United Airlines' Unions Hope New CEO Can Resolve Lingering Labor Problems

NEW YORK ( TheStreet) -- Jeff Smisek never managed to win the support of United's ( UAL) labor unions, and during his five years as United CEO the carrier often seemed to underperform.
 
Yet Smisek's sudden departure Tuesday seemed unconnected to his shortcomings as an airline manager.
 
Rather, the 61-year-old executive stepped down in connection with  an ongoing federal investigation of the carrier's relationship with David Samson, the former chairman of the Port Authority of New York and New Jersey, which oversees Newark Airport, where United operates its most profitable hub.
 
Nene Foxhall, the respected executive vice president of communications and government affairs, and Mark Anderson, senior vice president of corporate and government affairs, went with Smisek.
 
As it negotiated with the Port Authority over facilities improvements at Newark, United began a non-stop flight between Newark and Columbia, S.C., where Samson has a summer home.
 
Starting routes as special favors to powerful legislators has long been accepted practice in the airline industry, but this time it caught the attention of federal prosecutors.
 
Some United pilot leaders have been calling for Smisek's departure for months, due to operational and pilot management issues. While Smisek generally seemed to have a positive relationship with pilots and other workers at Continental before the 2010 merger with United, he seemed to stumble in the harsher environment of United's labor/management relations.
 
On Tuesday, all three of United's major unions issued statements welcoming new CEO Oscar Munoz. 
 
"The dedicated, hard-working employees at United deserve better than the questionable leadership Jeff Smisek provided," said Sito Pantoja, general vice president of the International Association of Machinists, United's largest union, in a prepared statement. 
 
During Smisek's tenure "the carrier has consistently lagged industry peers in operational and financial performance and has posted dismal customer satisfaction ratings," the IAM said.
 
Jay Heppner, chairman of the United chapter of the Air Line Pilots Association, said the election of Munoz "represents a new beginning and fresh course for United Airlines, its employees and passengers," while Sara Nelson, president of the Association of Flight Attendants, said, "We welcome new leadership and a new direction that recognizes the value of fron-tline workers and the full potential of our airline."
 
"Oscar Munoz has an impressive business record, including at other highly unionized companies," Nelson said. Five years after the merger, United and Contiental flight attendants still work under separate contracts.
 
In a note issued Tuesday, Stifel analyst Joseph DeNardi wrote that if Smisek's resignation weren't tied to the Port Authority investigation, "we suspect that the announcement today would have been viewed favorably."
 
However, given the investigation as well as the departure of CFO John Rainey for PayPal last month, "the management turnover is likely to increase investor perception of risk with the investigation likely to remain an overhang on the company until it is resolved," DeNardi wrote.
 
Deutsche Bank analyst Mike Linenberg wrote that United stock is likely to trade lower at the open, but said "we would be buyers of UAL shares as we don't see the news alterating our fundamental outlook."
Also, Smisek's departure "could be the catalyst for United to resolve its labor issues with its flight attendants and mechanics, which one would think would be positive for the stock," Linenberg wrote. 

United shares rose Tuesday by 1.5% to $57.51, but fell 1.6% in after-hours trading to $56.57.

  

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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