Boeing Salvages Merger Deal With Concessions Eu Endorses Boeing’s Buyout Of Mcdonnell Douglas After Last-Minute Wrangling
With a trade war threatened, European authorities endorsed Boeing’s $15 billion buyout of McDonnell Douglas Wednesday after last-minute concessions by Boeing and intense lobbying by President Clinton and Congress.
The European Union’s executive agency said it would accept the deal, with a final vote expected next week, after Boeing agreed to loosen its hold on exclusive contracts to sell jets to three major U.S. airlines. Those contracts, more than the merger itself, were the critical issue for Europe’s Airbus Industrie consortium, Boeing’s only competitor in the global market for commercial airline sales.
“Both sides did what you do in a negotiation, which is make some compromises and meet in the middle,” Boeing Chairman and Chief Executive Officer Phil Condit said in a Washington news conference.
Condit said Boeing negotiators fought hard to save the exclusive contracts to sell airliners to Delta, American and Continental. But even without the exclusivity clause, the contracts committing those three airlines to substantial Boeing purchases remain.
“Given this agreement, we can have, if not zero impact, then minimal impact on the bottom line,” Condit said.
Boeing also pledged not to negotiate such exclusive contracts in the future, unless Airbus or some emergent competitor did so, and agreed to continue to run Douglas Aircraft, McDonnell’s dwindling commercial airline division, as a separate entity. Condit said that concession would have little impact on Boeing’s goal of tapping McDonnell’s unused production capacity to catch up with booming demand for new jets.
The EU’s antitrust chief, Karel Van Miert, said Wednesday in Brussels, Belgium, that after more study by experts from the 15 EU nations, the European Commission was expected to grant final approval next week.
“We have reached a satisfactory conclusion with Boeing,” Van Miert said. “I’m confident we’ll have a formal decision next week.”
Outside experts tended to agree with Condit’s assertion that the financial impact of Boeing’s con cessions was likely to be minimal.
“The agreements are not going to be particularly significant,” said Cai von Rumohr, an aerospace analyst with Cowen & Co. in Boston. McDonnell’s share of commercial airline sales has dwindled to insignificance, leaving the field to Boeing and Airbus. “Demand for planes is strong. … If Airbus keeps its own house in order, it should do very well.”
Erik Pages of Business Executives for National Security, a Washington-based research group, said that while the talk is of a trade war averted, it has merely been postponed.
“This is a temporary cease-fire,” Pages said. He predicted “no-holds-barred market competition” between Boeing and Airbus, especially for jet sales to Asia, and said that if one company encounters difficulty, the specter of government-imposed protectionist trade barriers could arise again.
Boeing has long dominated the world’s jetliner market. Last year, it took orders for 717 planes, compared with 350 for Airbus and 38 for McDonnell Douglas. Over the next decade, Boeing forecasts that it will compete for a global market for commercial jet sales of $490 billion.
The U.S. government played a major supporting role. Clinton phoned European leaders on Tuesday, urging a reasonable posture toward the merger, and the House Tuesday night overwhelmingly passed a resolution condemning resistance from the European Union.
xxxx BOEING’S CONCESSIONS Associated Press
Boeing modified its merger plans with McDonnell Douglas in a number of key areas to secure approval by European Union regulators. Here are the main concessions: Exclusive contracts - Boeing agreed not to enter into exclusive contracts that tie commercial airlines to Boeing as a sole supplier. Exceptions could be granted if a competitor offers such deals. Boeing agreed not to enforce exclusivity provisions in existing supply contracts with American Airlines, Delta Air Lines and Continental Airlines. Legal separation - Boeing agreed to maintain McDonnell Douglas’ commercial aircraft business as a separate legal entity for 10 years and to supply the EU with an annual report on its business activities. McDonnell Douglas sells civilian planes and provides service for commercial customers, and Boeing pledged not to use that relationship as leverage to secure new sales from those customers. Access - To meet concerns about Boeing’s commercial jetliner business benefiting from McDonnell Douglas’ defense business, Boeing agreed to give rivals access to some of its aviation technology for a fee. Boeing also agreed to supply the EU with an annual report on nonclassified, government-funded aeronautics research.