(FORTUNE Magazine) – From afar, it looks like the perfect transatlantic marriage, a soaringly successful union that's the envy of an entire industry. Acting in seamless harmony, Northwest and KLM Royal Dutch Airlines trade packed planeloads of high-paying customers between Northwest strongholds like Detroit and KLM's base in Amsterdam. The golden routes provide just a glint of the partnership's rewards. After nearly going bankrupt in 1992, Northwest staged a stunning revival that vastly enriched owners from both nations. U.S. investors Gary Wilson and Al Checchi, who own 20% of the company, have made nearly $1 billion on an initial investment of $40 million. KLM, which controls 19.3% of Northwest, saw its $400 million stake swell to $1.6 billion, half the Dutch airline's market value. To celebrate their oneness in the public eye, the two proud carriers have merged their logos into a single red-and-blue seal emblazoned on everything from cocktail napkins to 747s.

Don't let the facade fool you. Behind the scenes lurks a marriage from hell, an eye-gouging, rabbit-punching slugfest, with accusations flying like dinner plates, and one combatant, KLM, running to court hurling charges of spousal abuse. Though some signs of strife have popped up in public from time to time, the full story hasn't been told till now. FORTUNE assembled the first inside account by interviewing angry players on both sides and by mining a trove of internal memos, letters, and contracts. What emerges is the saga of a wealthy household that can't keep from tearing itself apart.

The conflict pits Checchi and Wilson, two highflying financial guys, against a bunch of stubborn airline burghers from KLM. The motives are basic: Both sides think they know best how to run an airline, and want to call the shots. Though they deny it, the Dutch have been trying to eject Checchi and Wilson for years and still haven't abandoned hope. KLM President Pieter Bouw has declared that he'd like to blend both companies into a single, binational organization along the lines of Unilever and Shell. That suggestion horrifies the Americans, who are certain KLM would end up running the show. Says Wilson: "They can wrap themselves in tulips all they want. Their real agenda is controlling Northwest Airlines."

So far, their amazing financial agility--the Dutch would say slipperiness--has enabled Wilson and Checchi to thwart KLM's bid for more power through the combination of a poison pill and creative money raising. Though it's currently illegal for a foreign carrier to own a U.S. airline, KLM has lobbied for changes in the rules, while pushing to acquire as much of Northwest as is legally allowed.

So bitter is the clash for control that the Dutch and the Americans threaten to wreck an alliance yielding $200 million a year in operating profits. "This relationship is dysfunctional," complains Wilson. The top brass from the two carriers don't even talk. In February the Dutch directors resigned from the three Northwest board seats KLM controls. Four months later, the seats remain vacant. In the latest twist, KLM is reportedly talking to American Airlines about replacing Northwest as its U.S. partner if the alliance falls apart.

In part, the fight is a classic clash in cultures, a collision of two diametrically opposed philosophies of doing business. "It's the European way vs. the American way," says Bouw, and the two agendas mix like wooden shoes at a Hollywood gala. This contrast in style exceeds anything invented by that chronicler of European-American strife, Henry James. The Dutch are bluff, unpretentious types who collect modest salaries and disdain glitz. The stocky, ruddy-faced Bouw is a company lifer who unwinds by rowing a shell on the canals near Amsterdam. "Mr. Bouw doesn't like photographers or talking about himself," cautions an aide.

Checchi, 48, and Wilson, 56, live like California royalty. Movie-star handsome, Checchi (rhymes with Becky) occupies the Beverly Hills estate that once belonged to Sidney Poitier. His patrician partner resides a mile away in Holmby Hills. Wilson's mansion, the house movie legend Louis B. Mayer built for his daughter, sits across a dramatic gorge from Barbra Streisand's aerie and faces the manse of Gregory Peck. "He's a great guy," allows Gary of Greg.

Each side takes pleasure in caricaturing the other. When they're not comparing Bouw's machinations with the antics of the hapless Inspector Clouseau, Checchi and Wilson paint the folks at KLM, which is 38% owned by the Dutch government, as plodding bureaucrats envious of the millions Northwest's managers have earned on surging stock. "That's laughable," retorts Bouw. "We're not jealous. We just appreciate our own values." For his part, Bouw sees Checchi and Wilson as financial carpetbaggers.

Like most Europeans, the Dutch prize operating expertise over financial engineering, regarding LBO-types as speculators. They view themselves as experts in their chosen business. They are prudent, long-haul investors who shun high risk and leverage. They show a near-religious devotion to the concept of book value--they like to pile up cash and minimize debt. Picture their frustration flying with daring, on-the-edge dealmakers like Checchi and Wilson. "We're airline people, they're not," grouses Bouw. "These guys are here for the short term. They're investing in hotels one day, airlines the other day, and who-knows-what tomorrow." KLM argues Checchi and Wilson are betting on more good times ahead when they should be hoarding for stormy weather (see box). Says Bouw: "You have to fix the roof when the sun shines to get ready for the thunderstorms."

The cautious Dutch approach drives Checchi and Wilson just as crazy. Leverage and risk are in their blood. The Americans argue that sharp dealmaking--LBOs, spinoffs, or mortgaging assets--can dramatically boost stock prices and work well with a sound operating strategy. For the Yankees, cash flow is king. Why worry about Northwest's $3 billion debt, as long the company generates plenty of cash to cover its interest payments? Says Checchi: "Pieter Bouw lacks financial focus and strategic expertise."

While it's impossible to say for sure how all this rancor will play itself out, the two sides seem headed for more trouble. The Dutch would like to buy additional shares in Northwest, but Checchi and Wilson have stymied their adversaries by installing a poison pill that prevents KLM from raising its stake. If the Dutch exceed the 19.3% of Northwest they already own, the pill would flood the market with millions of new shares, which would dramatically dilute KLM's position. Bouw retaliated in December by suing to undo the pill. In the end, the wrangling could lead to anything from a Dutch bid for Checchi's and Wilson's shares to a divorce that prompts KLM to sell its stake.

The current standoff is especially vexing to the Dutch because they, not Checchi and Wilson, put up most of the loot to buy Northwest in the first place. In 1988, Wilson--then the CFO of Walt Disney--discovered just the kind of vehicle he coveted in order to step up from an executive to an owner: Northwest Airlines. To Wilson, who quickly recruited his old pal Checchi, Northwest held a vastly underexploited trove of assets, ranging from big land holdings in downtown Tokyo to a virtually debt-free fleet--all easily mortgaged--in an industry that was then soaring.

By March of 1989, Wilson and Checchi had accumulated 4.9% of Northwest's shares at a bargain price, a move which eventually put the airline into play. A bidding war for Northwest ignited in April, attracting suitors like Marvin Davis. Checchi and Wilson, with a team of partners, won the contest, paying $3.8 billion for the airline in a giant LBO. Though the price was lofty, Checchi and Wilson, by virtue of buying their initial shares on the cheap, ended up owning 44% of Northwest for a minuscule $40 million.

Checchi and Wilson have been gearing up for such bold moves since they first got together 30 years ago. Wilson's father was a union printer in rural Ohio, while Checchi, son of a civil servant turned consultant, went to a middle-class parochial school in Maryland where tuition was $250 a year. In 1966, when Checchi was a senior in high school, Wilson went to work for a merchant bank run by Al's uncle. A few years later, Wilson courted Checchi for a summer job when he was at Amherst. "But I hate business," groused Checchi, whose hair flowed to his shoulders. "If you're against something," Wilson replied dourly, "you'd better know something about it." Checchi joined for the summer, then worked for Wilson full time upon graduation, orchestrating deals on everything from sporting goods to helicopter companies.

Beyond their love of dealmaking, the partners are very different. Checchi is as mercurial as Wilson is cool and stern. Checchi paces restlessly, gesturing like a stage actor and proclaiming the righteousness of his position. Wilson sits placidly, exuding serene assurance and erupting mainly to tell Checchi to cool it. "Al has more creative spark," says Fred Malek, a Northwest director. "Gary's the methodical one. He implements what Al dreams up."

Wilson is a notoriously prickly, difficult negotiator. His penchant for hurling barbs, then letting the insulting responses bounce off his thick hide, earned him the nickname "the Armadillo." "I listen to any idea," says Wilson, "no matter how crazy." One of his most baroque concoctions: a $20 billion management buyout of Chrysler. Nutty as it sounds, the idea inspired Kirk Kerkorian's attack on the carmaker.

In contrast with Wilson's hard edges, Checchi is Mr. Outside, the one with a magnetic public persona. At Northwest, Checchi has served skillfully as a liaison with labor, pumping hands and explaining strategy to mechanics and pilots. He even crooned "Chances Are" at a karaoke bar to a group of flight attendants.

It was at Marriott, starting in the late 1970s, that the pair perfected the art of using Other People's Money (OPM) to make a fortune for shareholders. Checchi, who'd just graduated from Harvard Business School, called Wilson--then Marriott's treasurer--to say he was showing up for work the next week. "But I have no authority to hire anyone," pleaded Wilson. Checchi appeared anyway. For two weeks Wilson forced Checchi to eat lunch in his office, fearing CEO Bill Marriott would notice an unknown face in the cafeteria.

As it turned out, Bill Marriott didn't mind that Wilson had hired his buddy on the sly. Wilson sent Checchi to New Orleans to expand one of Marriott's hotels without using corporate cash. "It was a suicide mission," says Checchi. Driven by terror, he raised the money from limited partners, including wealthy investors. The strategy opened the gates for Marriott to grow rapidly without using huge amounts of its own capital. Instead of owning the properties, Marriott would build hotels and sell them to partnerships, then make its money providing catering and other services--a big source of profits--to this burgeoning network of investor-owned Marriotts.

Despite their dealmaking coups, Wilson and Checchi had some legendary fights while at Marriott. "We wouldn't speak for six weeks at a time," says Checchi. (Wilson claims Checchi is incapable of keeping his mouth shut that long.) On one occasion, Checchi jumped on Wilson's desk to scream about a deal, trampling piles of financial statements.

Recruited to join Fort Worth's Bass brothers in 1982, Checchi at one point spearheaded a white-knight defense of Walt Disney (under attack by Saul Steinberg and Irwin Jacobs) by swapping Arvida Corp., a Bass-owned real estate development company, to Disney for a 25% stake in the Magic Kingdom. Again, the grease was Other People's Money: getting developers to use their own cash to build hotels at Disney World, then charging fat royalties for use of the land. While still with the Basses, Checchi helped recruit CEO Michael Eisner and worked with Eisner for six months to restructure Disney. Eisner wanted Checchi to stay on as CFO, gushing that Checchi was "the Steven Spielberg of finance." Instead, Checchi persuaded Eisner to hire his financial soulmate, Gary Wilson. Not everything Wilson touched while at Disney turned to gold. Euro Disney proved a disaster for banks and stockholders. Wilson--who left before the park opened--shares the blame for organizing the park's debt-laden structure.

None of the earlier deals compare with the the astute use of OPM that enabled Checchi and Wilson to nab Northwest. Less than a year after starting to build their own stake in the airline, Checchi and Wilson persuaded KLM to put up most of the money for a Northwest LBO--but for much less equity than the two controlled. Besides buying $300 million of preferred stock, KLM, in 1989, chipped in $100 million for 20% of the company, six times the per share price paid by Checchi and Wilson. The idea that Johnny-come-lately investors like the Dutch and others had to buy into an LBO at a premium is as American as baseball. Though it didn't seem to bother them at the time, KLM's managers came to view the deal as lopsided and unjust. Bouw's resentment over the price he had to pay has helped poison his relationship with Checchi and Wilson.

Bouw prized his investment in Northwest as an opportunity to bring global weight to his medium-size European airline. And he was right. In time the alliance proved visionary, lifting the two airlines' market share over the Atlantic from 7% in 1991 to 12%, and providing 30% of KLM's profits.

Along the way, however, the deal hit lots of turbulence. In the early 1990s, Northwest, overburdened with debt, hit hard times. Just as the oil shock from the Gulf War swelled its fuel bill, a price war launched by American Airlines hammered revenues. Dealmaker Checchi had a challenge. He turned to the state of Minnesota (Northwest's home hub) and lobbied hard for a big aid package, including a $270 million working-capital loan. To the chagrin of some local politicians, who felt the state was being taken, Checchi succeeded.

Despite the Minnesota bailout, the bankruptcy crisis continued. According to Checchi and Wilson, it was then that KLM bared its true intention: controlling Northwest Airlines. In 1992, with Northwest hurtling toward bankruptcy, KLM floated a plan to save the airline and dispatched a crew from Smith Barney to pore over Northwest's books. Under the plan, KLM and other investors would bail out the airline by injecting $500 million in fresh capital. But it was the draconian terms that shocked Northwest, terms that would open a way for KLM to wrest control away from the Americans.

The Dutch deny they ever wanted to control Northwest, citing the U.S. law barring foreign airlines from owning more than 25% of a U.S. carrier. "The idea is ridiculous," thunders Bouw. But even today, the rules don't ban a foreign carrier from accumulating one-third of the board seats and exercising considerable power over big decisions like asset sales, restructurings, acquisitions, and partnerships. And in the push toward international deregulation, the guidelines on control could loosen.

Indeed, KLM's 1992 proposal gave it the right over time to buy a clear controlling interest of 51% of Northwest's voting shares, providing that the U.S. government liberalized its rules on foreign ownership. It also seemed possible, since KLM was Northwest's sole savior, that the U.S. would make an exception to the 25% rule to allow KLM a majority stake. In a 1994 letter to Northwest CEO John Dasburg, Bouw stated he did not intend to take control now, so long as Northwest continued to "maximize shareholder value."

Though the bailout would have wiped out most of their stake, Checchi and Wilson had no choice but to endorse it. Checchi claims Bouw exulted in his role as savior. "During a dinner at my house," says Checchi, "he was swaggering around saying, 'Now we'll do it the Dutch way.' "

Then, either as a result of a gross miscommunication or a strategic maneuver by the Dutch, the deal took a strange twist. To present the rescue package, Northwest, in November, invited its more than 100 worried bankers to a session at the Hilton Hotel in Minneapolis. "We were ecstatic that KLM, in effect, was buying the airline," says Jim Raff, then with Dutch bank ABN-Amro. "We saw a big source of future cash." But two days before the meeting, KLM abruptly withdrew the proposal, leaving a shell-shocked Northwest totally in the lurch. Bouw swears that the equity infusion was just an idea the two airlines kicked around. "Our help was wishful thinking on Northwest's part," he says. But the banks contradict him. Declares Raff, who saw a list of the terms: "We were all coming to hear about KLM's bailout."

At the Hilton, the bankers reacted with horror. But by then Northwest had cobbled together a proposal for an emergency loan to tide the company over until it could produce a more durable restructuring. Bankers Trust, which was both a Northwest shareholder and its lead lender, agreed to arrange a $250 million temporary rescue loan, if other creditors also participated.

The lenders also demanded that KLM provide $50 million toward the short-term loan. KLM claims it embraced the second rescue package. Not so, recalls Bankers Trust vice chairman George Vojta: "KLM had to be pulled kicking and screaming into the rescue package like a dog on a leash with its heals dug in."

Bouw, seeing an opportunity to extract money and power from Checchi and Wilson, submitted a tough list of demands. He would lend Northwest the $50 million only if he were granted a series of options, including the right to buy some of Wilson and Checchi's stock at a steep discount. Overnight, and on the cheap, KLM could become the company's largest shareholder. However, there was a catch. To obtain the options, Bouw would have to secure, by the end of 1993, $500 million in permanent financing to save Northwest.

Bouw also tried unsuccessfully to force the pair to resign, or at least relinquish most of their power. Says the KLM chief, explaining his actions: "If they had kept running things, it would have proved to the outside world that the short term had prevailed."

For three days in December, Bankers Trust's baronial Park Avenue boardroom hosted a royal food fight. Shareholder Richard Blum, a portfolio manager from San Francisco who's married to Senator Dianne Feinstein, argued vehemently with KLM's investment banker, charging that he promised not to impose conditions, then slyly unsheathed a sword at the 11th hour. As usual, Checchi intoned from the moral high ground, claiming "blackmail," "extortion," and "betrayal." "Al was just being spontaneous," says Blum glumly.

Bouw says he targeted Wilson and Checchi for good reason. KLM deserved to buy their shares at a special discount because the Northwest co-chairmen, he says, refused to contribute to the bailout. "I told them to put their money where their mouth is," he asserts. "I was annoyed and angry that they would not participate. It showed that they were not interested in saving Northwest."

That's hogwash, say Checchi and Wilson, who claim that Bouw's reasons are really rationalizations created long after the fact. They swear that neither KLM nor the creditors demanded that they contribute to the rescue package. "Bouw aimed at us because we were the biggest shareholders, and he wanted to dilute us," says Checchi. "It was a pure power play." ABN-Amro's Raff recalls that at least a couple of banks asked Wilson and Checchi to participate--and didn't like their answer. Says Raff: "The fact that they said no did not go over too well. A lot of people were upset."

Checchi and Wilson believed KLM couldn't pull off the $500 million rescue package. And the bankruptcy clock was still ticking. So for the next six months they pursued their own restructuring. This time the key OPM contributor was labor. Checchi and Wilson proposed to the airline's unions $870 million in wage reductions over three years. At the end of that period, employees could recoup the deferred wages in cash or convert them into stock.

Against tall odds, Checchi and Wilson strove to orchestrate a giant package that encompassed not only separate deals with six unions but steep concessions from banks and suppliers as well. If one link snapped, the entire chain would fly apart. With its lawyers camped outside bankruptcy court in Wilmington, Delaware, Northwest clinched the pivotal, final accord with the pilots' union in July 1993.

Now that they had regained the upper hand, Wilson and Checchi killed KLM's option to buy their shares at a low price. Bouw perceived that the co-chairmen were slipping away, but he had another move designed to once again give KLM the edge. The Dutch airline's board members had already agreed to Northwest's labor deal. But in its separate role as a stockholder, KLM--like the other owners--had to sign off on the accord a second time. Checchi and Wilson viewed shareholder approval as a mere formality. Then KLM uncorked a shocker. KLM announced to a stunned Northwest management that it would block the labor deal unless the airline met even more demands. The last-minute move caught everyone by surprise, and Checchi and Wilson had no choice but to agree. This time, KLM won still another option to buy shares at a discount from the two as well as from other shareholders. KLM also won a guarantee of at least three of 15 board seats until the year 2015. Says Bouw: "The point was to get shares from Wilson and Checchi."

By 1994 the airline industry's crisis had vanished. Buoyed by its new labor agreement and a resurgent economy, Northwest's profits came roaring back. Early that year Northwest successfully floated 20% of its stock to the public. At that time the two sides tried to patch relations at a conclave in Amsterdam, featuring a dinner cruise on the canals and a banquet at the cavernous Rijksmuseum. With Rembrandt's Night Watch as his backdrop, Checchi tempered the festive ambiance with a dramatic speech warning of the gaps in culture and trust that threatened to wreck the alliance. "It's easy to understand why these alliances are so fragile," warned Checchi. "No one else has succeeded before."

Around the same time, a KLM meeting with labor stretched the marriage to the breaking point. Bouw invited Duane Woerth, head of Northwest's pilots' union, to lunch at the tony Sequoia Grill in Washington, D.C. An alliance between KLM and labor, which then controlled 30% of Northwest's stock and held three board seats, would have spelled trouble for Checchi and Wilson. Together, KLM and the unions held about 50% of the shares. In Bouw's version, he did little more than welcome Woerth to the board. Woerth remembers it differently: "Bouw said that the long-term interests of KLM and labor were the same, and that Checchi and Wilson would get out as fast as they could."

The encounter infuriated Checchi and Wilson, who voiced their outrage during an all-day meeting with Bouw at Checchi's townhouse in the Georgetown section of Washington. Wilson read an 18-page litany of complaints to an amazed Bouw, citing KLM's "egregious behavior" and "poor integrity." "It was hilarious," says Wilson. "I asked Bouw, 'If I went behind your back to your pilots' union, wouldn't you be furious?' And he said, 'No.' I couldn't believe it."

Checchi and Wilson demanded that Bouw sign a standstill agreement that would hold KLM's stake in Northwest to 25%. If not, Wilson warned, the alliance would be in danger. KLM wanted to raise its stake to 25% to exercise that valuable option it had won in 1993 to buy Northwest shares, including Checchi's and Wilson's. Because Northwest's shares have jumped, the option's a winner: Exercisable in 1998, it's now worth $129 million. But the standstill agreement would also include strict limitations on voting rights and board seats. Bouw left saying he'd think about it.

Soon after that rugged performance, "the Armadillo" suffered a peccadillo. in August of 1994, Wilson was given a citation in the Boise airport for carrying a tiny amount of marijuana. The charges were dropped. He voluntarily stepped down as co-chairman at Northwest for 60 days. In private, KLM managers--who reside in the pot-smoking capital of the world--chuckled at the irony.

For the next 15 months the two sides sparred over the standstill agreement, with Bouw stubbornly refusing to sign. Finally, Checchi and Wilson turned the tables on their adversaries late last year by springing a surprise haymaker of their own. They passed a poison pill limiting KLM to a nasty 19% of the shares, meaning it can't add to its holdings. What about the option that was supposed to lift our stake to 25%, howled Bouw. "To us, a deal is a deal. This made us really see the kind of people we're dealing with." In December, KLM filed suit to kill the pill.

Today, the alliance that has spawned both billions and bad blood could take a number of routes, most of them leading toward divorce. For now, KLM's power play has failed. Even if the Dutch win the lawsuit and raise their stake to 25%, Checchi and Wilson will stay firmly in control, since the board--including the three labor directors--remains strongly in their camp. "There is definitely a culture clash," admits Bouw. "It hurts in my heart to hear Northwest say the trust is gone." Though Bouw swears he'd like to continue the union, he recognizes that the bruised feelings may make that impossible.

It's possible the Dutch will sell their Northwest shares but will stay in the alliance. If that's the case, Checchi and Wilson would be rid of a pesky shareholder while still hanging on to a venture that generates $200 million in operating profits a year. Bouw's dream of guiding Northwest would vaporize.

For the time being, Wilson and Checchi's luck seems to be holding. In April, their partnership could have ended in a famous, tragic plane crash. Checchi was scheduled to fly on the flight from Tuzla to Dubrovnik that killed Commerce Secretary Ron Brown and a group of businessmen, but he decided to take his own plane. Rush Limbaugh even announced Checchi's death on the radio. Wilson heard the report: "For about 15 minutes, I was crazy." His near-premature demise prompted Checchi to think deeply about all the great business colleagues he'd miss. Apparently, Pieter Bouw isn't one of them.

REPORTER ASSOCIATE Therese Eiben