Hedge fund management seeks 10 of the 15 board seats at Southwest

DALLAS (AP) — Elliott Investment Management is launching a proxy fight with Southwest Airlines and plans to nominate 10 candidates for the 15-member board of an the airline where performance has lagged behind competitors.

The hedge fund said late Tuesday CQ that naming a slate of director candidates marks “a key step toward implementing the urgent changes needed at Southwest.”

Southwest said Wednesday that it has repeatedly sought to engage Elliott to address its concerns, but those attempts have been rebuffed.

“After Elliott recently agreed to a meeting with Southwest Airlines in early September to discuss a collaborative resolution, including continuing significant Board refreshment and other governance enhancements, Elliott unilaterally decided instead to publicly announce its intention to replace a majority of Southwest Airlines’ Board,” Southwest said in a prepared statement.

Shares of Southwest Airlines Co. rose more than 1% before the opening bell Wednesday.

According to a regulatory filing Tuesday, Elliott has accumulated roughly an 8% stake in Southwest. The airline’s shares have dropped 12% this year as the S&P 500 has gained 14%. It has not been a stellar year for airlines, but shares of Southwest have suffered more than both Delta Air Lines and United Airlines.

The company trailed far behind Delta, United and American Airlines in second-quarter operating margin, and analysts expect Southwest to lose money in the third quarter.

“The urgency of change is underscored by the substantial continued deterioration in Southwest’s performance” since Elliott announced its proposed overhaul of Southwest, the firm said. Elliott has previously called for the replacement of CEO Robert Jordan and Chairman Gary Kelly, whom it accuses of causing Southwest to lag behind changes in the airline industry.

Southwest announced last month that it will make changes to improve revenue, including switching to assigned seats for passengers and providing extra legroom at higher prices for about one-third of its seats. Jordan promised to give more details about the moves in September.

Elliott’s intended slate includes former CEOs of Air Canada, Canadian low-cost carrier WestJet and Virgin America, former senior executives at JetBlue and Ireland’s Ryanair and a former U.S. Transportation Department official.

Elliott has previously pressured other companies that it deemed underperformers to make management changes. Starbucks announced Tuesday that it was replacing its CEO about two months after Elliott began advocating for new leadership.

Elliott’s plan to nominate Southwest board candidates was reported earlier by The Wall Street Journal, which said the hedge fund was preparing to call a special meeting for a shareholder vote.