Under Jeff Smisek’s stewardship, the merger of United Airlines and Continental was marred by mediocre stock performance, computer glitches, and low grades from consumers. But Smisek’s sudden ouster as the airline’s CEO likely had more to do with inquiries pegged to alleged corruption at the Port Authority of New York and New Jersey than his turbulent tenure at the carrier's helm.
“It certainly doesn’t’ help that the company has had such a rocky merger integration,'' says Jim Corridore, an analyst with S&P Capital IQ, "but . .. it seems that the main issue is this investigation,’’
United announced Tuesday that Smisek had resigned from his roles as CEO, president and chairman of the board, effective immediately. The airline said that his departure, along with those of two other airline officials, was connected to a federal investigation and internal company inquiry into dealings with the Port Authority, which oversees United’s hub in Newark, as well as New York’s other major airports.
Oscar Munoz, 56, a United board member who was COO and president of the rail company CSX Corporation, was named as Smisek’s replacement.
In a conference call with investors Tuesday, Munoz noted that he was taking over leadership of a company that had endured difficulties since United and Continental joined forces in 2010.
“It’s been a rough integration,’’ Munoz said, “and there’s lots of complex matters to work through.’’
Still, it appears that the corruption allegations surrounding the Port Authority, which have sparked investigations, two indictments, and hobbled the presidential ambitions of New Jersey Gov. Chris Christie, may have been Smisek’s undoing, industry watchers say.
“This strikes me as an attempt by United to say ‘Look, we did an internal investigation, (and) we removed the responsible officials when we learned of this activity,’’ says David Primo, a professor at the University of Rochester’s Simon Business School, who has written about the airline industry. “This could be an attempt by the airline to insulate itself from potential legal action.’’
Primo added that if United wanted to remove Smisek because of the airline’s spotty performance, it could have been done at any time. “Given the timing, and the public statement that United made, and the fact that they hired an outside law firm to investigate the allegations about improper dealing with the Port Authority . . .it’s almost certain that their internal investigation revealed evidence that was so clear cut, that they had no choice but to let the CEO go.’’
Earlier this year, federal prosecutors subpoenaed records of interactions between United officials and David Samson, former chairman of the Port Authority and a confidante of New Jersey’s Gov. Christie. In April, Bloomberg News recounted a dinner in September, 2011, attended by Samson and Smisek, where Samson allegedly asked that United resume service between Newark, where it is the biggest carrier, and Columbia, S.C., which had an airport closer to Samson’s weekend home.
United launched service from Newark to Columbia Metropolitan Airport on Sept. 6, 2012, according to Lynne Douglas, Columbia airport’s air service development and customer service manager. The flights, which operated only on Thursdays and Mondays, ended on April 1, 2014. The previous month, Samson had resigned from his position at the Port Authority in the midst of allegations that officials at his agency, along with staffers working for Gov. Christie, cut off lanes to the George Washington Bridge, triggering massive traffic jams, in Sept. 2013.
According to a filing by United with the Securities and Exchange Commission, Smisek has said that he will cooperate regarding claims or inquiries stemming from incidents that happened at United during his tenure.
Smisek will receive a severance payment of $4,875,000 in cash, according to the filing, and will still qualify for a pro-rated annual cash incentive award for the current fiscal year. He will also receive nearly 61,000 shares of the company’s common stock, flight benefits and be able to keep his company car.
But Smisek could also be made to repay some severance monies or benefits if he pleads guilty or is convicted of a felony or crime “involving moral turpitude’’ connected to his service at United, the filing says.
Though the ongoing investigations appear to be at the root of Smisek's departure, Vicki Bryan, an analyst at Gimme Credit, says that Smisek's leadership should also have contributed to his dismissal.
“I hope that it was also because of his poor performance,’’ Bryan said. “United’s record is terrible . . .(The board is) still remiss in waiting so long and waiting for so much destruction to the network and United’s credibility.’’
Now, Bryan says, investors will be watching to see if Munoz can do a better job. “I don’t know what took them so long,’’ Bryan said of Smisek’s removal, “but it’s done.’’
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