Family Airlines’ Founder Agrees to Give Up Control : Transportation: Tentative pact is a victory for pilot-investors and clears the way for the carrier to complete the licensing process.

Barry Michaels, a former Los Angeles businessman with a history of legal and business problems, has agreed to relinquish control of Family Airlines after a power struggle with investors, the parties announced Tuesday.

The tentative agreement is a victory for the 100 or so Family Airlines pilots who invested a total of nearly $3 million into the nascent airline founded by Michaels.

The pilots, who charged Michaels with using airline funds for personal reasons and failing to disclose his previous legal problems, feared that Family would never take off unless the entrepreneur was removed.

Family drew widespread attention last year with plans to offer low-fare 747 jet service between Los Angeles, Las Vegas, Miami and New York. The airline planned to sell Los Angeles-New York round-trips for $249 with no restrictions.

Family has postponed the inauguration of service several times, and the Department of Transportation said it would deny the carrier permission to fly unless Michaels and his wife gave up all ownership of the Las Vegas-based company.

Michaels was unavailable for comment Tuesday. Michaels’ business dealings in Southern California have been marred by at least a dozen lawsuits and a mail-fraud conviction for which he served four months in federal prison in Arizona. He has previously said his past difficulties are irrelevant.

Under Tuesday’s agreement, former TWA executive Lance R. Carter has been appointed interim Family Airlines president and will replace Michaels as head of day-to-day operations. Michaels remains chairman until his position is resolved under a final agreement, which is expected later this week.

The final agreement will also resolve a disagreement over Michaels’ ownership stake. Michaels claims to own nearly 90% of Family’s common stock, a figure the pilots dispute.

A review of the company’s finances is now underway, said Todd Jensen, attorney for the pilots.

In addition, both the pilots and Michaels have agreed to drop lawsuits filed against each other.

“The conclusion of the dispute between Mr. Michaels and Family Airlines’ investors now clears the way for Family Airlines to complete the licensing process and receive the necessary outside capitalization,” Carter said.