thinking and accountability,” Elliott said Tuesday.
Other candidates on Elliott’s list include former Ryanair Holdings Plc deputy CEO Michael Cawley, Sarah Feinberg, a former senior Department of Transportation official, and Nancy Killefer, a former McKinsey senior partner and current board member of Meta Platforms Inc.
Southwest shares rose 1.5 percent in premarket trading Wednesday. Through Tuesday’s close, the stock has fallen 12 percent this year, while the S&P 500 index has gained 14 percent.
The airline announced dramatic changes to its business model last month, including seat reservations, a new premium class option and plans for overnight flights – moves the company sees as boosting revenue and making it more attractive. Although Southwest said earlier this year it was considering the changes, the company has faced increasing pressure from Elliott to revamp its underperforming operations.
Southwest has struggled this year with slowing growth, fewer-than-expected aircraft deliveries from Boeing Co. and a series of air traffic incidents that triggered a review by the Federal Aviation Administration (FAA). The strains on the business were underscored in the company’s latest forecast, which said revenue and costs in the current quarter were worse than Wall Street estimates.
Elliott criticized Jordan and Kelly, who was CEO before Jordan, for their poor execution and their “obstinate unwillingness to evolve the company’s strategy.” They are “not up to the task of modernizing Southwest,” the activist said. He also called for a reshuffle of the board and criticized the lack of flight experience and independence of the current members.
Southwest last month appointed a veteran airline executive to its board to address other concerns raised by Elliott, and the airline also adopted a shareholder rights plan designed to prevent the activist from gaining a larger stake.
(Updated with Southwest’s statement from the first paragraph.)
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