HOW BIG A BITE GIVES BRIT-AIR CONTROL?

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, March 18, 1993                   TAG: 9303180121
SECTION: BUSINESS                    PAGE: A11   EDITION: METRO 
SOURCE: MARTIN TOLCHIN THE NEW YORK TIMES
DATELINE: WASHINGTON                                LENGTH: Medium
HOW BIG A BITE GIVES BRIT-AIR CONTROL?
Now that the federal government has given British Airways permission to buy a portion of USAir, the question that remains at the heart of the debate on foreign investment in the airline industry is how big a portion would give it control.
Seth E. Schofield, chairman and president of USAir, contends that even if British Airways received more than the legal limit of 25 percent of his company's stock, it would still lack effective control of the U.S. carrier.
But some legal experts are not so sure.
Schofield on Tuesday told a luncheon meeting of the International Aviation Club that even if the British carrier gained 44 percent of USAir's voting stock under a proposed five-year plan, "they still would lack a majority" and control of the airline.
But it is a boardroom axiom that a majority vote is not always needed to influence corporate decisions. Any large stockholder - and large is a relative term - almost always gains a role in shaping management policy.
Government officials said that if the agreement was fully carried out, British Airways would have veto power over major management decisions, plus four of USAir's 16 board seats.
Professor Joel Seligman of the University of Michigan Law School, a securities expert who did legal work for opponents of the airline agreement, noted that control could be exercised "with a lot less than a statistical majority of the stock."
Legal scholars say the factors include whether an investor has veto power over management decisions; whether voting stock is widely dispersed or concentrated in a few hands; whether a company is financially dependent on an investor; whether a company has rival groups vying for control; whether an investor has a pattern of nominating a majority of a board, and whether an investor has the same financial interest as the company.
"As a practical matter, if you have the power to choose or restrain the choice of members of the board, you have the power to control management and policies," said professor John C. Coffee of Columbia University Law School.
Transportation Secretary Federico F. Pena has said British Airways' initial investment did not involve control of USAir. He also said approval would depend on whether Britain granted greater access to its airports to other American carriers.
In addition to the $300 million investment by British Airways Plc in USAir Group approved by the government Monday, for which the British carrier got 19.9 percent of USAir's voting stock, British Airways hopes to invest an additional $450 million, for a total of 44 percent of USAir's voting stock. Under present law, a foreign investor is limited to 25 percent of voting stock in an American airline and 49 percent of equity.

by Archana Subramaniam by CNB