Poison Pen: Elliott Sends Open Letter To Southwest Investors Attacking Airline Leadership

By Rytis Beresnevičius

Summary

Elliott Investment Management, which has amassed an 11% shareholding in Southwest Airlines, has continued to push a leadership change at the airline.

While Southwest Airlines has attempted to make changes, the investment firm brushed them off, continuing to call for the resignation or removal of the carrier's top executives.

The proxy battle has been brewing since early June, when Elliott announced its Stronger Southwest plan, which outlined the needed changes at the airline, including the removal of its chairman of the board and CEO.


Elliott Investment Management (Elliott) has continued criticizing Southwest Airlines' current and former chief executives, with the investment firm addressing the carrier’s shareholders and reiterating its plans to change the leadership at Southwest Airlines.
Continuous criticism

Continuing to publish letters on the Stronger Southwest platform, Elliott has once again critiqued Bob Jordan, the president and chief executive officer (CEO) of Southwest Airlines, and Gary Kelly, the current chairman of the board and former CEO of the airline.

Photo: Southwest Airlines

Blaming the two executives for years’ long mismanagement, the investment firm outlined that over the course of three years before it announced its 11% position in Southwest Airlines in June, the airline’s share price has fallen by more than 30%.

“Shareholders are demanding better, and as one of the Company’s largest investors, we are leading an effort to arrest Southwest’s decline and return it to its rightful place as an industry leader.”

Elliott stated that after it had announced its intentions to initiate a leadership change at the airline, Jordan indicated his desire to fight Elliot’s efforts, which has included a poison pill that was armed in July.

Furthermore, the investment firm pointed out that the airline has falsely claimed that the two warring sides have not met, adding that in addition to a meeting in June, Elliott intended to meet with Southwest Airlines’ representatives on September 9.

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No leadership changes

Elliott pointed out that Kelly has led a process to add new directors to the airline’s board. At the same time, the investment firm was adamant that this was an effort to “entrench its current leadership.”

“We have no doubt that Southwest will attempt to portray our decision not to participate in this sham process absent a comprehensive solution as further evidence of our unwillingness to engage.”

Photo: Markus Mainka | Shutterstock

However, Elliott pointed out that Southwest Airlines’ executives were willing to talk openly only if “the most critical question,” namely the change of the carrier’s leadership, was taken off the table.

The company added that while it was willing to engage with the carrier’s board, it would only do so if it agreed to remove both Kelly and Jordan.

Otherwise, it preferred that shareholders, including itself, had a direct say in Southwest Airlines' future leadership.

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Meeting with proposed directors

After Elliott announced ten independent directors to the airline’s board in early August, Southwest Airlines’ representatives have attempted to meet with the proposed executives.


“Neither Elliott nor its independent director candidates see the benefit to Southwest or to us of participating in this Company-controlled process.”

When Southwest Airlines has underperformed so much, no process conducted by its current leadership could be considered credible, Elliott noted.

Photo: Angel DiBilio | Shutterstock



The investment firm reiterated that another firm, Artisan Partners, has joined in its efforts to change the leadership at the airline, with several other unidentified shareholders expressing the same desire.
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Embracing the company’s culture

At the same time, while reiterating that leadership had to go, Eliott stated that it believed Southwest Airlines' current culture was vital to its success and had no intention of changing it.


“But the underlying message of Mr. Jordan’s recent rhetoric is that the culture of Southwest, which has powered its success for half a century, now seems to solely depend on the continued employment of its two top executives… who happen to be Mr. Kelly and Mr. Jordan.”

The recently announced changes to the boarding process and additional revenue initiatives were also criticized, with the investment firm saying that rapid and ad-hoc decisions could impede the long-term stability of Southwest Airlines.




“We have seen this movie before, and it rarely ends well, because there is no one more short-term-oriented at the expense of future value than a beleaguered CEO trying to preserve his or her job.”

Elliott concluded its letter by saying that it has continued to assume it would meet with the airline on September 9.

Photo: F Armstrong Photography | Shutterstock

At the same time, Southwest Airlines will attempt to distract shareholders by using various measures to avoid engaging with them.

The investment firm has hoped that some members of the board will look past the personal interests of Jordan and Kelly and do what was in favor of Southwest Airlines and its stakeholders.