United Airlines announced a $1.5 billion stock buyback plan, underscoring a seeming return to an investor focus not just at United but also at Southwest Airlines, which is under assault by a hedge fund.
United’s announcement late Tuesday brought condemnation via a public statement from Sara Nelson, president of the Association of Flight Attendants, who drew a comparison with the hedge fund’s bid to get more involved in running Southwest. United shares closed Wednesday at $72.02, up about 12%.
In its earnings release, United said its board of directors authorized a share repurchase program for up to $1.5 billion of common stock and warrants issued to the U.S. Treasury under the Coronavirus Aid, Relief, and Economic Security Act. The amount represents about 7% of the carrier’s Oct. 14 market capitalization.
“Stock buybacks are a sickness that hurts workers and consumers alike,” said Nelson and Ken Diaz, president of the United AFA chapter, in a statement. “The airline industry was rid of them, but a greedhead hedge fund broke the seal in its efforts to gain control of Southwest Airlines and now United Airlines management is following their lead to manipulate the stock and cheat workers and passengers.”
Hedge fund Elliott Investment Management, which owns about 10% of Southwest stock, wants to appoint eight new directors and new management. On Tuesday, it released a podcast featuring its director nominees.
Meanwhile, Diaz and Nelson noted a connection with the decline of Boeing via a press statement. “Right now 35,000 Boeing Machinists are on strike because shareholder capitalism has nearly destroyed this once great pillar of aviation,” they said.
The 2020 CARES Act was a $2 trillion relief package intended to mitigate the impact of the pandemic. It provided $63 billion to the airline industry. A condition of loans made under the act was an agreement to not buy back stock or pay dividends for one year beyond the terms of loans it enabled.
United’s 25,000 flight attendants are in contract negotiations and have voted to authorize a strike. AFA had previously scheduled informal picketing for Thursday at United’s headquarters in downtown Chicago.
United Airlines recently announced a $1.5 billion stock buyback program, marking a significant shift towards a strategy focused on returning value to shareholders. This announcement, which came late Tuesday, reflects broader trends in the airline industry, particularly as other carriers like Southwest Airlines navigate pressures from activist investors.
The airline’s stock buyback plan, which was authorized by its board of directors, involves repurchasing up to $1.5 billion in common stock, as well as warrants issued to the U.S. Treasury under the CARES Act. This repurchase represents approximately 7% of United’s market capitalization as of October 14. Following the announcement, United’s shares surged to $72.02, a jump of about 12%, indicating a strong market response to the news.
However, the buyback announcement has not been met without controversy. Sara Nelson, president of the Association of Flight Attendants (AFA), publicly condemned the move, labeling stock buybacks as detrimental to both workers and consumers. She argued that such financial maneuvers reflect a prioritization of shareholder interests over employee welfare and passenger service.
In a joint statement, Nelson and Ken Diaz, president of the United AFA chapter, criticized the trend, stating, “Stock buybacks are a sickness that hurts workers and consumers alike.” They noted that while the airline industry had largely moved away from such practices, the influence of hedge funds has rekindled this focus on shareholder returns.
The backdrop to United’s decision includes significant pressure from hedge funds, particularly Elliott Investment Management, which has taken a substantial position in Southwest Airlines. This hedge fund owns about 10% of Southwest stock and is pushing for changes in management, seeking to appoint eight new directors. The involvement of Elliott has been characterized by a direct challenge to Southwest’s existing leadership and strategy, underscoring a shift in investor expectations.
The aggressive tactics employed by Elliott have led to heightened scrutiny and tension within the industry. Nelson and Diaz drew a connection between the hedge fund’s influence at Southwest and United’s buyback strategy, suggesting that a culture of “shareholder capitalism” is taking precedence over the interests of employees and customers.
The recent actions of United Airlines and the dynamics at Southwest Airlines are symptomatic of a larger trend in the airline industry. After receiving substantial federal aid during the COVID-19 pandemic, airlines were initially restricted from engaging in stock buybacks or paying dividends. The CARES Act, a $2 trillion relief package enacted in 2020, provided $63 billion specifically to the airline sector to mitigate pandemic-related losses, with conditions designed to protect workers and ensure financial stability.
As these conditions have eased, airlines are now returning to pre-pandemic practices, prompting concerns from labor groups about the potential erosion of worker rights and benefits. The AFA, representing 25,000 flight attendants at United, is currently engaged in contract negotiations, with members recently voting to authorize a strike. The union has planned informal picketing to coincide with the buyback announcement, emphasizing their dissatisfaction with the company’s financial priorities.
Critics of stock buybacks argue that these financial strategies often come at the expense of investments in workforce development, customer service, and operational improvements. The AFA leaders pointed to the ongoing strike by 35,000 Boeing machinists as a stark reminder of the negative impacts of prioritizing shareholder returns over worker welfare. They stated, “Shareholder capitalism has nearly destroyed this once great pillar of aviation,” illustrating the broader implications of such financial practices.
As airlines navigate the post-pandemic landscape, the pressure to satisfy shareholders will likely continue to shape corporate strategies. The dual pressures from investors and labor unions present a challenging balancing act for airline management teams. The ongoing negotiations between United Airlines and the AFA will be critical in determining how the company navigates these competing interests.
The outcomes of these negotiations and the potential for labor actions could set important precedents for the industry. With airlines once again focusing on stock buybacks, the question remains: how will this impact the long-term health of the airline workforce and the overall passenger experience?
United Airlines’ $1.5 billion stock buyback plan serves as a microcosm of the ongoing tensions within the airline industry, where shareholder interests often clash with the rights and needs of workers. As the landscape evolves, both labor unions and management will need to engage in meaningful dialogue to address these challenges. The future of the airline industry may depend on striking a balance between rewarding investors and ensuring fair treatment and compensation for the employees who keep the industry running. The next steps in this unfolding narrative will be closely watched by stakeholders across the spectrum, from corporate leaders to labor advocates.