Seat 2B By Joe Brancatelli
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United Gets Self-Destructive With Board Intrigue
March 10, 2016 -- Nobody expects the Spanish Inquisition and no business traveler expected the ludicrous fish-slapping dance that erupted this week in the boardroom of United Continental Holdings (NYSE: UAL), parent company of infuriatingly incompetent United Airlines. Not even me, the guy who called United the worst airline ever, not once, but twice.

I could lard this column with dozens more references to "The Simpsons" and "Monty Python" and it still wouldn't cover the idiotic and self-destructive developments this week at United, which continues to lag the airline industry in almost all financial, operational and consumer-satisfaction measures.

In case you were, I don't know, trying to fly from Point A to Point B and do business, here's what has transpired lately in the boardroom drama of the rich and privileged that seems about to replace "Downton Abbey" as our favorite guilty pleasure.

Sunday, March 6 United announces that president and chief executive officer Oscar Munoz would return to work on Monday, March 14.

As you recall from previous episodes of this potboiler, Munoz was hastily drafted off the United board of directors last September to replace Jeff Smisek, the disliked former Continental Airlines boss who'd led United to rack and post-merger ruin. Munoz, a railroad executive, knew nothing of day-to-day airline operations or, apparently, United's parlous state. So like Nelson touring the HMS Victory before Trafalgar or Picard surveying the Starship Enterprise before confronting the Borg, Munoz began visiting United Airlines operations around the world. After little more than 30 days at the helm, however, Munoz suffered a heart attack, was replaced by an interim chief and subsequently underwent a heart transplant.

Monday, March 7 United unexpectedly announces that it would add three new directors to its board.

The board newbies include a financial wizard (James Kennedy, formerly of T. Rowe Price), a controversial airline-industry insider (Robert Milton, former boss of Air Canada) and a much-admired one-time airline executive (James Whitehurst, who several years ago had been passed over for the top job at Delta Air Lines). United also claimed a fourth new director would be named and "certain current directors will step down." United wouldn't name names or explain the board swap.

Tuesday, March 8 The backstory unfolds and a pair of hedge funds announce they intended to crash the United board with a half-dozen outsiders.

Par Capital Management and Altimeter Capital together own about 7.1 percent of UAL stock and are, not surprisingly, appalled that United is as crappy an outfit as it is. PAR and Altimeter are unhappy with United's financial performance, of course, but one of the insurgents is Gordon Bethune, former chief executive of Continental Airlines, a self-proclaimed supporter of Munoz and previously a vociferous backer of Smisek and existing United management. Now, however, he says the United board is "country club" and the carrier needs his operational expertise.

United condemned the proxy battle and insisted it tried to pacify the hedge funds. By the end of the day, an internal memo from Munoz was conveniently leaked. His claim: the hedge funds want control of United. He urged beleaguered employees, who've generally been supportive of Munoz during his 30 days or so on the job, to stay the new course.

Yet no one knows what Munoz's new course is. That story arc has yet to be revealed. For all we know, it hasn't even been written. Except for vague promises to be a kinder and gentler gigantic carrier, a switch to better in-flight coffee and the restoration of snacks in coach, we know nothing of where Munoz might lead United.

And for all the talk of improving, Munoz has insisted that he'll continue to return billions of dollars to shareholders rather than use the funds for long-deferred fixes to the carrier's aging fleet, niggling in-flight service and products, stuttering ground operations, and archaic and unreliable information technology. Although many United employees are noticeably energized by Munoz's arrival, horror stories about the airline's basic operational lapses continue unabated.

Now, however, the endlessly twisted tale has a new frenemy and blast from the corporate past, the 74-year-old Bethune. After doing a Murtaugh Bethune said Tuesday that "I really am getting too old to do this" it turns out Ol' Gordo has an ulterior motive: he wants to be named chairman of UAL. Which is especially peculiar since Bethune was one of the first people Munoz called when he was anointed chief executive back in September. Bethune made his desire known then, too, although the chairman's post is contractually promised to Munoz.

What's Bethune's motivation? Hard to say.

He's revered by many frequent flyers for transforming then-moribund Continental from worst to first in the late 1990s. In fact, that's what he named his best-selling business book.

The problem is Bethune eventually believed his own publicity. And after the terror attacks of September 11, 2001, Bethune's shortcuts (he'd mortgaged Continental's future) were exposed. He blamed customers for mounting losses, flayed competitors (he once claimed United was "HIV positive"), took millions in compensation as the airline hemorrhaged cash, and made offensive claims about pricing power. He lost a boardroom fight and was ousted in 2004. No one ever hired him to run an airline again.

Now Bethune says Munoz whom he personally recruited to the Continental board can't handle the job without his help. "You can't be effective as one guy unless you come in as chairman," he explained. "I would not think about going in as just a board member."

And even though he lauded Munoz and United's operation as recently as December, Bethune now claims the airline's board "obviously hasn't been paying attention, hasn't set the right goals" and needs him at the helm.

Like I said, it makes you want to slap all concerned with a comically large fish. Word to the wise, however: Don't check your Brobdingnagian sea creature as luggage as on United flight. While all these characters play ring-around-the-board-room, United Airlines in December mishandled more bags than the industry average.


This column is Copyright 2016 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright 2016 by Joe Brancatelli. All rights reserved.