The Civil Aeronautics Board tentatively ruled yesterday that Alaska Airlines violated the law in acquiring a significant stake in Wien Air Alaska, its major Alaskan competitor, without first seeking the Board's approval.
The CAB's tentative finding came in an order giving Alaska, and a subsidiary that made the purchase four days in which to convince the board that the airline hadn't violated the law and shouldn't be required to divest itself of enough Wien stock to reduce its holdings to less than 10 percent.
Under the Federal Aviation Act, a holding of 10 percent or more of an airline's shares presumes control, which requires CAB approval.
Although the CAB said at its meeting yesterday that it knew Alaska had purchased at least 21.3 percent and as much as 30 percent of Wien's stock, the subsidiary reported to the Securities and Exchange Commission later in the day that it had acquired a total of 1,058,259 shares, or 28.3 per cent, of Wien's shares outstanding.
The board wasn't notified of Alaska's purchases in Wien until Aug. 15, when it already had acquired 21 percent of Wien's stock, making it the largest shareholder.
The day before, Alaska took actions to spin off the subsidiary, and Alaska's chairman and chief executive officer, Ronald F. Cosgrave, resigned to assume the same positions in the subsidiary. Alaska's president, Bruce Kennedy, succeeded Cosgrave.
Kennedy said yesterday that because the subsidiary was spun off, "Alaska Airlines has no holding in Wien" and that shares of the subsidiary are now in the hands of a trustee and will be distributed to Alaska Airlines' shareholders in October. He also claimed that the CAB's action resulted from "pressure" on the CAB by Wien and Household Finance Corp., which has tendered an offer for Wien shares that Wien's directors belive shareholders should accept.
The CAB was aware of Alaska's move to spin off the subsidiary, however, and believes it may not sufficiently insulate Wien from Alaska's control and may in fact be a way around the law. "The law, however, does not sanction transactions designed to evade statutory requirements," the board said yesterday.
Even if Alaska and its former subsidiary are controlled separately, "They might be pursuing common interests that are anticompetitive," the board said. "It is possible that, under Mr. Cosgrave's influence, Wien may refrain from aggressive competition with Alaska, avoid new entry into Alaska's markets or be emasculated as a competitor in order to strengthen Alaska."
The board also instructed its staff to intervene in proceedings before U.S. District Court in Seattle concerning the stock purchases. Household Finance and Wien asked the court to halt further stock purchases by Alaska or the subsidiary, and Alaska and the subsidiary filed suit asking that HFC's tender offer be enjoined.
In its SEC filing yesterday, the subsidiary, Alaska Northwest Properties, said it had spent $6.9 million to acquire the Wien shares. It said it made the purchases to "obtain a significant minority interest" in Wien and to prevent Wien management from causing the sale of Wien to Household Finance "at an inadequate price."
Although it said it has "no plans for the control of Wien," it suggested that additional purchases of stock may give it enough stock to be seen to control Wien.