Chicago-based United Continental Holdings, parent of United Airlines, has replaced its CEO and two other top executives, saying the departures are linked to internal and federal probes associated with the Port Authority of New York and New Jersey.
United officials would not elaborate Tuesday, except to say the investigations are ongoing and the company will cooperate with the government. It also said the investigations “do not raise any accounting or financial reporting concerns” about United.
Oscar Munoz, 56, president at railroad company CSX and longtime United board member, will take over as president and CEO, replacing Jeff Smisek, a former Continental executive who has headed United since its 2010 merger with Continental. Smisek receives nearly $5 million plus other benefits on his way out.
United, headquartered in Chicago’s Willis Tower, said earlier this year that the company and some of its executives received subpoenas from a federal grand jury for information about dealings with the Port Authority of New York and New Jersey. United said at the time that, in response, it was conducting its own internal investigation.
The Port Authority of New York and New Jersey, a joint venture between the two states since 1921, manages bridges, tunnels, airports and transit activities in New York City and Northern New Jersey.
Former Port Authority Chairman David Samson’s activities have been the subject of document requests from the U.S. attorney’s office in New Jersey, including Samson’s votes on United Airlines projects at Newark Airport at the same time United was restarting flights from Newark to Columbia, S.C., near where Samson has a vacation home.
United began direct flights from Newark to Columbia, reportedly called the “chairman’s flight,” after Samson became chairman and canceled the flights days after he resigned last year.
Besides Smisek, also stepping down in connection with that investigation Tuesday were the airline’s executive vice president of communications and government affairs, Nene Foxhall, and its senior vice president of corporate and government affairs, Mark Anderson.
All changes were effective immediately, United said.
The ouster comes at a time when United is making record profits but is still struggling with its flights being on time and complaints about its customer service.
Munoz said, during a conference call with industry analysts late Tuesday, that those are areas he will work on as the new CEO.
In a note to employees Tuesday, Munoz said he will concentrate on three priorities: customers, building teamwork and fostering innovation.
Munoz, who will continue to serve on United’s board of directors, most recently served as president and chief operating officer at CSX. United said, in a statement, that Munoz “brings to this role deep and broad experience in the transportation industry and large consumer brands, including AT&T, Pepsico and The Coca-Cola Company.” Munoz has served on the board of directors for United since 2010 and on the board of Continental Airlines since 2004.
“United has an incredible opportunity for improving an experience that is essential to the vitality of global business and to the personal lives of millions of people, for innovation and for earnings growth,” Munoz said in a statement.
While news of the shake-up was a surprise in the airline industry, it could be good for United, said Henry Harteveldt, a travel industry analyst with Atmosphere Research Group.
“I see this as a positive development for United and especially for its employees,” he said. “Frankly, I think the board was tired of seeing United be the laughingstock of the industry.”
The federal investigation aside, United lags Delta and American on a number of issues, including investing in itself, he said.
He said he was hopeful about the appointment of Munoz.
“Even though he’s not an airline guy, he understands the business and he understands the company,” Harteveldt said. “Hopefully, he will be the guy who can bring the airline together, from the standpoint of culture, investing in its product and pushing the airline to improve its on-time performance.”
The board appointed Henry L. Meyer III, United’s lead independent director, to serve as nonexecutive chairman of the board of directors.
“Oscar’s track record demonstrates that he has the right blend of strategic vision and strong leadership to continue United’s upward trajectory,” Meyer said in a statement. “United is well-positioned to continue executing on its strategic plan to further improve performance and the value and service it provides to its customers.”
He added, “The board thanks Jeff (Smisek) for his service to both United Airlines and Continental Airlines.”
Regulatory filings show a separation agreement with Smisek dated Tuesday will pay him nearly $4.9 million in cash, as well as prorated portions of other payments based on whether the company hits certain performance targets this year. He also leaves with nearly 61,000 shares of stock, which at Tuesday’s closing price would be worth about $3.5 million.
Smisek will also receive flight benefits from United and parking privileges for life, and he will keep his company car.
There is also a “clawback” provision in which United will get back money from Smisek for several reasons, including if he is convicted of a crime involving his tenure at United.
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