United's Board Faces Long To-Do List: From Chairman to Jets

(Bloomberg) -- United Continental Holdings Inc. directors face a series of momentous decisions as the board gathers this week at the airline’s Chicago headquarters.

The to-do list ranges from naming a new chairman to initiating a search for a new chief financial officer. There’s also the debate about long-range planes that will make up the company’s future fleet.

The deliberations will shape the No. 3 U.S. carrier into the 2020s, as President Scott Kirby deepens his impact on operations. He favors a simplified fleet, which would suggest adding more Boeing Co. wide-body jets such as the 787 Dreamliner, said aviation consultant Robert Mann. Andrew Levy, the recently departed CFO, focused on the most cost-effective aircraft, whether used planes or Airbus SE models, Mann said -- even if they added operational complexity.

The airline has been weighing an order for more Boeing 787-8 planes to replace another aging twin-aisle model. But the decision is probably wrapped into a broader discussion of a new midrange jet family that Boeing is studying. That plane -- nicknamed the 797 by outside analysts -- would target many routes currently served by Boeing’s long-in-the-tooth 757 and 767, two big components of United’s existing fleet.

“I’m not sure this is the meeting where they finalize an order, but they are pretty far along in having those conversations,” Savanthi Syth, a Raymond James Financial Inc. analyst, said of a decision on new planes.

United fell less than 1 percent to to $69.99 on Tuesday. The shares have advanced 3.8 percent this year, the only increase on a Standard & Poor’s index of five major U.S. airlines. That’s an improvement over last year, when United fell 7.5 percent even as the broader gauge climbed 11 percent.

Turnaround Effort

The board is meeting this week as United Chief Executive Officer Oscar Munoz also hosts the company’s annual shareholder meeting on Wednesday at 9:00 a.m. in Chicago. The company didn’t respond to a request for comment about details of the board meeting.

Kirby, 50, and Munoz, 59, are working to improve operations, catch up to the profitability of Delta Air Lines Inc. and restore customer confidence after several public-relations debacles.

The company was pilloried in March when a dog died on one of its planes, after a flight attendant had the pet and its crate placed in an overhead bin. That came less than a year after United drew worldwide scorn when a passenger was dragged off a flight by security officials in Chicago.

Another challenge: turnover in the upper ranks. The board is expected to name a new independent chairman Wednesday to replace Robert Milton, who said last month that he would step down. The oversight panel itself will shrink to 14 directors from 16, with Laurence Simmons retiring after more than eight years. Milton became a director in March 2016, and was named chairman three months later following a proxy battle with two hedge funds.

Patience ‘Tested’

“Whoever they name is going to have to have confidence in the long-term plan” for United that’s been laid out by Kirby, Adam Hackel, an Imperial Capital analyst, said of the new chairman. “The board’s patience level is certainly being tested due to very mixed stock performance since the overhaul in management, as well as the negative publicity United has faced in recent years.”

The directors are likely at least to discuss the unexpected departure last week of Levy, 47, who had been chief financial officer at the Chicago-based carrier for less than two years, and was hired shortly ahead of Kirby.

Kirby put United on an aggressive growth track six months after he joined the carrier from the same position at American Airlines Group Inc. in 2016. Changes include fortifying the airline’s Midwestern airport hubs by adding routes and flying larger jets on key routes in its network.

‘Positive Signs’

And while Kirby stunned investors in January by saying United would increase capacity as much as 6 percent a year through 2020, triggering fears of fare wars, there are signs a turnaround is taking root. United’s financial performance through the first quarter, along with a “healthy outlook” for the rest of the year, “are positive signs the carrier is heading in the right direction,” Rajeev Lalwani, a Morgan Stanley analyst, wrote in a note last month.

But for a transformation to yield Delta-like results, United needs to do a better job of empowering employees to put customer needs ahead of internal measures such as on-time departures, Mann said. He said the challenge is similar to the one tackled years ago by Gordon Bethune and Greg Brenneman at Continental Airlines, which later merged with United.

“You have to take it from where it is to first,” Mann said, alluding to “From Worst to First,” Bethune’s autobiography. “You are going to have to do that with your employees -- and not on their backs. The employees are going to have to feel as good about the operation.”

©2018 Bloomberg L.P.

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