United Airlines’ parent company has agreed to pay a $2.4-million penalty over how it reinstated a money-losing route that gave a public official easier access to his vacation home.
The U.S. Securities and Exchange Commission and United Continental Holdings Inc. said Friday that they’ve settled charges over records violations in a civil case where shareholders wound up footing the bill so the official — then the chairman of the agency that controls New York City-area airports, bridges and tunnels — could get more convenient flights.
United had reinstated an unprofitable nonstop flight between Newark, N.J., and Columbia, S.C., due to pressure from David Samson, the then-chairman of the Port Authority of New York and New Jersey, the SEC found in its investigation.
Samson had sought a more convenient route to his South Carolina vacation home. The route previously lost money and was canceled in 2009 by Continental Airlines before its merger with United, and an early financial analysis conducted after Samson began privately advocating for the route’s return revealed it probably would lose money again.
United feared Samson’s sway could jeopardize its Port Authority prospects, including the approval of a hangar to help the airline at Newark’s airport, the SEC said. The company, to curry favor, ultimately relented and restarted the route, dubbed the “chairman’s flight.”
The same day that United’s then-chief executive, Jeff Smisek, unilaterally approved the 2012 reinstatement of the route, the Port Authority board approved the lease agreement related to the hangar project, the SEC said.
Chicago-based United circumvented its standard process for initiating new routes, the SEC said.
Samson pleaded guilty in July to bribery in a criminal case brought by the U.S. Justice Department. United entered into a nonprosecution agreement with the department and paid a separate $2.25 million. That’s in addition to its $2.4-million civil penalty reached with the SEC.
“United disregarded the books and records and internal accounting controls provisions of the securities laws while casting aside its normal decision process to re-enter one of its hub’s poorest performing markets,” Andrew Ceresney, SEC enforcement division director, said in a news release.
Andrew Calamari, director of the SEC’s New York regional office, said in a news release that United “initiated a money-losing flight solely to curry favor with a public official, and failed to reflect in its books and records a fair and accurate depiction of the rationale behind the decision and its projected financial impact.”
United spokeswoman Megan McCarthy said the airline was “pleased to resolve this matter.”