The Boeing Company and the McDonnell Douglas Corporation (MDC), two U.S. firms, announced plans to merge on December 15, 1996. The E.C. objected to the merger on the grounds that it harmed competition in the aerospace sector. Many observers and stakeholders in the U.S. believed that the E.C. objection related to its desire to protect a major European-based competitor of the two merging firms, France's Airbus. After several rounds of negotiations, proposed concessions and much high-profile political wrangling, the merging companies finally agreed to a significant set of concessions on July 23, 1997. With these concessions in place, the merger finally proceeded and Boeing-McDonnell Douglas began operating as the world's largest aerospace company on August 4, 1997.
The Companies
The Boeing Company is an American multinational aerospace and defense firm founded in 1916 in Seattle, Washington. It is among the largest global aircraft manufacturers by any metric and is the third largest aerospace and defense contractor in the world. Boeing is the largest exporter by value in the U.S.
McDonnell Douglas was a major U.S. aerospace and defense company producing commercial and military aircraft, including American icons such as the DC-10 and the F-15 fighter jet. It originally formed from a merger of two other U.S. firms in 1967, McDonnell Aircraft and Douglas Aircraft. McDonnell Douglas was based in Berkeley, Missouri.
Merger timeline
Boeing and MDC announced plans to merge on December 15, 1996. In accordance with the 1991 Bilateral Agreement, which established a cooperative transatlantic competition framework, E.C. and U.S. regulators notified one another that they were opening separate investigations into the merger. On March 17, 1997, the E.C. announced its plans to open an in-depth "phase II" investigatino of the merger. On May 21, 1997, the E.C. issued a formal Statement of Objections.
The Statement held that the merger would enhance Boeing's already dominant position in the aircraft manufacturing and defense industries and would thus be anticompetitive. At that time, the FTC was unable to comment due to its own ongoing investigation. On July 1, 1997, the FTC approved the BMD merger. Soon thereafter, in hopes of gaining EC approval, BMD submitted a round of remedies to the E.C. After closed-door negotiations on July 16, the proposed remedies were rejected by the E.C.
With a final decision by the E.C. on the merger due less than a week later, U.S. politicians sought to intervene. The U.S. Senate and the House of Representatives both passed a resolution opposing EU "interference" in domestic business affairs. President Clinton threatened a complaint to the WTO or retaliatory tarriffs should the E.C. block the merger.
The U.S. House was clear in its opinion on the reason for the E.C. objection to the BMD merger; it said that the E.C. was "apparently determined to disapprove the merger to gain an unfair competitive advantage for Airbus Industries, a government-owned aircraft manufacturer" and that E.C. interference "would constitute an unwarranted and unprecedented interference in a United States business transaction that would threaten thousands of American aerospace jobs." The E.C. countered with charges of attempts to protect a 'national champion' by U.S. interests.
On July 23, 1997, the merging firms contacted the E.C. with a last-ditch series of concessions, which many found onerous, including:
- Boeing agreed to license patents obtained under U.S. government-funded contracts to competitors
- Boeing agreed not to leverage customer support for existing MDC aircraft to obtain any advantage in sales of new commercial aircraft
- Boeing agreed to nullify "sole supplier contracts" with Delta, Continental, and American Airlines
The E.C. granted final approval for the merger under these terms on July 30, 1997. Boeing Executive Vice President Richard Albrecht said of the deal, "We were faced with a very difficult decision. None of the alternatives that we faced seemed attractive."
Sources:
Sovereignty in Transition: The European Commission's Influence on U.S. Policy by Callum and Guay. Paper presented at the ECSA Sixth Biennial International Conference. 2-5 June, 1999.
Sovereignty in Transition: The European Commission's Influence on U.S. Policy by Callum and Guay. Paper presented at the ECSA Sixth Biennial International Conference. 2-5 June, 1999.
Explaining The Differing U.S. and E.U. Positions on the Boeing/McDonnell-Douglas Merger: Avoiding Another Near-Miss by Eric J. Stock. University of Pennsylvania Journal of International Economic Law Vol 20:4 1999.
What Can Business and Politics Learn? by Damro and Guay. Paper prepared for Panel on “EU Competition Policy: Changes and Challenges Arising from Globalization and Europeanization”. European Union Studies Association 11th Biennial International Conference, Los Angeles, CA. 23-25 April 2009.
