EC Details Concerns About Aircraft Merger

BRUSSELS — The European Commission has serious concerns about the proposed merger between Boeing Co. and McDonnell Douglas Corp., and the companies would be well-advised to address them, European Union antitrust sources said Friday.

Although Boeing’s long-term exclusive supply deals with American Airlines, a unit of AMR Corp., and Delta Air Lines Inc. are a key problem, the sources said, scrapping those deals alone would not solve the competition problems.

Noting that Boeing already has a 64% share of the global commercial aircraft market and enjoys a monopoly in the jumbo jet segment, they said the deal would give it even stronger bargaining power.

In a statement of objections totaling nearly 40 pages sent to the parties Wednesday, the European Commission, the EU’s executive body, detailed its concerns about the $14-billion deal announced in December, which would leave the world market at the mercy of only two aircraft manufacturers: Boeing and the European Airbus Industrie consortium.

The merger would increase Boeing’s share of the market for large aircraft--those with a capacity of more than 100 seats--to 70%, given McDonnell’s 6% share of total aircraft orders at the end of 1996, the officials said, quoting from the statement.

Moreover, Boeing would increase its customer base to 84% from 60%, they said, eager to demonstrate that McDonnell was not as negligible a player as portrayed by Boeing Chairman Philip Condit.

Spanish airline Iberia, Scandinavian Airlines System and Alitalia all have a substantial number of McDonnell planes in their fleet. As a result of the merger, Boeing would most likely replace them when they are retired.

The European Commission started an in-depth probe into the merger March 19, after Boeing submitted it for regulatory approval from the EU and the United States. The U.S. Federal Trade Commission, which is pursuing its own investigation, has not yet commented on the deal.

The commission is also concerned that government subsidies involved in generously calculated U.S. military contracts will spill over to Boeing’s commercial programs.

This, the sources said, was a legitimate worry and entirely separate from recently revived transatlantic talks on aircraft subsidies, which for the EU are being dealt with by Trade Commissioner Sir Leon Brittan.

The two partners will have the opportunity to answer the commission’s objections at a closed hearing June 12 and 13 in Brussels.

Competitors and government antitrust officials will also be invited to state their views at the meeting before the commission reaches a final decision by a July 31 deadline.