By Rajesh Kumar Singh and Shivansh Tiwary
(Reuters) -Southwest Airlines ended a bitter boardroom battle with Elliott Investment Management on Thursday in a deal that will put half a dozen new directors on the carrier’s board to oversee its planned turnaround.
The agreement came as the U.S. carrier reported a surprise third-quarter profit, benefiting from improved pricing and demand, as well as rebookings from passengers stranded due to the global cyber outage in July.
As part of the deal, CEO Bob Jordan will retain his job but Executive Chairman Gary Kelly will leave next month, accelerating his retirement after decades at the carrier.
The airline will now have four former airline chiefs on the board, including two who join through the agreement with Elliott. The six newcomers will join next month. The board will have 13 members.
The hedge fund had been pushing for months to refresh the board and remove Kelly and Jordan, blaming them for the airline’s poor performance. But Southwest held fast to its chief executive.
The fight between the carrier and the activist investor reached a new high last week when Elliott made good on a threat to take the battle to all shareholders by calling for a special meeting in December to let investors vote on board candidates.
Elliott had proposed eight director candidates, signaling that it wanted to take control of the board. Now five of Elliott’s candidates will join, making it the most seats the hedge fund has ever gotten in a settlement with a company in the United States.
Elliott’s nominees include David Cush, who served as CEO of Virgin America, and Gregg Saretsky, former CEO of WestJet, as well as Sarah Feinberg, Dave Grissen and Patricia Watson. Additionally Pierre Breber, former CFO of Chevron (NYSE:CVX), will join the board.
Southwest earlier this year added Bob Fornaro, a former Spirit Airlines (NYSE:SAVE) CEO, and Rakesh Gangwal, a former CEO of US Airways Group and co-founder of Indian airline IndiGo, as directors.
Southwest once boasted a record 47 consecutive years of profit before the COVID-19 pandemic. But Boeing (NYSE:BA)’s aircraft delivery delays, excess capacity in the domestic airline industry and post-pandemic travel patterns have all combined to depress earnings.
It has taken steps to turn the business around, including adding seats with more leg room and dropping its marquee open seating system.
The airline unveiled several initiatives last month to shore up sagging profits, including partnerships, vacation packages for customers and aircraft sale leasebacks.
Elliott said Southwest’s strategic changes along with a revamped board and governance improvements will help in creating “long-term shareholder value.”
Southwest’s shares were down about 3.5% in early trading.
It reported an adjusted profit of 15 cents per share, compared with analysts’ average estimate of break-even on a per-share basis, according to data compiled by LSEG.
It expects fourth-quarter revenue per available seat mile, a proxy for pricing power, to be up 3.5% to 5.5% on a projected capacity reduction of about 4%.
It continues to expect about 20 new jets from Boeing this year.