FTC Won’t Block Boeing’s Purchase of McDonnell
The federal government has decided not to challenge Boeing Co.’s planned purchase of McDonnell Douglas Corp., according to industry and government sources.
The Federal Trade Commission has until midnight tonight to go to court to try to block the $14-billion deal, but as of Monday it had no plans to do so, sources said.
After the most extensive investigation in its history, the five-member commission has concluded that the merger would not result in any substantial lessening of competition for either military or civilian aircraft. The combination would create the world’s largest aerospace firm, with more than 200,000 employees and expected annual sales of $40 billion.
The merger is still subject to approval by European regulators, who have issued a long list of objections. But with the FTC’s decision, the Europeans would be put in the uncomfortable position of trying to block a merger between two American firms that has passed muster with the U.S. government.
Negotiations between the European regulators and Boeing are reported to be continuing as a Friday deadline approaches for a vote by the antitrust advisory panel of the European Union in Brussels.
In the United States, according to knowledgeable sources, the decision not to try to block the merger came down to a determination by the FTC staff that McDonnell Douglas had ceased to be a competitive factor in the market for commercial jets. In last year’s booming market, the company won only 4% of new airplane orders.
As for military aircraft--Navy and Air Force fighters, Army helicopters and giant military transports--the Pentagon reportedly advised the commission that there were no significant contracts coming up in the next five years for which Boeing and McDonnell Douglas could have been expected to compete.
According to those involved, the six-month review involved a virtual army of lawyers, economists, computer programmers and research assistants. At one point this spring, the two companies had more than 600 lawyers and legal assistants--many of them hired from temporary agencies--pulling and organizing documents requested by the government.
In Long Beach, lawyers for McDonnell Douglas had so many people involved in the process that they were forced to bring in portable toilets at their commercial jet facility.
And a computer firm was hired, at a cost of $3 million, to retrieve a decade’s worth of internal company memos and e-mail stored on backup tapes--a task made even more complicated because employee passwords are changed every month at the firm to protect sensitive information.
By May, as truckloads of material began to arrive in Washington, the FTC ran out of space and asked Boeing to rent a nearby office for the 5 million pieces of paper stored in 2,800 boxes.
“It was an unbelievable process,” said Marc Schildkraut, the lead attorney for McDonnell Douglas, who worked for 17 years at the FTC. “We kept running into bottlenecks nobody in this business has ever run into before.”
In the meantime, FTC staff lawyers and investigators grilled company executives for eight days on the ins and outs of their business and conducted more than 50 face-to-face interviews with airline executives. One commission member traveled to Brussels several times to help coordinate the European and U.S. reviews. One staff investigator flew to Asia in a vain search for companies that might be interested in buying McDonnell Douglas’ commercial airplane operations.
Behind the scenes, Boeing’s two principal competitors--Airbus Industrie and Lockheed Martin Corp.--peppered commission members with their objections in hopes of derailing the merger.
