Memorandum
Dear AMFA–SWA Members:
In June 2024, Elliott Investment Management (“Elliott”) began an “activist investor” campaign to acquire a sizeable percentage of Southwest Airlines (“Southwest”) shares and thereby exert influence over the Southwest Board of Directors (the “Board”). Activist investing is the process by which hedge funds build large stakes in underperforming companies to persuade leadership to enact changes to return the company to profitability. In July 2024, Elliott began holding meetings with several labor unions at Southwest, including SWAPA and TWU. We understand the subjects of these meetings were to introduce the parties, allow Elliott to understand the various unions’ perspectives on the current state of labor relations at Southwest, and for Elliott to receive union feedback regarding its activist investor campaign.
At the same time, Southwest also held meetings with its various labor unions to discuss internal plans to return the Company to profitability and so the unions could receive Southwest’s perspective on Elliott’s actions. For AMFA, this meeting was held in Dallas on August 28, 2024. AMFA’s National President, Bret Oestreich, and the four AMFA-Southwest Airline Representatives attended. The information discussed during that meeting was subject to a non-disclosure agreement and remains confidential because it involves the Company’s future business plans.
On September 12, 2024, upon conclusion of AMFA’s JAC meeting in Nashville, AMFA took a meeting with Elliott representatives. AMFA was represented at this meeting by Bret Oestreich, Local 4 President, Peter Stoch, Local 11 President, Dale Dixon, Local 32 President, Rui Leonardo, legal counsel, Lucas Middlebrook, and economist, Peter Manikowski. Elliott sent two representatives and two individuals from the Gephardt Group, which is a Labor/Management consulting firm. We were advised Elliott had retained the Gephardt Group to investigate the Company’s recent approach to labor relations and to address reports of a diminishing employee culture at Southwest.
The meeting began with introductions from Elliott and the Gephardt Group as well as their clarification of some of the publicly available information related to the activist campaign. Elliott was quite clear that the forthcoming changes to Board announced this week were not the result of a negotiated deal between Elliott and Southwest. Rather, the announced changes were implemented by Southwest and conveyed to Elliott. In addition, Elliott advised that its preference would be for Board chair Gary Kelly to exit his position sooner than the announced departure at next Spring’s shareholder meeting. Elliott was also clear that its vision of a Southwest turnaround is one where Robert Jordan does not remain as CEO, and if Elliott can assert enough Board influence, other top executives would also, most likely, be replaced.
AMFA’s introduction began with a crystal-clear explanation of the value of licensed AMTs to Southwest and the aviation business, generally. We also explained AMFA’s philosophy as a craft union dedicated to AMTs and related employees and how important our members are to Southwest and aviation in general. We explained the Union’s dedication to democratic transparency, and the necessity, regardless of Board composition or executive leadership, of complete compliance with our three CBAs. We then discussed the types of work our members do for Southwest and described what work we own at Southwest by virtue of the language in our CBAs. We further advised the Elliott representatives of the job security provisions contained in all three AMFA contracts at Southwest.
Following the introductions, the attendees had an open discussion about activist investor actions, hedge fund track records in aviation (particularly examples from Sun Country and WestJet), the state of labor relations at Southwest, and other concerns Members had raised to their AMFA representatives.
From this meeting, the AMFA representatives present concluded several things. First, Elliott is resolute that change, both within the Board and top executives must occur to return the Company to profitability. Second, Elliott advised it would not be directly involved in the selection of management (executives or middle management), but rather their positions and opinions would be exercised through the shareholder-elected Board. Third, Elliott explained that it recognizes Southwest’s historically famous employee culture as a unique asset in the airline industry, and that this storied culture must be recaptured for the Company to thrive moving forward.
Elliott indicated its preference to hold additional meetings with AMFA. These meetings would include possible discussions with the Gephardt Group about the current state of labor relations at Southwest and a potential opportunity for AMFA to meet with some of the candidates Elliott has proposed to serve on the Board. Your AMFA representatives are conferring regarding those proposed meetings, and we will provide more information once details are known. We also established specific lines of communication with Elliott to schedule future meetings, just as we have with Southwest management.
We valued our meeting with the Company in August, and we appreciated our meeting with Elliott this week to learn about the possible changes that may occur at Southwest. We must acquire as much information as possible. Simply put, knowledge is power.
It is paramount to conclude this update with the same message we conveyed to Elliott at the outset of our meeting: no matter who serves on the Board or which individuals maintain executive positions, AMFA will work tirelessly to negotiate industry-leading terms and conditions; enforce our CBAs; protect our Members’ job security; and ensure that our rights under the Railway Labor Act are adhered to and upheld. We all want Southwest to grow and thrive, but it must be done through safe and reliable maintenance of the fleet.
Fraternally,
Bret Oestreich
National President
