Just when you thought it was safe to assume that American Airlines, a unit of (AMR:NYSE - news - boards), was in the driver's seat with TWA (TWA:NYSE - news - boards), what happens?

Carl Icahn appears.

Hey, you can't say we didn't warn you.

TWA Acquisitions Corporation, an investment group headed by Brian M. Freeman, presented a term sheet to TWA today, as part of the airline's bankruptcy auction process. Icahn's role in the deal is that of lender, with entities that he controls providing $650 million in financing.

Now, some of you might be shaking your heads going, "How can Carl Icahn be involved with an offer for TWA that was just presented today? I thought all the bids had to be in by Feb. 28."

Correct. But as TWA spokesperson Mark Abels was careful to point out in a media conference call this afternoon, "While both TWA and American have not waived any of their rights in the process, TWA does remain committed to looking at all potential proposals."

My translation? Forget the other wannabe bidders. They are not important in the big scheme of things here. What is happening is that TWA and American are bending over backwards not to anger Icahn. And I think this is a wise move, as the Icahn-backed deal has some strong legal arguments in its favor.

While I think most analysts would agree that the best outcome for TWA is the American offer that is on the table, the Icahn-backed deal has some muscle because it is being presented as a reorganization plan, not as a bid for assets. Icahn's argument is that what American is really doing is not an asset sale -- it is providing a reorganization of the airline. That's certainly arguable if, as American says, it plans to fly the bulk of TWA as TWA, LLC. for some period of time after the sale.

The distinction is important, because it affects how a bankruptcy court treats creditors, for one thing. It's been obvious to many observers that American has basically been calling the shots in this process from the beginning. So the legal argument of whether what has transpired has basically been a reorganization or an asset sale is a very legitimate one.

It is also interesting to note that one of the objections on file in the bankruptcy docket is one that was filed early in the process by Icahn, who objected to the treatment of the unsecured creditors under the proposed American plan.

As a result, I would not be surprised if Icahn and Freeman were to seek injunctive relief on Friday, the day when TWA is supposed to recommend its choice of plans to the bankruptcy judge. Icahn and Freeman could argue that American's plan to buy TWA's assets is really a thinly veiled reorganization of the airline, and therefore, Icahn's proposal should be considered as well. They could also argue that their reorganization plan should be considered and not be held to a Feb. 28 deadline that applied only to bids.

Not surprisingly, the $650 million Icahn/Freeman proposal also seeks to pay more to both unsecured and secured creditors. No one's saying how the Icahn/Freeman offer might affect shareholders, although under American's plan, shareholders would get nothing.

As for other potential suitors, TWA representatives said Emil Bernard, of Global Airlines, has not posted the bond required by the bidding process. Bernard, in fact, says he is not going to post the necessary payment unless he is selected the winning bidder for TWA's assets. As expected, you can write this one off.

Jet Acquisitions Group, or JAG, which had said over the weekend that it had sent a $50 million certified check to the airline, as a deposit on its offer -- has not done so, according to the folks at TWA. In my opinion, JAG is out of the running as well.

Late Wednesday, the auction process will be completed. At that time, TWA will have talked to all parties, probably will have more information on the Icahn-Freeman offer, and will be prepared to make its recommendation.

However, as Abels pointed out in the conference call, there's nothing to stop the Icahn/Freeman group from raising the ante between Wednesday and Friday. For that matter, American could raise its $500 million offer as well.

Friday, all parties are scheduled for what looks to be an all-day, knock-down, drag-'em-out session in bankruptcy court, as TWA picks its preferred bidder and asks the court to do two other things: throw out Icahn's Karabu ticketing agreement and increase the debtor-in-possession financing from American by another $130 million.

After that, it's up to the judge. Other bidders probably will testify, and if Icahn and his folks want to file any heavy-duty objections to the process, this will be the time to do so.

TWA said today that it will ask the judge to rule Friday from the bench on whether he will accept the airline's recommendation. (Which, no doubt, is going to be American.)

But, as TWA's bankruptcy lawyer James Sprayregen said in this afternoon's call: "Never speculate on what can or can't happen in bankruptcy proceedings."