Allegiant Air manager Maurice “Maury” Gallagher has actually made millions offering cheap airline tickets to small-town tourists. However that’s not his only income source.
He’s made financial investments in property, TV production, car racing, online classes, even a roadside Las Vegas wedding chapel, the kind where Elvis may lead events.
A few of his business have likewise inked multimillion-dollar contracts with Allegiant, thanks to approvals from board members with close ties to Gallagher– and corporate-governance protestors are weeping nasty.
CtW Investment Group is asking Allegiant investors to vote out half the six-member board of directors at the ultra-low-cost carrier’s yearly shareholders fulfilling Thursday. CtW, which deals with union-sponsored pension funds, pointed out the three directors’ “collective failure to defend against” the “bad use” of company cash.
The move follows Las Vegas-based Allegiant signed an increasing variety of rewarding offers– consisting of one for an in-flight TV video game show– with business controlled or partially had by Gallagher.
Despite the uptick, such offers are decreasing nationally as activist investors crank up pressure in the middle of expanding issues of self-dealing and as investors progressively throw their weight around with business, viewers state.
Nobody is implicating the airline company or Gallagher– the chairman, CEO and largest investor of moms and dad Allegiant Travel Co.– of doing anything prohibited. Allegiant reveals deals with Gallagher’s outdoors ventures each year in filings with the Securities and Exchange Commission, as regulatory authorities require for publicly traded companies.
However as Columbia Law School teacher John Coffee, director of the school’s Center on Corporate Governance, said, such handle basic are under “a cloud,” specifically with investors, and are “becoming unusual.”
“People are worried profits will certainly be siphoned off for unjust, self-dealing transactions,” he said.
Deals under scrutiny at Allegiant comprise as much as $9.3 million in funds, equivalent to nearly a third of the airline company’s “selling, basic and management” expenditures in 2014, CtW states.
For a company that strives for rock-bottom spending, “these are big amounts,” said Michael Pryce-Jones, director of corporate governance at Washington, D.C.-based CtW.
Some of its transactions are of a “very doubtful nature,” including the in-flight TELEVISION program, which “is simply beyond me” why the airline launched it, Pryce-Jones said.
Business by nature try to negotiate the best terms– investing the least amount of cash for the most product and services, for instance.
But in so-called related-party transactions, in which a company does a deal with an owner’s or top executive’s outside business, there’s “no guarantee they’re both working out in addition to they can,” stated Jon Lukomnik, executive director of the Investor Obligation Research Center Institute in New York.
He’s likewise observed a decline in such deals nationally. However they still occur, and it’s a “warning” when a company does one outside its typical line of business, he said.
There are 2 levels of examination for these offers, he said: Is it something the company should even be involved in? And is management getting the right price?
If it does not seem crucial, “why welcome the examination?” Lukomnik stated.
Gallagher was unavailable to comment, Allegiant spokeswoman Kim Schaefer said Tuesday.
The 3 targeted board members sit on Allegiant’s audit committee, which authorizes any big-money agreements with Gallagher’s outside endeavors.
The handle concern consist of a $2.5 million sponsorship of GMS Racing, a business controlled by Gallagher and whose racers include his 25-year-old kid, Spencer. That’s up from $125,000 that Allegiant invested in 2012 to sponsor the CEO’s racing team.
Allegiant, through a subsidiary, likewise paid Alpine Labs about $2.8 million in 2013 to produce “The Game Aircraft,” a TELEVISION game reveal recorded on Allegiant flights. Gallagher possesses a 25 percent stake in Alpine and is on its handling board.
In addition, the airline invested roughly $828,000 in 2014– and has approval to spend approximately $3.3 million more– for corporate-training programs from Adapt Courseware. Gallagher possesses a controlling stake in the firm.
In an SEC filing, Allegiant said its board decided the “publicity value” of the GMS offer “more than surpassed the cost of the sponsorship.” Regards to the Alpine and Adapt offers, as seen by the audit committee, were “no less beneficial to us” than exactly what the airline could have gotten from “unaffiliated 3rd parties.”
Allegiant flies leisure tourists from small, underserved cities to Las Vegas and other warm-weather destination. Gallagher doesn’t receive a base salary at the airline but owns 21 percent of its stock. His holdings were worth $611 million as of Tuesday.
He has numerous side companies, including, of all things, weddings. Gallagher purchased Chapel of the Flowers, a wedding place on Las Vegas Boulevard less than a mile north of the Strip, for $3.5 million last August, commercial property records reveal.
He possesses the structure and, apparently, the business, according to government records. Those records show he teamed with Donne Kerestic, CEO of wedding-planning company Ever After, on the venture.
Gallagher got a $25 million windfall last September by offering shares back to Allegiant. At the time, the business said he would utilize the fortune “for other ventures he is pursuing personally,” though it did not elaborate.
Over the last few years, Allegiant normally revealed simply one or two handle Gallagher’s outside companies. They included rent payments for Allegiant’s corporate headquarters and other office space, and race-team sponsorships.
Institutional Investor Solutions, a corporate-governance advisory firm, says the existing variety of handle Gallagher’s side ventures is “worrying.”
“Such payments blur the lines in between personal and corporate investment,” ISS stated in a recent report.
Allegiant’s four-person audit committee is entrusted with giving independent oversight of airline company financial resources. To name a few things, the panel supervises outside auditors, monitors monetary reporting and authorizes transactions worth a minimum of $120,000 with business had or partially had by major Allegiant investors, board members or magnates, or their immediate households.
Allegiant’s board has actually determined that none of the audit-committee members “has a relationship with our business that may conflict” with the panel’s self-reliance from the airline and management, the company has actually stated.
CtW, however, states the committee has 3 “long time business associates” of Gallagher, and “the traditional safeguards are missing.”
The panel’s chairwoman is previous Allegiant chief monetary officer Linda Marvin, a board member considering that 2013. According to CtW, she has actually dealt with Gallagher for more than twenty years. She left the CFO’s post at Allegiant in 2007, so she is considered independent under securities guidelines.
Committee member John Redmond, who was on Allegiant’s board from 2007 to 2013 and returned in 2013, possesses realty with Gallagher. Their holdings consist of Allegiant’s former headquarters on Durango Drive in southwest Las Vegas.
The 3rd targeted board member, Gary Ellmer, an Allegiant director given that 2008, worked with Gallagher at WestAir Commuter Airlines, according to CtW. Gallagher was a primary owner and executive at the former carrier in the 1980s and early ’90s.
Efforts to reach the 3 directors for comment Tuesday were unsuccessful.
IRRC’s Lukomnik laughed when informed that a previous Allegiant CFO rests on the audit committee. This arrangement, he said, is “not typical,” offered Marvin’s ties to the airline.
“I would have to be really convinced that that in some way passes the smell test,” Lukomnik stated.
ISS, for one, has advised that investors re-elect every board member other than Marvin. Particular audit-committee members, it says, “have relationships that cast doubt on their neutrality.”
Meanwhile, CtW isn’t the only group pushing back versus Allegiant at the shareholders meeting.
The Teamsters union is taking goal at the airline’s $8.5 million payment to previous president and chief operating officer Andrew Levy after his resignation last fall. It suggested a strategy that Allegiant no longer accelerate stock payments under particular scenarios for senior executives who have actually given up or been fired.
The union has actually said it does “not question that some kind of severance payment might be proper” when a magnate leaves. However it’s worried that Allegiant “might permit windfall awards that have absolutely nothing to do with an executive’s performance.”
Allegiant’s board has suggested shareholders turn down the strategy.
The Teamsters represent Allegiant pilots, and the proposition came as the union and the airline company tangled in court over a possible strike.
The union on April 1 called for Allegiant’s more than 500 pilots to stroll off the service the next day. But they kept flying, because a few hours after the Teamsters revealed the strike, a federal judge released a short-term restraining order versus the union, stopping the walkout.
U.S. District Judge Andrew Gordon on May 1 put another spike in the plans, granting Allegiant an initial injunction. He ruled that “it would be illegal for the pilots to strike at this point.”
The union appealed his decision.
Allegiant’s stock dropped greatly after the aviators threatened to go on strike and hasn’t recuperated. Union advocacy may prompt Allegiant financiers to support the propositions at the investors meeting, but it’s not from pro-labor compassions.
Huge investment companies don’t “care exactly what unions desire,” Columbia’s Coffee stated. “They desire exactly what’s finest for shareholders.”