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December 6, 2019

Breakingviews: United flies back to bumpy governance

by Breakingviews.

Pilots have a crisp and clear process for handing over control of their aircraft, ensuring there’s no doubt as to who is in charge. United Airlines’ chief executive transition fails this test. Current boss Oscar Munoz will be bumped up to executive chairman for at least one year, the company unveiled on Thursday, while President Scott Kirby will take hold of the control stick.

The $22 billion airline has had more than its share of drama since Munoz took control in 2015. A viral 2017 video of a passenger being forcibly dragged off an overbooked plane led to several botched apologies. Pet owners were outraged a year later when a flight attendant told a passenger to put a dog into an overhead luggage compartment, where it died. And a steady drip of stories of customers being sent to wrong cities, kicked off planes and poorly behaved crew hurt the company’s image.

There was almost as much turmoil in the executive ranks. Munoz’s predecessor resigned in response to a probe into the chairman of the Port Authority of New York and New Jersey offering improvements at an airport in exchange for the airline reinstating a money-losing route near his vacation home. A fight with activists led to the appointment of an independent chairman in 2016, but he stepped down two years later. The chief financial officer resigned that same year after serving less than two years. And Munoz had a heart attack soon after taking over and received a heart transplant a year later.

Sure, having Munoz around in an executive role may provide a bit of continuity. But firms are best served with a CEO who has clear control over day-to-day operations, with the independent chair providing oversight, running the board and representing shareholders’ interests.

Having former bosses in the boardroom makes it harder for their replacement to set the company’s direction, especially if it involves undoing past decisions. United’s stock trades at about a 15% discount to rivals based on forward earnings, according to figures from Refinitiv. United’s new governance trip gives an added reason for activists to get involved again should the airline fall further behind.

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