Originally created 07/05/97

EU panel urges rejection of Boeing-McDonnell merger



BRUSSELS, Belgium (AP) - The European Union's antitrust advisory committee unanimously recommended today that the merger of the Boeing Co. and McDonnell Douglas Corp. be blocked, sources said.

The panel said the mega-merger between the two aircraft manufacturers would strengthen Boeing's "existing dominant position and therefore should be prohibited."

EU Competition Commissioner Karel van Miert issued no immediate reaction to the news that his key advisory panel suggested that he block the venture.

Sources said the recommendation to disallow the merger does not signal the end of the European Commission's investigation into the impact that the merger will have in Western Europe.

However, the recommendation serves as a powerful signal of the concerns in EU capitals of the prospect of Boeing gaining an unfair edge in the global market for large civilian aircraft.

The committee said that proposals by Boeing to modify its planned merger to ease European concerns were not sufficient, said one EU source who asked not to be named.

The antitrust committee is made up of representatives from the 15 EU member countries.

"We are disappointed, of course. But we are committed to continuing to work with the EC to reach a positive outcome," said Boeing spokeswoman Sherry Nebel in Seattle.

The company created by the merger - to be called the Boeing Co. and based in Seattle - would be a global colossus: 200,000 employees, annual sales of $48 billion and a 65 percent grip on the global market for large, commercial jetliners, double that of its only rival, Airbus Industrie, a consortium of European partners.

Under EU law, the European Commission can block mergers - also of non-European companies - if it feels it would have an adverse affect on fair trade in the 15-nation EU.

If Boeing ignored EU regulators, it risks fines, seizure of aircraft and an uncertain business climate with European clients hesitant to do business with a company that cold-shoulders the trade concerns of the EU head office.

EU officials are confident this is not what Boeing wants and that the company will want to cooperate.

In recent weeks the commission has expressed concerns about the huge market position of the new company emerging from nearly $15 billion Boeing-McDonnell merger.

Last Tuesday, the U.S. Federal Trade Commission gave its blessing to the merger saying it would not "substantially lessen competition in any relevant market."

In reply, the European Commission said U.S. backing for the merger was irrelevant to its investigation and reiterated its objections.

One reason the FTC allowed the merger was that St. Louis-based McDonnell has been disappearing as a market force, gaining only 4 percent of global orders in 1996 for large aircraft.

The European view has been the merger would effectively be waved through by the FTC.

"We are moving ahead based on the FTC decision," McDonnell Douglas spokeswoman Mary Ann Brett said today.

Van Miert has not commented on the FTC ruling. The executive agency must make a final ruling before July 31.

This week, EU officials argued that while McDonnell may have no future, its planes still account for a quarter of all civilian planes flying worldwide today and that they were bound to be replaced by Boeing planes or kept in service by the new company since it has all the spare parts.

Also troubling the Europeans are the 20-year exclusive contracts Boeing has reached with three big U.S. carriers: Delta, American and Continental.

Additionally, the EU worries about a "spillover" effect whereby U.S. defense and space subsidies bleed into Boeing's ever-bigger commercial aircraft business.