United Continental CEO Jeff Smisek and two other company officials resigned Tuesday in the wake of an internal investigation to determine if it re-established a money-losing flight route to gain favor with David Samson, former chairman of the Port Authority.
New York Times reporters Kate Zernike and Jad Mouawad summed up the day’s news:
The chief executive and two senior officials of United Airlines resigned on Tuesday amid a federal investigation into whether the airline had traded favors with the chairman of the Port Authority of New York and New Jersey.
The United States attorney for New Jersey has been investigating whether United, the nation’s third-largest airline, agreed to reinstate money-losing flights to the airport nearest the weekend home of the authority’s chairman, David Samson, in return for improvements the airline wanted at Newark Liberty International Airport, where it is the biggest carrier.
The resigning chief executive, Jeff Smisek, is the former chief executive of Continental Airlines and prevailed in his bid to lead United after the two airlines merged in 2010. But United’s performance since the merger has lagged rivals’ and angered passengers, as it suffered from delays, a breakdown of its reservation system and other computer problems.
United named Oscar Munoz as president and chief executive to replace Mr. Smisek. He is a member of the United board who previously ran the rail giant CSX.
Susan Carey and Ted Mann of The Wall Street Journal laid out the connections of Smisek’s departure, Samson and the now infamous Bridgegate scandal:
United said the departures were connected to its own internal investigation related to the federal probe of the Port Authority. The airline declined to elaborate but said the investigations are ongoing. United said it is continuing to cooperate with the government.
The Port Authority controls the major airports in the New York City region, and United has a major hub at Newark Liberty International Airport, where United is the largest carrier by passenger volume. While Mr. Samson was Port Authority chairman, United sought to renegotiate its lease agreement at the Newark airport.
Prosecutors have repeatedly subpoenaed records from the Port Authority, including as recently as last month, dating back to the early days of Mr. Samson’s tenure at the authority. The subpoenas seek correspondence and meeting records related to United’s attempts to negotiate the extension at Newark, according to people who have seen the subpoenas.
One area of inquiry is a direct flight launched by United to Columbia, S.C., near where Mr. Samson keeps a vacation home, these people said. As previously reported, prosecutors are looking into whether Mr. Samson asked the airline for a special weekly flight to Columbia, S.C., near his vacation home, while the company was negotiating with the Port Authority. The flight was canceled after Mr. Samson resigned from his position in March 2014.
A spokeswoman for Mr. Samson said that the executive changes are “a United Airlines matter,” declining to comment further. Spokesmen for the Port Authority and the U.S. attorney’s office in Newark declined to comment. Federal prosecutors aren’t expected to immediately announce any findings from the investigation, people familiar with the matter said.
Mr. Smisek’s ouster is one of the most surprising developments to emerge from a series of traffic jams that began two years ago at the New Jersey entrance to the George Washington Bridge.
The congestion was triggered by allies of New Jersey Gov. Chris Christie, who closed access lanes to the bridge in what federal prosecutors and one of those allies have said was an attempt to punish a Democratic mayor for failing to endorse Mr. Christie’s re-election campaign.
Mr. Christie hasn’t been accused of wrongdoing and has said he wasn’t told of any plan to close the lanes before they occurred.
Mr. Christie, who appointed Mr. Samson as Port Authority chairman, has previously defended his tenure. Mr. Samson resigned from the Port Authority as Mr. Fishman’s inquiry widened from lane closures on the George Washington Bridge to other activities within the Port Authority.
Unable to make headway in the lease-extension discussions with the Port Authority, United filed in December 2014 a Federal Aviation Administration complaint accusing the authority of charging excessive landing fees at the Newark airport.
That complaint raised eyebrows within the Port Authority because of sharp criticism it contained about the agency and Christie administration, according to people familiar with the situation.
Mary Schlangenstein of Bloomberg described the company’s new CEO and Smisek’s departure package:
Munoz, 56, comes to the airline industry after serving as second-in-command at the largest railroad in the Eastern U.S. He told United employees in a letter Tuesday: “I recognize that this news is unexpected, and I want you to hear it directly from me, as United’s new CEO.”
Munoz, who graduated from the University of Southern California and earned an MBA from Pepperdine University, in February was named president of CSX, prompting analysts and investors to consider him as the heir to CEO Mike Ward, 65. Munoz served as chief financial officer at the Jacksonville, Florida-based railroad for almost nine years before becoming COO in 2012.
Munoz was CFO at AT&T Inc.’s consumer services unit and held executive jobs at Coca-Cola Co. and PepsiCo Inc. He served on the board for United Continental since 2010 and previously was a Continental director.
Smisek is eligible for separation payments worth at least $28.6 million, according to data compiled by Bloomberg from the company’s statement and regulatory filings. That includes a $4.88 million cash severance and restricted shares that will vest early, worth $3.5 million at Tuesday’s close. It also includes performance-based awards worth $19.5 million at the company’s Dec. 31 fiscal year-end. He’s eligible to receive a pro-rated portion of his annual incentive award, which paid out $2.34 million to him last year.
He’ll receive perks including flight benefits, tax reimbursements on those benefits, and parking privileges for the remainder of his life, in addition to the title to his company vehicle, according to the statement.
The Chicago Tribune’s Gregory Karp showed how Smisek’s resignation might not be the worst thing for United, which struggles with its customer service:
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.”
