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EC clears Boeing's merger
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July 23, 1997: 9:20 a.m. ET
Preliminary OK granted to $15 billion combination with McDonnell Douglas
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NEW YORK (CNNfn) - The European Commission has approved "in principle" conditions for Boeing Co. to go ahead with its planned $15 billion merger with McDonnell Douglas Corp.
The preliminary green light comes after an eleventh-hour offer by Boeing to scrap exclusive supply agreements it has with three of the nation's largest carriers: AMR Corp.'s American Airlines, Continental Airlines and Delta Air Lines Inc.
Of primary concern to the EC, the regulatory arm of the European Union, was the merger's competitive impact on Airbus Industrie -- the consortium formed by Daimler-Benz of Germany, Aerospatiale of France, British Aerospace and Spain's Construcciones Aeronauticas SA (CASA).
"The remedies the commission was striving for have largely been supplied," said EC antitrust chief Karel van Miert at a news conference in Brussels.
Without the last-minute concessions, the commission was widely expected to outlaw the merger -- a move that would have sparked an international trade battle between the U.S. and Europe.
Indeed, at one point even President Clinton stepped in, calling on European leaders and company officials to work out their differences and come to a compromise.
Spearheading the voice of concern for the 15 nations of the European Union was France, which is heavily dependent on the aerospace sector for economic growth and houses the headquarters of Airbus in Toulouse -- a region in the south west portion of the country. (156K WAV) (156K AIFF)
Even after today's announcement, French authorities continued to express their opposition to the deal, calling Boeing's last-minute concessions insufficient and "incomplete."
Yet, the EC's Van Miert said he now believes the deal will get formal approval as early as next week. The Federal Trade Commission in Washington already has cleared the deal earlier this month.
As part of the accord, Boeing agreed not to conclude any new exclusive supply contracts with airlines for the next 10 years.
Among the other concessions, the Seattle-based aircraft maker also agreed not to incorporate McDonnell Douglas's commercial aircraft business, leaving it as a separate legal entity for at least 10 years.
Boeing further plans to free up licenses and patents obtained from government-funded contracts to rival firms for a "reasonable" royalty fee. The EU had argued Boeing could unfairly use defense funding to subsidize its commercial aircraft development.
In addition, Boeing agreed not to abuse its influential position in coercing component suppliers.
Analysts in general agreed the concessions were extremely important, not only for Airbus but suppliers as well.
"The consequences for European producers would have been horrendous. They do produce something in the order of $2 billion worth of equipment for Boeing," said Clive Forestier-Walker, aerospace analyst at Charterhouse Tilney in London.
In a separate statement, Boeing said shareholders from both companies will vote on the merger on July 25. Subject to that, the multi-billion dollar merger is expected to close on Aug. 4.
-- Robert Liu
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