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A securities fraud lawsuit hangs over U.S. airlines following management changes

Posted on by Dsen .N

A securities fraud lawsuit hangs over U.S. airlines following management changes

By Gary Leff

When an Alaska Airlines Boeing 737 MAX 9 lost its door jam in January, it was a problem not only for the plane and its passengers. This wasn’t just a reputational problem for Boeing. It was securities fraud.

When Southwest Airlines crashed in December 2022, it not only stranded two million passengers and cost the airline a billion dollars. It was also a securities fraud.

As a national treasure Matt Levin z Bloomberg famously emphasizes, everything is securities fraud. If the CEO of a public company has an affair with a subordinate while claiming that the company is ethical, it is… securities fraud.

  • If you have done wrong and misled investors, it is securities fraud.
  • You don’t have to just not tell investors. The point is to find a statement from the company in which it could have downplayed the matter and then it committed fraud.

The law firm obviously intends to file a lawsuit against American Airlines over the airline’s firing of its chief commercial officer, Vasu Raj.

On May 28, 2024, after the market closed, American Airlines announced the departure of its chief commercial officer and lowered its guidance. At an industry conference the following day, May 29, 2024, American Airlines’ CEO stated that “the Company’s domestic performance expectations have deteriorated significantly since (the company) provided guidance in April” and that the lowered guidance “is due in large part to a softer domestic environment than (the Company) expected and (its) performance in that environment.”

On this news, the American Airlines stock price fell by $1.82 per share, or 13.54%, to close at $11.65 per share on May 29, 2024.

American Airlines did something. Investors were harmed. Has American Airlines issued statements downplaying the likelihood of an incident?

Here are some of the areas that enterprising lawyers, including these, are likely to pay attention to:

  • For over a week, American Airlines has been telling reporters that rumors about Vasu Raja’s departure are false. The airline’s claims regarding the impending departure of its chief commercial officer turned out to be untrue. See Brian Sumers for example.

    Vasu Raja, one of the most at-risk U.S. aviation executives, is working remotely “for several weeks while handling some personal matters,” an American Airlines spokesman told me on Monday.

    …Many of you tried to convince me that Raja would never come back, that management was tired of its Sunbelt and direct distribution strategies, which have thus far resulted in a significant margin gap compared to comparable U.S. airlines. Some of you were quite sure that you had confidential information suggesting that Raja had disappeared.

    …(A)n An American spokesman publicly promised that Raja would return. “Vasu is not leaving,” Andrea Koos told me in a very short telephone interview.

  • After announcing Raja’s departure, they significantly lowered earnings expectations for the quarter it’s been two months already. They certainly knew (or at least should have known!) that they would not follow through on their earlier instructions. As any public company will remind you when discussing forecasts, it has “no obligation” to update information. But have they made any statements suggesting a positive outlook, knowing that previous guidance no longer applies?
  • American Airlines had just weeks earlier delayed a rule that many travel agent tickets would no longer earn miles, saying that it will come into force July 11. Did they already know that they would change course with Vasu Raja’s exit? I suspect they didn’t, but they could have!

American Airlines’ experiment with direct sales and pressuring travel agencies to adopt technology (which doesn’t always work well) to offer upsells such as paid seating – as well as its decision to abandon managed corporate discounts – have failed it only means reduced revenue for the airline. It could also be securities fraud.

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