Investors claim in a stockholder derivative complaint against Allegiant Travel Company that the airline dangerously prioritized profit over safety while its board pocketed millions in an alleged insider trading scheme.
Filed in the Eighth Judicial District Court of Nevada by lead plaintiff Charlotte Woolery, the lawsuit names Allegiant’s CEO Maurice J. Gallagher as well as several other company executives
“These wrongs resulted in hundreds of millions of dollars in damages to Allegiant’s reputation, goodwill, and standing in the business community,” the complaint states. “Moreover, these actions have exposed Allegiant to hundreds of millions of dollars in potential liability for violations of state and federal law.”
Before becoming CEO of Allegiant, Gallagher founded ValuJet Airlines Inc. which later became known for “swapping safety and maintenance for greater profit margins,” according to the complaint.
“ValuJet garnered a disreputable reputation for lax safety protocols and maintenance operations with both its customers and the Federal Aviation Administration,” the complaint states. “This record culminated in tragedy. In 1996, ValuJet Flight 592 crashed into the Everglades in Florida. All 110 passengers and crew perished.”
After the crash of Flight 592, The FAA promptly grounded the airline.
Shareholders claim that since Gallagher took over, Allegiant has begun to suffer the same fate as ValuJet, prioritizing profit margins over safety, maintenance and training.
Allegiant has moved to hiring contractors and subcontractors to perform its maintenance, with “little to no oversight,” according to the complaint. The derivative action also claims that crew and employees are overworked and under-trained.
According to the complaint, since 2014, these issues came to a head as Allegiant’s flights suffered from engine failures while mid-flight, smoke and fumes in the cabins and other malfunctions including hydraulic leaks.
A Tampa Bay Times article found that Allegiant flights were “four times as likely to make unexpected landings after midair mechanical problems than other U.S. airlines.”
“The individual defendants assured the public that Allegiant practiced the utmost care in its maintenance and training practices to assure the safety of its airline,” The complaint states. “Nothing was farther from the truth.”
Allegiant’s stock took a 14 percent hit, equalling $23.25 per share by April 17, 2018.
“The news erased more than $373.5 million in market capitalization in less than a week,” the shareholders claim. “Defendants, however, did not fare as poorly as the company.”
The named defendants were able to make off with over $50 million before the stock dive.
“The individual defendants collectively pocketed millions of dollars in executive and director compensation not justified by Allegiant’s actual performance while under their stewardship,” according to the complaint.
Allegiant also faces several other suits including a federal securities class action lawsuit, settlements for injured passengers and a wrongful termination suit for a pilot who was fired for following standard procedure, according to the complaint.
The class is represented by John P. Aldrich in Las Vegas and Brian J. Robbins and Stephen J. Oddo of Robbins Arroyo LLP in San Diego.