(Repeats to additional subscribers with no changes to text)
By Jeffrey Dastin and Alwyn Scott
NEW YORK, March 14 (Reuters) - The two hedge funds that
launched a boardroom fight with United Continental Holdings Inc
UAL.N last week oppose the airline's plans to give Chief
Executive Oscar Munoz the additional role of chairman and have
concerns about his compensation, according to a person familiar
with the matter.
The funds, PAR Capital Management Inc and Altimeter Capital
Management LP, on Tuesday described United's performance as
"inexcusable" and asked shareholders to consider six new
directors for the company's board, including former Continental
Airlines chief Gordon Bethune.
They are expected to lay out more specific claims about the
company in coming weeks that address what they believe are the
causes of the No. 3 U.S. airline's low customer satisfaction
scores and its sagging stock, down almost 14 percent in the past
12 months.
The funds, which together own 7.1 percent of United, have
said they support Munoz as CEO, but their doubts about United's
pay policies and its plan to make him chairman could become a
flashpoint as the long-running struggle over the airline's
management develops.
United has refused to appoint Bethune as chairman, ending
months of talks with the funds in early March, the source and
two other people familiar with the matter said. That refusal led
the funds to take their objections public last week, the sources
said.
United declined comment on the talks.
The activist investors question whether Munoz, a former
president at railroad operator CSX Corp CSX.O , was guided well
by United's board in allowing him to spend his first weeks after
starting the job in September talking to the media and workers
rather than focusing on capital allocation, for example, the
first source said.
The two funds called the board "underqualified" last week
because it lacked what they consider experienced airline
executives.
United rejected the criticism, saying Munoz was "focused on
getting out on the front line to enhance the customer and
employee experience at United, and the results are evident in
our improved operational and financial performance."
United's unions representing pilots, machinists and flight
attendants are supporting Munoz.
PAR and Altimeter also believe the board's decision to give
Munoz a signing bonus of $12 million should have been tied to
performance goals, the person familiar with the situation said.
United declined to comment on that criticism, though in a filing
it had said the award partially accounted for pay Munoz
forfeited at CSX.
The funds are set to oppose United's plan to make Munoz
chairman by 2017, as specified in his employment contract signed
while Munoz was on medical leave after a mid-October heart
attack, the source said.
Such an arrangement has been criticized by corporate
governance experts, but it is not unusual in the United States.
Just over half of S&P 500 companies had the same CEO and
chairman last year, down from 71 percent a decade ago, according
to executive search firm Spencer Stuart.
United's current chairman, Henry Meyer, is a retired
financial services executive.
DISPUTE OVER DIRECTORS
United has tried to placate shareholders, recently doubling
its forecast for stock buybacks in the first quarter to $1.5
billion, and expanding its board by three new directors last
Monday.
The two board additions with airline expertise - James
Whitehurst, former chief operating officer of Delta Air Lines (NYSE:DAL)
Inc DAL.N , and Robert Milton, former CEO of Air Canada AC.TO
- were previously vetted and mentioned as potential directors by
PAR and Altimeter, the people familiar with the situation said.
United also offered to extend a deadline for PAR and
Altimeter to propose names to be interviewed for the board,
which the funds declined, and United on Feb. 18 amended its
bylaws in line with shareholder interests, two of the people
said.
Brad Gerstner, CEO of Altimeter Capital, called United's
proposal "a cynical attempt to preserve power by this entrenched
board," in a statement on Tuesday.
However, United and the hedge funds are open to a settlement
that avoids a vote on the shareholder nominees, according to the
sources.
The two hedge funds' frustration with United's board
stretches back to August 2015, when the airline's well-liked
chief financial officer left to join PayPal Holdings Inc
PYPL.O , one of the sources said. United has yet to announce a
permanent CFO.
Worries about succession planning and insufficient
disclosures by the board escalated in September when then-CEO
Jeff Smisek stepped down after an investigation into the
airline's dealings with the Port Authority of New York and New
Jersey.