Kevin O'Toole/LONDON

SPECULATION OVER an impending shake-out in the US airline industry has sharpened with attempts by Northwest Airlines to put a cap on the amount any one shareholder can own in the carrier.

The move has already run into controversy, with Northwest's partner KLM preparing to fight any action which would stop it from exercising options to increase its voting rights.

Northwest has not commented on the details of the shareholders' rights plan, which will be discussed at a board meeting on 16 November, but it is understood that the aim is to limit investor holdings to around 20%, and potentially weaken their voting rights.

President John Dasburg suggests that the move is to designed to protect the airline's independence following its Wall Street flotation in 1994. He adds that the measure is a "prudent and commonplace business decision" to protect the company from "unwanted suitors".

Northwest says it needs to defend itself in "the current environment of increased mergers and acquisitions", sparked by news that United and American are each considering a take-over of USAir.

If USAir is acquired, a renewed round of consolidation is anticipated as other US majors fight to retain their market share. Analysts believe that Northwest may have an eye on acquisitions or alliances.

Speculation has also centred on the possibility that co-chairmen Gary Wilson and Alfred Checchi, the two financiers who took control of Northwest in a leveraged buy-out in 1989, may be preparing to realise their increasingly valuable shareholding. Dasburg says that such rumours are "absolutely untrue and reckless".

Attempts to put the ownership cap in place will still have to overcome opposition from KLM, including the threat of legal action. The Dutch carrier says that it has no objection in principle to Northwest seeking to protect itself from "outside threats", but may take legal action to protect its rights.

KLM holds around 21% of Northwest's voting shares, but has another 4% in preference shares which it has rights to convert into common stock in 1998. That would give KLM a 25% voting stake, the maximum allowable for a foreign investor under US law.

New ownership rules would hamstring KLM in exercising this option, as well as potentially weakening its power in the Northwest boardroom. KLM says that it has " intention whatsoever of gaining control of Northwest".


Source: Flight International