Boeing Tries to Put Brakes on EU-U.S. Feud

In an eleventh-hour bid to quell protests by the European Union against its mega-merger with McDonnell Douglas Corp., Boeing Co. offered Tuesday to back off slightly on the key sticking point in what has turned into a high-stakes diplomatic drama.

The secret negotiations, which included President Clinton and several European leaders, came as the two sides hurtled toward a showdown today and raised hopes that a bruising trade conflict could be avoided.

American aerospace experts said Boeing had given the Europeans a way to save face and avoid a damaging battle, while making only modest concessions on exclusive sales deals with U.S. airlines that are at the heart of the dispute.

“I think there is a way to work this out,” Clinton said at a White House news conference. “Hopefully by Wednesday when the commission meets, an agreement will be reached. Boeing has put forth a good-faith offer.”

Karel Van Miert, Europe’s top antitrust official, said Boeing’s proposal reached Brussels by fax, and he called it “a very important new element.” But whether it would satisfy the Europeans remained to be seen.

The European Commission, the EU’s executive arm, is supposed to pass judgment on the merger today. A veto of the $15-billion fusion of the two U.S. companies, which was approved by the Federal Trade Commission on July 1, could ignite retaliatory measures from the Clinton administration, countermeasures from Europe, and possibly escalate into a transatlantic trade war.

European antitrust experts contend the Boeing-McDonnell Douglas combination would be so huge that it would snuff out competition in the market for airplanes of 100 seats and up. The only competitor to Boeing would be the European consortium Airbus Industrie.

Boeing officials declined to discuss their offer, but two U.S. government sources said the company agreed to amend the exclusivity provisions of three long-term sales contracts with American Airlines, Delta Airlines and Continental Airlines.

Under the sales deals, Boeing offered the three airlines attractive pricing in exchange for an agreement that they would buy only Boeing aircraft. The deals are worth as much as $50 billion in sales and essentially locked Airbus out of an estimated 12% of the world aircraft market for decades, according to aerospace analyst Paul Nisbet of JHA Research.

The Boeing compromise would keep the airlines committed to buying the aircraft covered by the deal. But the airlines would be free to buy Airbus planes to fill any requirements beyond the original sales agreement, according to the two U.S. government officials knowledgeable about the offer.

“The Europeans are wringing out whatever they can from Boeing,” Nisbet said. “It isn’t very much, but Boeing is giving them enough to save face, a sop. It isn’t what they wanted.”

Merrill Lynch analyst Byron Callan noted that the Boeing offer may result in a delay of the European vote today. Callan said the Europeans do not need to act until next Wednesday.

The Europeans have objected to the exclusive deals, in part because they are a serious obstacle to Airbus’ development of its A3XX super-jumbo jet that would carry up to 550 passengers.

Airbus needs private financing for at least two-thirds of the estimated $15-billion development cost of the new aircraft, and private lenders would be highly unlikely to grant the funding with Airbus already locked out of a major segment of the American market, Nisbet said.

The super-jumbo is critical to Airbus’ goal of capturing 50% of the world aircraft market, up from its current 30% share.

European officials, led by Van Miert, the EC’s commissioner on competition, also complained that the merger would make Boeing the world’s largest manufacturer of military aircraft, as well as enhance its position as the No. 1 maker of civilian airliners. That status, the Europeans contend, would mean large indirect subsidies from the U.S. government to Boeing’s civilian operations from work performed for the Pentagon.

But U.S. experts dismissed that assertion, noting that McDonnell Douglas’ big role in military aircraft work has done nothing to help it compete with Boeing in commercial aircraft.

The stakes, both economic and political, are so great that leaders on both sides of the Atlantic exchanged increasingly heated rhetoric as today’s scheduled vote approached. Last week, Clinton threatened U.S. trade sanctions if the Europeans tried to block the deal.

The 20-member European Commission is powerless to actually halt the marriage of the two U.S. companies, which Boeing and McDonnell Douglas shareholders are supposed to vote on Friday.

Under its rules, however, the EC could impose billions of dollars in fines on Boeing. European airlines that persist in doing business with Boeing could also be hauled into court.

Despite the angry words, many analysts doubted that leaders on either side of the Atlantic would let the feud spin out of control and endanger the world’s largest trading relationship. Even a veto today by the European Commission would not preclude Boeing from later submitting a revised blueprint for the merger more to the Europeans’ liking, they said.

Dahlburg reported from Brussels and Vartabedian from Washington.

* SOUTHLAND STAKE: Region has much to gain from avoiding a trade war, James Flanigan writes. D1