Elliott and Southwest Declare a Truce… For Now

Southwest announced its third quarter earnings this week, and the results were not bad. (It’s easy to look good when you announce the same day as American….) But this wasn’t the most important news of the day anyway. More exciting for everyone involved was that Southwest and Elliott Investment Management agreed to suspend their fight, at least until 2026. Now it’s time for management to prove it should still be in charge.

Last week, I wondered why Elliott was pushing this fight right now, and I thank those of you who reached out to have some really good conversations. In the end, my takeaways were that since this wasn’t a binary vote on the entire slate, Elliott figured it could still do better for itself by pushing forward a proxy fight than it would have been able to do if just accepting Southwest’s previous offer to consider three of Elliott’s board candidates for open positions. If that was the thought, then Elliott was right. It did better.

The Complex Details of the Cooperation Agreement

This new Cooperation Agreement between Southwest and Elliott ends the proxy fight until the earlier of 30 days before nominees for the 2026 annual meeting are due or February 14, 2026 — a LUVly date which, come on, has to have been chosen on purpose. There will be no special meeting to vote on board members in December. This agreement will also allow Bob Jordan to remain as CEO. At the same time, it will give Elliott some pretty healthy representation on the board with five of its own nominees, whom I will now call the Elliott Five. (It is unsettling how natural David Cush looks in this photo.)

If you remember, Elliott initially had proposed 10 new board members. That was whittled down to eight when Eash Sundaram (former JetBlue CTO) and Nancy Killefer (former McKinsey partner) were cut.

This settlement with Southwest also got rid of Michael Cawley (former Ryanair), Josh Gotbaum (former Hawaiian bankruptcy trustee and head of the PBGC), and Robert Milton (former Air Canada CEO). That leaves these five making the cut:

• David Cush, CEO of Virgin America until 2016, currently runs a private equity-backed auto repair business
• Sarah Feinberg, Administrator of the Federal Railroad Administration until 2017, interim President of NYC Transit until 2021
• Dave Grissen, Group President of the Americas for Marriott until 2021
• Gregg Saretsky, CEO of WestJet until 2018
• Patty Watson, the current EVP and CIO/CTO at NCR Atleos, a banking and ATM tech company

The Elliott Five will join the board on November 1, but their initial term will only go until the 2025 annual meeting when they will presumably be re-elected for regular terms. If any one of the Elliott Five quits or is removed before that early 2026 date and Elliott still holds at least 3 percent of Southwest’s shares, then Southwest needs to get Elliott to agree on a replacement for that board member.

In addition to those five, Southwest put forward Pierre Breber (former Chevron CFO) to join the board. It sounds like Elliott was somehow involved in that and approved of the addition, but he wasn’t an Elliott nominee nor does Elliott get a say on his replacement if he leaves.

In addition to those six, we have the two recent additions from Southwest who will stay: Rakesh Gangwal (founder of IndiGo) and Bob Fornaro (former AirTran and Spirit CEO).

So that’s eight new board members, and we have seven departing. Six were already announced by Southwest awhile ago — David Biegler, Veronica Biggins, Roy Blunt, William Cunningham, Thomas Gilligan and Jill Soltau. The last one is former CEO Gary Kelly who was to step down at the annual meeting. He is now gone on November 1 along with the rest of them. But don’t worry, Gary gets to stay as Chairman Emeritus which I’m pretty sure means nothing except maybe he’ll have an office mothballed and put on display in the creepiest way possible just like Herb and Colleen. (Seriously, this is a real thing.)

The Cooperation Agreement says the board will not exceed 15 people between now and the annual meeting. So with the eight newbies and the seven remaining existing members, we have a board. Those seven are:

• Lisa Atherton, President & CEO of Bell
• Doug Brooks, former CEO of Brinker International (which owns Chili’s and Maggiano’s)
• Eduardo Conrado, President of Ascension health system
• David Hess, former CEO of Arconic, former President of Pratt & Whitney
• Elaine Mendoza, President & CEO of Conceptual MindWorks biotech
• Chris Reynolds, EVP and Chief Strategy Officer of Toyota
• Bob Jordan, President & CEO of Southwest

But we aren’t done. Two of those board members will retire at the annual meeting. Which ones? I have no idea. Southwest tells me that has not been announced. But when it happens, they won’t be replaced. The board will be down to 13 people and will stay there at least until the Cooperation Agreement ends.

In addition to this, Southwest has withdrawn its poison pill and has agreed to a mutual non-disaparagement clause with Elliott. It has also agreed to let Gregg Saretsky chair the finance committee. David Cush will also sit on that committee, and in general the Elliott nominees will hold at least a third of the seats on each board committee. Elliott, for its part, agrees not to screw with Southwest — that’s a technical term — until the Cooperation Agreement ends. After that, well, all bets are off.

What This Means

There’s a lot going on in there, so I don’t blame you if your eyes rolled back in your head reading through it. To summarize, the board will shrink from 16 to 13 members as of the next annual meeting, and Elliott’s nominees will make up 5 of those, or 38 percent. Southwest had previously, publicly offered 3 of 12 board members, or 25 percent, and Elliott originally wanted over half. So this is certainly meeting in the middle. It also protects management’s ability to implement the transformation plan until early 2026.

The length of time management now has seems about right to me. By February 2026, Southwest will have already begun selling tickets for assigned and premium seating options for at least a few months. By then, we will absolutely know if Southwest’s management can deliver on its promises or not, at least from a commercial perspective.

The financial side, well, that seems more up in the air to me. Just look at all these moves from a higher level. Gregg Saretsky and David Cush were specifically called out in the agreement to be on the finance committee with Gregg chairing it. No other committee received specific assignments in the agreement. Further, the only non-Elliott board member added and agreed upon by both sides is the former CFO of Chevron.

Combine this with Southwest’s earnings call last week that showed steady progress on revenue and operations but left a lot to be desired in finance — there were no fewer than six different analyst questions trying to clear up confusion around aircraft sale and leasebacks. I’d imagine current CFO Tammy Romo’s seat is feeling a little warm right now.

But outside of Tammy, this is largely good news. Having this settled means the management team can focus on implementing the transformation plan. It also means it will likely be easier to hire people to do that work. All the uncertainty around Southwest’s future direction had to turn off some people who otherwise might have come to work for the airline at higher levels.

As long as none of these board members are trying to jockey for position as future CEO, the direction is clear and there’s nearly a year and a half to make it happen. If things aren’t going well by early 2026, well, then it’ll be time for chaos again.