United Airlines announces share buyback as Labor denounces 'greedheads'

United Airlines, which beat Wall Street estimates on strong demand, announced a $1.5 billion share buyback plan, underscoring an apparent return to an investor focus that had waned due to the pandemic.

The move was cheered by one analyst and condemned by Sara Nelson, president of the Association of Flight Attendants, who compared it to a hedge fund's attempt to get more involved in the running of Southwest Airlines. An hour after the market opened on Wednesday, United shares rose about 8%.

The third quarter earnings conference call is scheduled for Wednesday at 10:30 a.m. ET.

In its earnings release on Tuesday, United said its board had approved a share repurchase program for up to $1.5 billion of common stock and warrants issued to the U.S. Treasury under the CARES Act. The amount represents about 7% of the airline's market capitalization as of Oct. 14.

“Stock buybacks are a disease that harms workers and consumers alike,” Nelson and Ken Diaz, president of the United AFA Chapter, said in a statement. “The airline industry was rid of them, but a greedy hedge fund broke the seal trying to gain control of Southwest Airlines, and now United Airlines management is following their lead to manipulate stocks and defraud workers and passengers .”

Hedge fund Elliott Investment Management, which owns about 10% of Southwest shares, wants to appoint eight new directors and new management. On Tuesday, it released a podcast with its nominated directors.

Meanwhile, Diaz and Nelson noted, “There are currently 35,000 Boeing machinists on strike because shareholder capitalism has all but destroyed this once great pillar of aviation.”

The 2020 CARES Act was a $2 trillion relief package intended to mitigate the effects of the pandemic. It provided $63 billion to the airline industry. A condition of the loans granted under the Act was an agreement not to repurchase shares or pay dividends for one year beyond the terms of the loans granted.

United's 25,000 flight attendants are in contract negotiations and have voted to authorize a strike. The AFA had previously scheduled an informal picket event at United headquarters in downtown Chicago on Thursday.

“The company currently has concessions on the table, although no other airline labor groups have agreed to concessions,” Diaz and Nelson said in the statement. “The money United just promised Wall Street belongs to flight attendants who have worked during the pandemic and during this demanding recovery for all of us on the front lines.”

United CEO Scott Kirby wrote in a note to employees Wednesday: “At United, our top priority is to invest in the business (people, aircraft and infrastructure). Our second priority is to pay down high debt and strengthen the balance sheet. And only after we do those two things, our third priority is shareholder returns.

“Shareholder returns are something that most leading, large and successful companies do. In fact, 485 out of 500 companies in the S&P 500 have announced some form of shareholder return. Other leading US airlines, including Delta, Alaska and Southwest, have either completed or announced shareholder return programs, while the other airlines have not.

“I commit to you that investing in our people and our company will always be my top priority, even as we implement this share repurchase program,” Kirby said.

In the earnings release, Chief Financial Officer Michael Leskinen said: “Over the last four years, we have invested $22 billion in our product and nearly $10 billion in our people. These investments have resulted in increased profits and are now contributing to free cash growth. “We are now in a position to add a share repurchase program as we continue to invest in and grow our business.”

In a note issued Wednesday after the earnings release, TD Cowen analyst Tom Fitzgerald welcomed the buyback.

He wrote: “The most exciting news is the resumption of shareholder returns through a buyback program of $1.5 billion, or 7% of current market capitalization.” The airline's CFO comments in the press release that the company has a “consistent and disciplined “We seek a return on capital that depends on our ability to generate higher levels of free cash.”