Chicago Mayor Proposes $4 Billion Bond Issuance for O'Hare Airport and Affordable Housing; Activist Investor Pushes for Leadership Changes

Key Takeaway

• Chicago Mayor Brandon Johnson proposes issuing over $4 billion in bonds for O’Hare Airport upgrades and affordable housing projects, pending city council approval.
• Activist investor Elliott Investment Management reveals a $1.9 billion stake in Southwest Airlines, pushing for leadership changes due to underperformance.
• Southwest shares surged 8.4% following Elliott's demands; the airline faces high costs, growth constraints, and recent financial losses.

Chicago Bond Proposals

Chicago Mayor Brandon Johnson is seeking approval to issue several billion dollars in bonds aimed at modernizing O’Hare International Airport and converting office buildings into affordable apartments. The city council’s finance committee is holding public hearings on Monday and will vote on a series of proposals from the Johnson administration. These proposals could add up to more than $4 billion in debt. If the finance committee passes the bond ordinances, the plans will still need full city council approval.

The bulk of the proposed debt is for airport improvements, with plans to issue up to $3 billion in general airport senior lien revenue bonds and passenger facility charge revenue bonds for O’Hare capital improvements. Additionally, a bond sale worth as much as $400 million of second lien debt to refinance the city’s water system is being considered.

Johnson also aims to sell more than $150 million in multi-family housing revenue bonds to increase the availability of affordable housing in the central business district. This includes up to $70.5 million for the conversion of 208 LaSalle Street and up to $88 million for 111 W. Monroe Street. The city intends to issue the housing bonds and lend the proceeds to developers to help finance these projects.

Southwest Airlines Activist Push

Activist investor Elliott Investment Management has called for significant changes to Southwest Airlines Co.’s leadership to address what it sees as years of underperformance. Elliott revealed a $1.9 billion stake in the airline, making it one of Southwest’s largest shareholders. The firm criticized Southwest CEO Bob Jordan and Executive Chairman Gary Kelly for poor execution and a “stubborn unwillingness to evolve the company’s strategy.”

“Southwest’s executive chairman and its CEO, who have spent a combined 74 years at the company, have presided over a period of severe underperformance, and they have demonstrated that they are not up to the task of modernizing Southwest,” Elliott stated. In response, Southwest said it would try to better understand Elliott’s views and expressed confidence in its current management’s ability to execute the company’s strategic plan.

Elliott’s demands sent Southwest shares soaring as much as 8.4% to $30.08, the biggest intraday gain since March 2022. Despite its well-known brand and sizeable fleet, Southwest has struggled with high costs and constraints on growth. Labor expenses have increased due to new contracts, and the company has been affected by delayed aircraft deliveries from Boeing Co.

Financial Performance and Challenges

Southwest has already taken steps to reduce flight capacity, pull out of several airports, and slow hiring. In April, the carrier announced it would “significantly restructure” operations in markets including Chicago and Atlanta. However, the company reported an adjusted first-quarter loss of 36 cents a share, deeper than Wall Street had expected, and revenue also fell short of estimates.

Elliott criticized management for failing to manage deteriorating finances, highlighted by seven negative guidance revisions over a 17-month span. The company’s reputation also suffered from a significant flight disruption in late 2022 that stranded millions of passengers over the holidays, costing the company nearly $1.2 billion.

Elliott believes a turnaround at Southwest is “eminently achievable” and called for new leadership from outside the company to improve operational execution and lead the evolution of Southwest’s strategy. The firm also recommended changes to the board, including adding directors with external airline experience.