In tapping their top lawyer as interim chief executive officer, directors at United Continental Holdings Inc. stuck with the path they chose a month ago by choosing a leader with no close ties to ousted CEO Jeff Smisek.
Picking Brett Hart as temporary CEO shows the board holds hope for the return of Oscar Munoz, the outsider hired as Smisek’s successor just last month, once he recovers from a heart attack. Selecting someone who joined the company in 2010 also suggests that directors value a clean break from Smisek’s strained ties with unions and employees.
United’s board has been saying they “want someone new and different to change the way things are done,” said Hubert Horan, an aviation consultant and former executive at Northwest Airlines. Hart’s status as a relative newcomer may have tipped things in his favor for the interim post, Horan said. “The board’s not going to trust anyone who was under Smisek.”
Smisek’s team never finished integrating the workforces from the carriers that merged in 2010 to create the current company: Continental Airlines, which he led, and former United parent UAL Corp. Five years after the deal’s closing, some union employees still work under labor agreements from the two predecessor airlines.
Munoz, a 56-year-old executive at railroad CSX Corp. and a United director, became CEO on Sept. 8 amid a shake-up that saw Smisek and two deputies ousted. Munoz was already trying to improve morale: United had to postpone a vital peacemaking summit with unions the day he went into the hospital.
“We find it interesting and potentially encouraging that United did not select someone else from its senior executive team, of which we remain skeptical” for supporting Smisek, Vicki Bryan, a high-yield debt analyst at bond researcher Gimme Credit, wrote in a note to clients.
Analysts nonetheless were divided about the board’s choice of an attorney to run things even temporarily: Is it best to have someone steeped in airline operations in the top job, or pick someone like Hart, 46, to keep senior managers focused on service?
“We suspect Mr. Hart was named acting CEO so the three other UAL executives that were rumored to be considered for the role can focus on their day-to-day responsibilities, and that’s probably the correct decision,” Wolfe Research analyst Hunter Keay wrote in a note, referring to United by its stock symbol. He rates the stock as outperform.
S&P Capital IQ took the other view, downgrading United shares to buy from strong buy. “Hart has limited experience in finance, operations or customer service, the areas that UAL is most in need of improving,” analyst Jim Corridore wrote. “We would have preferred an interim leader with more experience in these areas.”
The schism touches on the issue of the bench strength at United, where Smisek kept tight control and had no clear successor. Two respected chief financial officers have left since 2012 and a few other key executives have joined car-rental giant Hertz Corp.
Neel Jones Shah, a former vice president of United’s cargo unit, said the carrier never had a clear No. 2, because Smisek consolidated the chairman, president and CEO roles under his name. That differs from Delta Air Lines Inc.– where Ed Bastian serves as president behind CEO Richard Anderson and Daniel Carp is non-executive chairman — and American Airlines Group Inc., where Scott Kirby is president behind CEO Doug Parker.
“There’s no ambiguity at Delta or American as to who would step in in a crisis if Parker or Anderson” fell ill, said Shah, who as president of JS Aviation Consulting Inc. advises airlines and airline investors.
Even if Smisek didn’t have an heir apparent, United probably saw Hart as a rising star, Shah said. After Chief Marketing and Strategy Officer Jeff Foland left to join Hertz this year, United started handing more customer-experience duties to Hart, Shah said, likely an effort to give him more responsibility beyond law.
“It sure looks like he’s being groomed for more,” Shah said of Hart.
Hart joined United shortly after the merger. He came to the company from Sara Lee Corp. and also previously worked for law firm Sonnenschein Nath & Rosenthal LLP, now part of Dentons, and the U.S. Treasury Department.
It’s not clear how long Munoz will be out — or even if he’ll return. United said Monday its board was “actively engaged in preparing for all potential outcomes” concerning its leadership.
It’s critical that the airline sustain Munoz’s early momentum and not stagnate or slide backward, said Harley Shaiken, a labor expert and professor at University of California at Berkeley.
“The new CEO was coming in and seizing the moment of a fresh start and very sadly he’s in the hospital now,” Shaiken said. “How this is worked out is critical, and speed is of some importance. People fly United every single day. What you don’t want is a sense of drift.”
–With assistance from Justin Bachman in New York and Mary Schlangenstein in Dallas.
This article was written by Michael Sasso from Bloomberg and was legally licensed through the NewsCred publisher network.