NEWS ANALYSIS : The Deal to Split Power at TWA: Will Icahn Share the Controls?

Trans World Airlines Chairman Carl C. Icahn, a freewheeling investor who likes to fly solo, suddenly has dozens of co-pilots.

On Tuesday, Icahn agreed to share power with the troubled airline’s creditors, and they are certain to demand seats on TWA’s board. “It’s got to crimp his style a bit,” said Bruce Benteman of Wealth Monitors Inc., a newsletter that tracks big investors. “His style is to call the shots.” Icahn and his creditors agreed to put the airline into bankruptcy early next year as part of a plan to reduce TWA’s debt. The proposal calls for replacing $1 billion of TWA’s $1.5-billion debt with equity or securities that convert into equity.

The proposed deal would force Icahn to give up majority control of the airline. He now owns 90%.

People who represent TWA creditors said Icahn’s role at the airline remains unresolved. “It is still being questioned,” said Jeremey Bloomer of Credit Research & Trading Corp., an adviser to some of the creditors.

There are other uncertainties about the plan. Icahn invited the airline’s unions to invest in the airline, but it isn’t clear whether TWA’s disillusioned work force is in the mood for new concessions.

In addition, the government agency that insures pensions said it may go to court to seize TWA’s pension plan if the reorganization doesn’t “offer protection for TWA’s under-funded pension.” A suit from the Pension Benefit Guaranty Corp., though rare, could upset the airline’s reorganization plans.

Icahn is, according to insiders, intimately involved in the financial workings of TWA. He is said to involve himself in decisions that range in significance from aircraft lease negotiations to vacuum cleaner purchases.

As a practical matter, it would be difficult for creditors to remove Icahn from a restructured TWA, even if they wanted to. The complicated debt-for-equity swap gives Icahn 28% of the equity in the “new” TWA. He has also promised to invest $5 million in the airline in exchange for another 3.3% of TWA stock. A package of convertible securities included in the deal could eventually give Icahn 45.9% of “new” TWA stock.

Though his stake remains sizable, Icahn won’t have a free hand at TWA, creditors say. “He is not going to have unfettered discretion,” said Robert Miller of the New York law firm Berlack, Israels & Liberman, which represents some TWA bondholders.

Analyst Benteman said it is doubtful that TWA’s new equity holders would tolerate Icahn’s continued use of the airline’s treasury as an investment fund. Since he took the airline private, Icahn used TWA’s cash to finance his celebrated raids on Texaco and USX Corp. “These things may not happen,” said Benteman, who nonetheless expects a new TWA board to give Icahn “a certain amount of leeway.”

The ultimate shape of TWA’s board is being negotiated.

The first test of cooperation between Icahn and his creditors-turned-partners could be his proposal to buy ailing Pan American World Airways.

Icahn is said to believe that TWA’s financial restructuring strengthens the appeal of his joint $450-million bid with American Airlines.

TWA creditors seemed divided. “The concept of buying assets is a good one,” attorney Miller said. “But TWA is not in the best position to do that now.”

It isn’t known how the Pension Benefit Guaranty Corp. might affect the restructuring, though representatives of TWA creditors said they didn’t believe that a pension dispute would block it.

Icahn couldn’t be reached for comment Wednesday.