U.S. Approves Boeing-McDonnell Merger
The government on Tuesday gave its blessing to the merger of two of the oldest rivals in the airplane industry, conceding that there is now room for only one of them to compete in most segments of the global aerospace market.
The Federal Trade Commission, by a vote of 4 to 1, said it would not try to block Boeing Co.’s purchase of McDonnell Douglas Corp. The panel found that the $15-billion merger would not substantially lessen competition in an industry that has been dominated by Americans ever since the Wright Brothers first took off from a hillside at Kitty Hawk, N.C.
The merger, however, faces opposition in Europe, where antitrust regulators fear that the new Boeing will crush any remaining competition, including the European consortium Airbus Industrie. Should the European Commission seek to thwart the merger by imposing fines or limiting Boeing sales, that would likely set up a diplomatic confrontation with Congress and the Clinton administration.
Negotiations between Boeing and the Europeans continued Tuesday in Brussels.
The Boeing-McDonnell Douglas combination unquestionably would become a financial and technological colossus, with more than $40 billion in annual sales, 200,000 employees and the know-how to put astronauts on the moon. Its products would include the 747 jumbo jet, the Air Force’s F-15 and the Navy’s F-18 fighters, the Army’s Apache helicopter and a new international space station.
Boeing would account for two-thirds of the world’s fast-growing market for jet airlines, with only Airbus as competition.
And the merged company would take in about a third of the money spent each year by the Pentagon and NASA on jet fighters, helicopters, rockets, missiles and electronic equipment. In every significant military and space market, it would face only one other competitor: either Lockheed Martin Corp. or Raytheon Co., themselves products of recent mega-mergers.
In a statement, the commission majority said McDonnell Douglas is no longer a viable competitor in the commercial aircraft business because it had failed to invest in new products and production techniques. The FTC said that only two of the 40 airlines contacted by commission investigators said they would purchase McDonnell Douglas planes in the future.
Commission Chairman Robert Pitofsky called the unanimity of opinion among customers “stunning” and said it would have made it impossible to sustain any legal challenge to the merger in court.
In its decision, Pitofsky and his colleagues expressed concern about exclusive supplier contracts that Boeing recently has signed with American, Delta and Continental airlines. The commission agreed with the Europeans that such agreements could make it difficult for Airbus to launch a new jet to compete against Boeing’s 747, which now enjoys a virtual monopoly in the jumbo-jet category.
But because those airlines now account for only 11% of the global market, the commission majority said that did not present reason enough to stop the merger. Instead, the commission hinted it would go to court to prevent Boeing from entering into exclusive contracts with any additional U.S. airlines.
Boeing shares rose $1 to close at $54.06; McDonnell shares gained $1.19 to close at $69.69. Both trade on the New York Stock Exchange.
