Southwest Air names aviation industry veteran Rakesh Gangwal to board

Gangwal is no stranger to discount carriers and the US aviation industry.

Southwest Airlines Co., which is facing demands for sweeping leadership and business changes from activist Elliott Investment Management, has named aviation industry veteran Rakesh Gangwal to its board.

The addition of Gangwal, the billionaire co-founder of InterGlobe Aviation, which controls Indian budget carrier IndiGo, is the second defensive step taken by Southwest in response to Elliott’s $1.9 billion stake in the carrier, after last week adopting a “poison pill” shareholder rights plan. His appointment to the board is effective today, the airline said in a statement.

“This appointment is part of the board’s deliberate efforts to evolve its composition to comprise professionals with a diverse range of skills and experience in areas critical to Southwest’s business,” the airline said. It’s added eight independent directors, including Gangwal, over the past three years.

Gangwal is no stranger to discount carriers and the US aviation industry. Best known for co-founding InterGlobe , which is credited with generating the bulk of his wealth, he also helmed US Airways from 1996 to 2001, and spent a decade at United Airlines Inc. from 1984. He was chairman, president and chief executive officer at Worldspan Technologies Inc., a travel and transportation information services and technology company, from 2003 to 2007.

Southwest’s lagging financial performance and insular culture have been focal points for criticism by Elliott, which said the airline has “written off” sources of revenue over the past 15 years that were adopted by rivals, including offering a bare bones economy fare and charging customers for checked bags and assigned or premium seats. Southwest Chairman Gary Kelly and CEO Bob Jordan have had “a stubborn unwillingness to evolve the company’s strategy,” Elliott has said.

Elliott also earlier called for changes to Southwest’s board, including adding directors with external airline experience.

“Rakesh knows the importance of building a business that has both a distinct culture and enduring profitability,” Kelly said in the statement.

Under the “poison pill” adopted last week, the acquisition of at least 12.5% of the airline’s common stock would trigger the issuance of rights allowing existing investors to buy shares at a 50% discount. Such rights held by the 12.5% investor would become void, making it prohibitively expensive for Elliott to expand ownership and also diluting its stake in the carrier. Elliott has built an economic interest equal to about 11% in the carrier, but hasn’t reported its full position in securities filings, Southwest said.

Southwest has pushed back at Elliott, saying it already had been assessing possible changes such as premium seating or revised boarding that it would unveil at a September investor meeting. But the airline had to cut its second-quarter outlook for unit revenue on June 26, saying it was struggling to adapt its revenue management system to changes in travelers’ booking habits.

Gangwal, 70, and his family once controlled almost 37% of the Indian airline group. His decision to team up with Rahul Bhatia to create IndiGo in 2005 led to the rise of Asia’s largest budget carrier that’s now worth $20 billion, making it the third most-valuable airline in the world behind Delta Air Lines Inc. and Ryanair Holdings Plc and immediately ahead of Southwest.

A subsequent feud and concerns over corporate governance led Gangwal to step down from the carrier’s board and pare his stake in recent years. Gangwal is currently worth $6.4 billion, according to the Bloomberg Billionaires Index.