The Boeing/Mcdonnell Douglas Merger: The European Commission'S Costly Failure To Properly Enforce The Merger Regulation

Maryland Journal of International Law
Volume 22 | Issue 2 Article 7
The Boeing/McDonnell Douglas Merger: the

European Commission's Costly Failure to Properly
Enforce the Merger Regulation
Jeffrey A. Miller
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Jeffrey A. Miller, The Boeing/McDonnell Douglas Merger: the European Commission's Costly Failure to Properly Enforce the Merger
Regulation, 22 Md. J. Int'l L. 359 (1998).
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COMMENT
THE BOEING/McDONNELL DOUGLAS MERGER: THE

EUROPEAN COMMISSION'S COSTLY FAILURE TO
PROPERLY ENFORCE THE MERGER REGULATION
I. INTRODUCTION
The Boeing/McDonnell Douglas1 merger passage through the Euro-

pean Commission illustrates the challenges of the increasing globalization
of antitrust law. 2 These challenges arise when leaders of anti-trust moni-
toring regimes, such as the European Commission, attempt to pacify dis-
parate political and economic interests, secondary to the actual bona fide
antitrust dispute. Regulatory bodies charged with the duty of monitoring
and prohibiting anti-trust violations should decide cases on the basis of
the actual facts presented for determination. The Boeing decision vividly
illustrates the misapplication of principles and policies to an anti-trust
dispute, because the Commission allowed external, non-legal considera-
tions to infect the decision-making process.
Early in the merger approval process in Boeing, European Union
Commissioner Karl Van Miert publicly stated that the proposed transac-
tion exhibited a "community dimension" and violated the European
Community's Merger Regulation. 3 Yet paradoxically, the European Com-
mission, despite determining that the merger was anti-competitive in the
commercial aircraft sector, decided to extract various concessions from
the Boeing Company (hereinafter, Boeing) instead of blocking the
merger.4 The Commission's retreat from Van Miert's earlier position was
largely a reaction to President Clinton's admonition that an anti-Boeing/
McDonnell Douglas merger decision could lead the United States to
bring the matter to the World Trade Organization or to pursue "some op-
1. Commission Decision of 30 July 1997 Declaring a Concentration Compatible

with the Common and the Functioning of the EEA Agreement, Case IV/M.877, Boeing/
McDonnell Douglas v. Commission, 1997 O.J. (L 336) 42 (hereinafter Boeing).
2. Pursuant to Article 9, Regulation 17/62, authority to apply and enforce EEC com-
petition rules lies primarily with the Commission in Brussels, the executive branch of the
Community. See Council Regulation No. 17/62, art. 9, 1979 O.J. (L291) 94.
3. See Katherine Butler, Boeing Deal Raises Anti-trust Flag in EU, J. CoM., Decem-
ber 19, 1996 at 3A.
4. See FTC Release, FTC Chairman discusses merger waive and merger enforce-
ment at the FTC; focus is Staples and Boeing (Sept. 23, 1997), <http://www.ftc.gov/www/
sop/9709/pitmerg.htm>.
(359)
360 MD. JOURNAL OF INTERNATIONAL LAW & TRADE [Vol. 22
tions ourselves." 5 Nonetheless, in Boeing, the European Commission

strayed significantly from the dictates of its earlier de Haviland decision.
In de Haviland, discussed infra, the Commission blocked a proposed
merger and expounded upon the standards of the Merger Regulation by
establishing the threshold evaluative criteria for analyzing and blocking
proposed transactions.
Ultimately, the Commission must consistently enforce the Merger
Regulation through case law to continue the movement toward complete
economic integration in the EU. Decisions like Boeing/McDonnell Doug-
las, however, undermine the progressive harmonization of European Eco-
nomic Community (EEC) rules and economic policies designed to lead to
the establishment of a true "common market."' 6 Admittedly, e pluribus
unum is not yet a reality in the European Union, but Jean Monnet, one
of the founding fathers of the EEC, remarked, "[t]he Common Market is
'7
a process, not a product."
This Comment will discuss the propriety of the Commission's treat-
ment of the Boeing/McDonnell Douglas merger in comparison with the
decision in de Haviland and in consideration of the European Union's
Merger Regulation. Sections II through V of this Comment set forth the
factual scenario and the foundation for understanding the European
Union's Merger Regulation. Section III, in particular, explains the ratio-
nale behind, and the practical application of, the Merger Regulation. Sec-
tion VI explains the de Haviland decision, the benchmark against which
all Commission decisions are measured. Section VII provides an in-depth
analysis of the Boeing/McDonnell Douglas merger decision. Finally, sec-
tion VIII discusses the failure of the Boeing Commission to properly ap-
ply the Merger Regulation to the proposed transaction.
II. FACTS
Boeing and McDonnell Douglas competed in the aerospace market

for 75 years, long before the emergence of upstart Airbus, now Boeing's
5. Mitchell, Alison, Clinton Warns Europeans of Trade Complaint on Boeing Deal,

N.Y. Times, July 18, 1997, at D2.
6. Id.
7. Id. at D5. See also, CCH Commentary: Community-Wide Merger Control (Regu-
lation No. 4064/89), Common Mkt. Rep. (CCH) P 2843 (Nov. 1990) (hereinafter CCH
Commentary). The Treaty of Rome established a European Economic Community (EEC)
and gave it the task, in Article 2, "[t]o promote throughout the Community a harmonious
development of economic activities, a continuous and balanced expansion, an increase in
stability, an accelerated raising of the standard of living and closer relations between the
States belonging to it." Id. at 19.
1998] THE BOEING/MCDONNELL DOUGLAS MERGER
major competitor. 8 When the merger between Boeing and McDonnell

Douglas finally occurred, Boeing reinforced its position as the colossus
of airplane manufacturers, leaving commercial jet customers a choice
only between Boeing and the European consortium, Airbus Industrie. 9
McDonnell Douglas, the leader in defense aircraft for many years,
first appeared vulnerable for merger talks when the Pentagon dropped
McDonnell Douglas from a three-way competition to build the next gen-
eration strike fighter for both the U.S. Department of Defense (DOD)
and the United Kingdom.' Boeing, however, benefited from the Penta-
gon's actions because prior to this defense contract Boeing had not re-
ceived lead military program contracts for over 40 years.1 Sensing
MDC's susceptibility to merger discussions, on December 9, 1996, Phil
Condit, Chairman and Chief Executive Officer of Boeing, received ap-
proval from Boeing's Board of Directors to pursue merger talks.' 2 In fact,
Phil Condit and Harry Stonecipher, Chief Executive Officer of McDon-
nell Douglas, did the merger pas de deux several times before, but never
consummated the transaction. After a breakfast meeting in Seattle the fol-
lowing day, however, Condit and Stonecipher reached a compromise and
agreed on the historic merger.' 3
By consummating the merger, Boeing reinforced its position as the
leading player in the world market for large commercial jets, with a mar-
8. Bill DiBenedetto, Boeing Merger Ices Good Growth Year; McDonnell Douglas
Acquisition Follows List of Notable Triumphs, J. COM., December 26, 1996, at 3A. In
fact, Phil Condit, Chairman and Chief Executive Officer of Boeing, and Harry
Stonecipher, Chief Executive Officer of McDonnell Douglas, did the merger pas de deux
several times before, but never consummated the transaction. Id.
9. See id.
10. See id.
11. See id. The two finalists for the U.S. Department of Defense and the United
Kingdom contracts were Boeing and Lockheed Martin (Lockheed). The contract required
the winner to build over 3,000 fighters potentially worth over $200 billion during the
next 20 years. Id.
12. See id. On December 3, 1996, Boeing and McDonnell Douglas announced plans
to collaborate and jointly build the next generation of super jumbo wide body jets. This
collaborative effort stunned Airbus, who started wooing McDonnell Douglas as a partner
on its super jumbo jet before Boeing. Id. The merger talks occurred far ahead of schedule
because Boeing became fearful that McDonnell Douglas might purchase Huges Electron-
ics' defense and aerospace units, thus making a purchase of McDonnell far too expensive.
Id.
13. See id. Extensive in-house meetings occurred to plan and implement the merger
package. The Boards of both Companies approved the merger and the name of the com-
bined companies remained Boeing Co. Finally, Boeing and McDonnell Douglas jointly
made the merger announcement in the presence of hundreds of journalists. Id.
ket share greater than 60 percent. 14 Furthermore, Boeing increased both

its capacity to build commercial aircraft and its technological know-how
by absorbing McDonnell Douglas' highly qualified personnel. 15 Finally,
Boeing reinforced its negotiating power by obtaining exclusivity agree-
ments with three airline companies, Delta, Continental and American Air-
lines, which all signed exclusive purchasing agreements with Boeing for
a period of at least twenty years. 16 Eventually, this new entity is expected
to control approximately 75 percent of the global market for commercial
7
aircraft. 1
With this statistic in mind, it is no surprise that Karel Van Miert, the
EU's Competition Commissioner, scrutinized the merger under the 15-na-
tion bloc's competition rules, which outlaw, inter alia, abuse of a domi-
nant market position. 8 Such "abuses of a dominant position," prohibited
by the Merger Regulation, 19 regulate behavior such as unfair and preda-
tory pricing, exclusive sales agreements and discrimination on the
grounds of nationality.20 The Brussels-based Commission, the competition
authority for the EU, has extensive powers to investigate possible
breaches of the competition laws. 2' In the case of Boeing/McDonnell
Douglas, the Commission scrutinized the merger to determine to deter-
mine what extent it enhanced Boeing's market share within the European
22
Union.
14. See European Commission Press Release No. IP/97/236, of March 19, 1997.
More importantly, Boeing's market share expressed in terms of clientele increased from
60 percent to 80 percent, given McDonnell Douglas' well established contacts in certain
European countries, particularly Italy, Switzerland and Finland.
15. See id.
16. See id.
17. See Butler, supra note 3 at 3A.
18. See id On September 21, 1990, the Commission acquired exclusive jurisdiction
to regulate concentrations having a Community dimension that creates or strengthens a
dominant position as a result of which effective competition in the common market
would be significantly impeded. See CCH Commentary, supra, note 6. A dominant posi-
tion occurs when bigger firms control very large shares of a given market and can use
this position either to make customers pay a higher price or to squeeze out smaller com-
petitors. See also, Europa Competition, <http://europa.eu.int/pol/comp/en/info.htm>, (vis-
ited November 5, 1997).
19. Council Regulation 4064/89 of 21 December 1989 on the Control of Concentra-
tions Between Undertakings, 1989 O.J. (L395) 1, corrected version in 1990 O.J. (L257)
13 (hereinafter Merger Regulation or Regulation) (entry into force Sept. 21, 1990).
20. See Europa Competition, supra note 18.
21. Judicial supervision of the Commission's actions belongs to the European Court
of Justice and the Court of First Instance; their jurisdiction extends to actions brought
against the Union's institutions involving competition rules and other issues. See id.
22. See Butler, supra note 3. Large market shares tend to have an adverse affect on
intra-community competition and thus, fall within the evaluative domain of the Commis-
The Federal Trade Commission (hereinafter FTC) also analyzed the

Boeing/McDonnell Douglas merger. Unlike the European Commission,
however, after an extensive and exhaustive inquiry, the FTC closed the
investigation of Boeing's proposed acquisition of McDonnell Douglas
Corporation. 23 In closing its investigation, 24 the FTC noted that the
merger posed no threat to the competitive landscape in the aerospace
markets. 25 The FTC, however, found the exclusive dealing contracts Boe-
ing concluded with three major airlines potentially troubling, and stated
that it intended to monitor the potential anti-competitive effects of these,
26
and any future, long term exclusive contracts.
III. SUMMARY OF THE COMMISSION'S REASONING
After an initial evaluation of the proposed merger, the Commission

decided to initiate second phase proceedings under the EC Merger Regu-
lation. 27 The Commission considered the merger a great concern because
it would lead to the creation of the largest aerospace company in the
world.28 In this respect, the Commission examined the impact of the
merger on the market for large commercial aircraft, since Boeing already
controlled the world market for commercial jet aircraft of more than 100
sion. See CCH Commentary, supra note 7.

23. See FTC Release, supra note 4.
24. The European Comnission did not close their investigation after the initial in-
quiry. The Commission began to formally investigate only after the initial inquiry. See id.
25. See European Commission Press Release No. IP/97/236, supra note 14.
26. See FTC Release, supra note 4. The FTC believed that the airlines involved in
these exclusive contracts are prestigious and could potentially serve as "launch" custom-
ers for aircraft manufacturers. In other words, they are airlines that can place massive or-
ders and command sufficient market prestige to serve as the first customer for a new air-
plane company.
27. See European Commission Press Release No. IP/97/236, supra note 14. The
Commission first must determine if the merger has a "Community dimension." A Com-
munity dimension occurs when either, 1) the combined aggregate world-wide turnover of
all the undertakings is more than ECU 500 Million; and 2) the aggregate Community-
wide turnover of each of at least two of the undertakings concerned is more than ECU
250 million, unless each of the undertakings concerned achieves more than two thirds of
its aggregate Community-wide turnover within one and the same Member State. Europa
Competition, supra note 18. See also, Merger Regulation, supra note 19. Decisions as to
whether the merger exhibits a "Community dimension" must occur within one month of
the initial inquiry. If the Commission decides to initiate second level proceedings and in-
vestigate further, it has another four months in which to adopt a final decision. Id. The
Commission issued its ultimate decision to approve the merger after concluding a second
level investigation.
28. See Europa Competition, supra note 18.
seats. 29 Additionally, the Commission reviewed the merger because the

transaction resulted in a further increase in Boeing's market share and
impacted negatively upon Airbus Industrie. 30 On the other hand, the
Commission also examined the extent to which the large increase in Boe-
ing's defense and space business, due to the acquisition of McDonnell
Douglas, additionally strengthened its market position in the commercial
aircraft sector.3'
After an arduous review, the Commission declared Boeing's acquisi-
tion of McDonnell Douglas compatible with the common market, 32 albeit
not before Boeing acquiesced to major concessions imposed by the Com-
mission. The Commission found that the merger significantly strength-
ened Boeing's already dominant position in the worldwide market for
large commercial jet aircraft. 33 Thus, the Commission, pursuant to the
Merger Regulation 34 and arguably with the interests of the Common Mar-
ket in mind, prepared to block Boeing's acquisition of McDonnell Doug-
las if Boeing did not agree to the requisite concessions.
The Commission reasoned that this merger affected potential en-
trants unable to challenge Boeing's dominant position, given the high
barriers to entry into the very capital-intensive aerospace market. 35 More-
over, it believed that Boeing's conclusion of long-term exclusive supply
deals with three of the world's leading carriers, American, Delta, and
Continental airlines, evidenced Boeing's ability and willingness to abuse
its dominant position in the Common Market.36 The most immediate rein-
29. See European Commission Press Release No. IP/97/236, supra note 14.
30. See id.
31. Approximately 70 percent of McDonnell Douglas' total business related to the
defense and space sector. Thus, even without the recently completed acquisition of
Rockwell Defense and Aerospace, Boeing will triple its defense and space activities
through the McDonnell Douglas merger. See id.
32. See European Commission Press Release, No. IP/97/729, of July, 30 1997. Boe-
ing, however, made many concessions in order to obtain Commission approval of the
merger. For a complete discussion of the concessions see Boeing, supra note 1, at 36-39.
33. Id.
34. Article 86, written in absolute language, explicitly prohibits any abuse of a dom-
inant position within the Common Market or a substantial part of it that may affect trade
between member states. Furthermore, Article 86 listed examples of a number of abuses. It
is important to note that occupying a dominant position in the EEC is not per-se illegal.
Rather, it is the abuse of this dominant position by a given undertaking that is illegal,
pursuant to Article 86. The Merger Relation, to the contrary, is far more flexible and al-
lows the Commission a full panoply of options when analyzing a merger. For a thorough
discussion of the Merger Regulation, see generally infra notes 70-98 and accompanying
text.
35. See European Commrission Press Release, No. IP/97/729, of July, 30 1997.
36. See id. These exclusive agreements purportedly last for approximately twenty
forcement of Boeing's dominance in the aerospace industry, however,

arose through Boeing's prospective increase in overall market share from
37
approximately 64 percent to 70 percent.
The Commission recognized that Douglas Aircraft Company (DAC,
the commercial aircraft division of McDonnell Douglas) suffered a de-
cline in its business performance in recent years, due to a low level of
investment relative to Boeing and Airbus. 38 Nevertheless, the Commis-
sion remained concerned because Boeing considered the acquisition of
DAC's remaining resources beneficial. 39 The Commission thus declared
the DAC acquisition an advantage constituting a strengthening of a domi-
nant position under EU Competition law.4°
Another vital element strengthening Boeing's dominance resulted
from the increase of Boeing's customer base, from 60 to 84 percent of
the current worldwide fleet in service. 4 1 The Commission believed that
Boeing could increase opportunities for potential sales by exploiting its
leverage over existing McDonnell Douglas aircraft users. Closer ties with
airlines currently using McDonnell Douglas aircraft would enable Boeing
to better identify and influence customer needs, or even exchange their
current McDonnell Douglas aircraft for Boeing models. In particular, the
Commission believed Boeing could use this leverage to induce airlines to
enter into long term exclusive deals. Moreover, the exclusive purchase
agreements with American, Delta and Continental Airlines evidence these
concerns, as currently, these airlines are the first, third, and fourth largest
42
operators of McDonnell Douglas Aircraft.
Finally, the Commission found a further strengthening of Boeing's
dominant position in the civil aircraft market through its acquisition of
McDonnell Douglas' defense and space business. 43 The acquisition of the
years. Given the fact that other "secret" agreements are usually negotiated simultane-
ously, in all likelihood, the exclusive agreement would span less that twenty years. Alter-
natively, businesses such as Boeing might not hold companies to such agreements. Thus,
in all likelihood, American, Delta and Continental Airlines potentially could purchase air-
planes from Airbus Industrie, if they so desired.
37. Id. Other newspaper articles and analysis of the merger posited an increase in
market share from over 60 percent to 70 percent, but not necessarily from 64 percent.
38. DAC's decline was also exacerbated by a decline in investor and customer con-
fidence following McDonnell Douglas' abandonment of several programs, as well as by
the announcement of the Boeing take-over. See id.
39. See id.
40. See id.
41. See European Commission Press Release, No. IP/97/729, of July, 30 1997.
42. Additionally, prior to these agreements, exclusivity deals of this nature had not
been used in this industry. See id.
43. See id. The Commission's investigation did not conclude that the proposed
merger created or strengthened dominance in the defense sectors, only in the commercial
world's number two defense manufacturer and leading manufacturer of

military aircraft considerably enhanced Boeing's access to publicly
funded research and development material and intellectual property. 44 The
large increase in Boeing's defense- related research and development po-
tential increased the benefits obtained from the transfer of military tech-
nology to commercial aircraft. Thus, the combination of Boeing and Mc-
Donnell Douglas' technology and patent portfolio strengthened Boeing's
dominance. 45 Furthermore, the Commission believed that the overall com-
bination of the civil, defense and space activities of both companies
would increase Boeing's bargaining power vis-a-vis suppliers, enabling
Boeing to leverage its relationships with suppliers to the detriment of its
competitors, namely, Airbus Industrie. 46 According to the Commission,
all of these factors exacerbated the monopoly potential and, thus, forced
the Commission to propose a series of concessions, with which Boeing
47
had to agree in order for the Commission to clear the merger.
IV. SUMMARY OF THE FEDERAL TRADE COMMISSION'S REASONING
After an extensive investigation, the Federal Trade Commission (FTC)

decided to close its inquiry into Boeing's acquisition of McDonnell
Douglas Corporation. Contrary to the European Commission, the FTC
concluded that the acquisition would not substantially lessen competition
or tend to create a monopoly in either the defense or commercial aircraft
markets. 48 Chairman Robert Pitofsky framed the critical question in the
FTC analysis as "whether Douglas Aircraft, McDonnell Douglas' com-
mercial arm, had prospects of playing a significant competitive role in
the commercial aircraft market in the future." 49
The FTC commented that, on its face, the merger appeared to raise
serious anti-trust concerns.5 0 The transaction involved the acquisition by
Boeing, a company that already accounts for roughly 60 percent of large
sector. Id.
44. See id. For a discussion of the intellectual property considerations of the Boeing
Commission see infra notes 221- 236 and accompanying text.
45. See id.
46. See European Commission Press Release, No. IP/97/729, of July, 30 1997.
47. See id. Karel Van Miert threatened to fine the companies $4 billion dollars if
Boeing and McDonnell Douglas approved the merger as originally outlined. Michele
Kayal, Washington Comment, J. CoM., June 30, 1997 at 13.
48. See Chairman Robert Pitofsky and Commissioners Janet D. Steiger, Roscoe B.
Starek III and Christine A. Varney, Statement in the Matter of The Boeing Company/Mc-
Donnell Douglas Corporation (September 29, 1997) (hereinafter Boeing Statement).
49. FTC Release, supra note 4.
50. See Boeing Statement, supra note 48.
commercial aircraft sales, of a non-failing, direct competitor in a market

with only one other significant rival, Airbus Industrie. 51 Furthermore, the
merger combined two firms in the U.S. defense industry that develop
fighter aircraft, as well as myriad other defense products. Nevertheless,
the FTC did not oppose the merger.
The FTC staff interviewed over forty airlines, including large and
small U.S. and foreign carriers, as well as many other industry partici-
pants. 52 Furthermore, FTC staff deposed Boeing and McDonnell Douglas
officials responsible for negotiating the acquisition and marketing of
commercial aircraft. In addition, the FTC staff deposed company officials
responsible for assessing their firms' financial condition. 53 Finally, the
FTC reviewed voluminous documentation submitted by the merging com-
4
panies and third parties, such as airlines and aircraft manufacturers.1
The evidence collected during the FTC investigation revealed that
McDonnell Douglas' commercial aircraft division, Douglas Aircraft Com-
pany (DAC), no longer exerted a competitive influence in the worldwide
market for commercial aircraft.5 5 Specifically, the FTC determined that:
1) McDonnell Douglas, looking toward the future, no longer constituted
a meaningful competitive force in the commercial aircraft market; and 2)
McDonnell Douglas could implement no plausible economic strategy to
change this grim prospect.5 6 Over the past several decades, McDonnell
Douglas failed to invest at a rate comparable to its competitors in new
product lines, production facilities, company infrastructure, or research
and development. Consequently, its limited product line lacked the state
of the art technology and performance characteristics that Boeing and
Airbus Industrie developed in their aircraft. 57 The FTC investigation re-
vealed that McDonnell Douglas' failure to adequately improve the tech-
nology and efficiency of its commercial aircraft product caused a deterio-
ration of its product line. As a consequence, the vast majority of airlines
no longer consider purchasing DAC aircraft. Given its market position,
then, McDonnell Douglas no longer significantly influenced the competi-
51. See id.

52. See id. Industry participants include regional aircraft producers and foreign aero-
space companies. Id.
53. See id.
54. See id.
55. See id.
56. See Boeing Statement, supra note 48
57. The FTC also determined that Douglas Aircraft's line of aircraft lacks common
features, such as cockpit design or engine type. Thus, Douglas Aircraft are not efficient
in interchangeable spare parts and pilot training in a manner that an airline obtains from a
family of aircraft, such as Boeing's 737 family or Airbus's A-320 family. See id.
tive dynamics of the commercial aircraft market.5 8 As a result of this

analysis, the FTC approved the Boeing/McDonnell Douglas merger.
The FTC also noted that the "national champion" argument cer-
tainly did not enter into their anti-trust analytical equation. Experts spec-
ulated that the FTC derived its rationale for approving the merger from
the "national champion" argument, namely that because aircraft manu-
facturing occurs in a global market, the United States, in order to com-
pete in that market, needs a single powerful firm to serve as its "national
champion." 5 9 In this respect, the FTC remarked, "[w]e do not have the
discretion to authorize anti-competitive but 'good' mergers because they
may be thought to advance the United States' trade interests." 6 Thus, the
FTC scrutinized the merger, pursuant to the anti-trust statutes to ensure
the vitality of the free market by preventing private actions that may sub-
61
stantially lessen competition, or tend to create a monopoly.
V. LEGAL BACKGROUND
A. The Origins of European Competition Law: Articles 85 & 86

of the Treaty of Paris, Predecessors of the Merger Regulation
European states created the European Community (EC) in 1957 as a

step toward establishing a European common market to "promote
throughout the Community a harmonious development of economic activ-
ities, a continuous and balanced expansion, an increase in stability, an ac-
celerated raising of the standard of living and closer relations between
the States belonging to it." 62 EC competition law arguably functions in a
manner analogous to the Supremacy Clause in the United States, tran-
scending interstate boundaries and creating a true Community-wide mar-
ket where competition exists. Furthermore, EC Competition Law contains
many unique enforcement procedures and institutional arrangements to
achieve this end.63 Prior to December 21, 1989, Articles 85 and 86 of the
Treaty of Rome provided the source of EC competition law. Community
competition law, therefore, consisted mainly of an examination of these
two Articles and their application in many different situations respecting
merger agreements. The Merger Regulation, however, largely displaced
58. See id.

59. Id.
60. Id.
61. See id.
62. TREATY ESTABLISHING EUROPEAN ECONOMIC CoMMuNrY, entered into force, Jan.
1, 1958, art. 2, 298 U.N.T.S. 11 (hereinafter EEC TREATY).
63. See Spencer Weber Waller, Understanding and Appreciating EC Competition
Law, 61 ANTITRUST L.J. 55 (1992).
Articles 85 and 86 and currently forms the cornerstone of competition

policy in the area of mergers and acquisitions. The Regulation addition-
ally serves as a major catalyst in the completion of the Single European
Market. 64
1. Article 86 of the Treaty of Rome
Article 86 of the Treaty of Rome regulates unilateral behavior of

firms with significant market power. 65 The jurisprudence of this article
6
prohibits a firm from abusing its dominant position in the marketplace. 6
Article 86, phrased solely in terms of abuse of a dominant position, ex-
pressly prohibits such abuse insofar as it affects trade between member
states, thereby inhibiting the growth and integration of the Common Mar-
ket. 67 Predatory pricing and price discrimination between member states,
for example, both practices contrary to the aim of complete economic in-
tegration of the Community, are considered abusive under Article 86.68
Virtually all aspects of the behavior of a dominant firm doing business in
the Common Market merit review for abuse within the meaning of Arti-
cle 86.
2. Article 85 of the Treaty of Rome
Article 85 prohibits all agreements between undertakings that prevent,
restrict, or distort competition within the common market. 69 Article 85
64. See Henriette K.B. Anderson, EC Merger Control Regulation As Applied in the
de Haviland Case, 7 N.Y. INT'L REv. 25 (1994).
65. See CCH Commentary, supra note 7.
66. See EC TREATY, supra note 62, at art. 86. In terms of market shares, 60 percent
is almost always conclusive proof of a dominant position, whereas, 45 percent may be
sufficient, and 30 percent will rarely suffice. See also EC TREATY, supra note 62 at 68-
69. See generally United Brands v. Commission, Case 27/26 1978 E.C.R. 207.
67. See Waller, supra note 63. Article 86 sets forth a non- exclusive list of abuses,
including, but not limited to: 1) directly or indirectly imposing unfair purchase prices,
selling prices, or other unfair trading conditions; 2) limiting production, markets, or tech-
nical development to the detriment of the consumer; 3) applying dissimilar conditions to
equivalent transactions with other trading partners, thereby placing them at a competitive
disadvantage; and 4) making contracts subject to acceptance by the other parties of sup-
plementary obligations which, by their nature and commercial usage, have no connection
with the subject of the contracts. See id. at 58.
68. See EEC TREATY, supra note 62, at 70.
69. See id. at art. 85, et. seq. Article 85(1) sets forth a non-exclusive list of prohib-
ited conduct, pertaining to agreements or concerted practices, which: 1) directly or indi-
rectly fix purchase prices, selling prices or other trading conditions; 2) limit or control
production, markets, technical development, or investment; 3) share markets or sources of
supply; 4) apply dissimilar conditions to equivalent transactions with other partners,
thereby placing them at a competitive disadvantage; or 5) make contracts subject to ac-
370 MD. JOURNAL OF INTERNATIONAL LAW & TRADE (Vol. 22
further regulates decisions by associations of undertakings and concerted

practices that may affect trade between member states.7 0 In fact, the core
of the Community's competition policy under Article 85 is the prevention
of cartels and actions between trading competitors that inhibit the crea-
tion of a true European common market.7 In the past, pursuant to Article
85, the Commission initiated proceedings against cartels doing business
both inside and outside the community, when their actions impacted upon
72
trade between member states.
B. The Merger Regulation
The Merger Regulation codifies Articles 85 and 86 and simplifies

European merger process by allowing non-EC firms to merge with ap-
proval only from the EC Commission. 73 The Regulation establishes a dis-
tinct division between large mergers with a "community-wide" impact,
falling under Commission review, and smaller, intrastate mergers, where
national merger control applies. 74 The Regulation applies to mergers with
a "Community-wide dimension." Mergers between undertakings exhibit
the "Community-wide dimension" by meeting two threshold require-
ments: 1) A threshold of combined world turnover, for the companies
concerned, of at least ECU 5 billion (approximately $6.5 billion); and 2)
a minimum aggregate Community-wide turnover ECU 250 million (ap-
proximately $340 million) for at least two of the firms concerned. 75 If,
however, each of the undertakings involved derive more than two-thirds
of their aggregate Community business in the same Member State, na-
76
tional authorities apply national merger control.
The Regulation requires companies meeting the threshold require-
ments to submit a prior notification of the proposed merger transaction
within one week of signing the merger agreement. 77 The Commission
then conducts an initial review to determine the compatibility of the
ceptance of supplementary obligations which, by their nature or according to commercial

usage, have no connection with the transaction. See id.
70. See id.
71. See Paul D. Callister, The December 1989 European Community Merger Control
Regulation: A Non-EC Perspective, 24 CORNELL INT'L L.J. 97, 98-99 (1991). See also
Waller, supra note 63 at 63.
72. See id. See also LENNAT RITTrER , ET. AL., Ecc COMPETMON LAW: A PRACTI-
TIONER'S GUIDE (1992).
73. See Merger Regulation, supra note 19. Of course, the merger must exhibit a
"community dimension" for the Merger Regulation to apply. Id.
74. See id. at 26.
75. See id. at art. 1.
76. See id.
77. See id. at art. 4.
merger with Community competition policy78 and must decide whether to

initiate a formal inquiry within one month after the notification. Upon
conclusion of an initial inquiry, the Commission may determine: 1) the
notified concentration does not fall within the scope of the Merger Regu-
lation, 79 2) the notified concentration falls within the scope of the Merger
Regulation, but fails to raise any serious doubts as to its compatibility
with the common market,80 or 3) the notified concentration falls within
the scope of the Merger Regulation and raises serious doubts as to its
compatibility with the common market and merits an in-depth
8
investigation. 1
If the Commission decides to investigate further, it must issue a fi-
nal decision on the merger within four months. Pursuant to any in-depth
investigation, the Commission may decide: 1) the notified concentration
does not create or strengthen a dominant position which impedes effec-
tive competition in the common market and, as a result, remains compat-
ible with the common market, 82 2) the notified concentration does not
create a dominant position with anti-competitive effects because of modi-
fications made to the notified concentration and is, therefore, compatible
with the common market,83 or 3) the notified concentration creates a
dominant position negatively affecting competition on the common mar-
84
ket and, consequently, is incompatible with the common market.
Thus, the Commission queries as to whether the proposed concentra-
tion is compatible with the common market. If a concentration, "[d]oes
not create or strengthen a dominant position as a result of which effec-
tive competition would be significantly impeded in the common market,
or part of it," the concentration is compatible with the common market.8 5
Likewise, "if a concentration does create or strengthen a dominant posi-
tion, as a result of which effective competition would be significantly im-
peded in the common market, or a substantial part of it," the merger is
incompatible with the common market.8 6
Article 2 of the Regulation lists several factors for the Commission
to consider when determining the compatibility of a notified concentra-
tion with the common market: 1) the need to preserve and develop effec-
78. See Merger Regulation, supra note 19 at art. 2(1)(b).

79. See id. at art. 6(1)(a).
80. See id. at art. 6(1)(b).
81. See id. at art. 6(1)(c).
82. See id. at art. 8(2).
83. See id.
84. See Merger Regulation, supra note 19 at art.8(3).
tive competition, 2) actual or potential competition from the EC or

worldwide, 3) market position of the undertakings and their economic
and financial power, 4) access of suppliers and users to supplies and
markets, 5) legal or other barriers to entry, 6) supply and demand trends
for the relevant goods, 7) the interests of the intermediate and ultimate
consumers, and 8) the development of technical and economic progress,
provided that it is to the consumers' advantage and does not form an ob-
stacle to competition. 87 Additionally, the preamble to the Merger Regula-
tion establishes a presumption of compatibility for any concentration re-
88
sulting in a market share below 25 percent.
C. Three Step Analysis of the Commission
The Commission analyzes these criteria for review in a three-step

assessment. 89 Step one involves a determination of the relevant product
and geographic markets. Step two assesses the undertaking's dominant
position, relative to the geographic market determination in step one. Fi-
nally, assuming the Commission determines that the proposed merger
creates or strengthens a dominant position, step three analyzes the signifi-
cant impediment to effective competition resulting from the undertaking's
dominant position.
1. Relevant Product and Geographic Markets
The Merger Regulation fails to provide decisive guidance on how to

define the relevant product and geographic markets. In fact, some com-
mentators point to the lack of express rules for defining the relevant
product and geographic markets as a major weakness of the Merger Reg-
ulation.9° Form CO,91 a document the parties must submit when notifying
the Commission of a proposed concentration, defines the relevant product
market as comprising, "all those products and/or services which are re-
garded as interchangeable or substitutable by the consumer, by reason of
the products characteristics, their prices and their intended use."
87. See id. at art. 2, et seq. The preamble to the Merger Regulation suggests other
factors including considerations listed in Article 2 of the EEC Treaty, and the strengthen-
ing of economic and social cohesion.
88. See id. at recital 15.
89. James S. Venit, The Evaluation of Concentrations Under Regulation 4064/89:
The Nature of the Beast, in INTERNATIONAL MERGERS AND JOINT VENTURES 413, 519, 545,
548- 57 (Barry E. Hawk ed., 1991).
90. See id. at 213.
91. Form CO relating to the Notification of a Concentration Pursuant to Council
Regulation (EEC) No. 4064/89, 1990 O.J. (L 219) 11, 15 (Annex 1 to Commission Regu-
lation 2367/90, 1990 O.J. (L 219) 5) (hereinafter Form CO.)
Form CO defines the relevant geographic market as "[t]he area in

which the undertakings concerned are involved in the supply of products
or services, in which the conditions of competition are sufficiently homo-
geneous and which can be distinguished from neighboring areas."' 92 Rele-
vant factors include, inter alia, the nature and characteristics of the prod-
ucts concerned and the existence of entry barriers or consumer
preferences. 93
The step one determination affects the step two dominant position
assessment and hence the chances for merger approval. Therefore, under-
takings often argue bitterly with the Commission for a favorable product
and geographic market determination. The discussions, infra, of both the
de Haviland and the Boeing/McDonnell Douglas merger decisions vividly
illustrate this point.
2. Dominant Position Assessment
The Merger Regulation empowers the Commission to block any

concentration that creates or strengthens a dominant position within the
Community, more specifically within the relevant product and geographic
smarkets. The first phase of this assessment involves a calculation of
both the absolute and relative market shares of the notified concentration.
The absolute market share reflects a notified concentration's overall mar-
ket share in the relevant product and geographic markets. 94 The relative
market share compares the notified concentration's market share to that
of its competitors, "[t]o assess whether the new undertaking is likely to
occupy a pre-eminent position." 95 Exactly what is an acceptable market
share varies. Generally, market shares of 80 percent or higher evidence
dominance. Because an undertaking might enjoy a market share of 80
percent, "[a]nd yet economically not be in an dominant position," the
Commission remains reluctant to establish a threshold presumption of
96
compatibility.
The second phase of the dominant position assessment examines the
"compatibility" factors set forth in Article 2 of the Merger Regulation to
92. Id.
93. See id.
94. See generally T. Antony Downes & Jullian Ellison, THE LEGAL CONTROL OF
MERGERS IN THE EUROPEAN CoMMuNTns (1991).
95. JOHN COOK & CHRIS KERSE, EEC MERGER CONTROL 72 (1991).
96. See J. Weiler, DISCUSSION REPORT: COLLOQUIUM ON MULTINATIONAL CORPORA-
TIONS IN EUROPEAN CORPORATE AND ANTITRUST LAWS, 28-31 May 1980 at the European
University Institute in Florence, in European Merger Control, 189, 207 (K. Hopt ed.
1982). As previously stated, a presumption of compatibility exists for a notified concen-
tration with a market share under 25 percent.
determine the relationship between a concentration's market share and its

economic leverage. In this respect, the Commission considers, inter alia,
barriers to entry, the strategic and economic potency of the undertaking
in question, its ability to resist competition from other undertakings
should it merge, and the fluidity of the product market in question. 97 The
Commission additionally examines the supply and demand trends of the
relevant market and then considers how the market itself might change
over time. Given that high costs of entry hinder the development of ef-
fective competition in the relevant market, the Commission focuses on
the legal and factual barriers to entry. The Commission's primary concern
in this regard involves the effects on the Common Market of the elimina-
tion of an actual or perceived competitor through its acquisition by an-
other corporation active in the relevant market. Another primary concern
flows from the creation of vertical links between buyers and their suppli-
ers that could restrict other suppliers' ability to access the relevant
markets. 98
3. Significant Impediment to Effective Competition
The Commission's determination that a concentration either creates

or strengthens a dominant position does not automatically prohibit the
concentration from operating in the Common Market. Rather, the Com-
mission must decide if the concentration significantly impedes effective
competition in the Common Market, thereby inhibiting the European
Union's movement toward complete economic integration. 9 In this part
of the analysis, the Commission assesses the degree to which the creation
or strengthening of a dominant position impacts upon the relevant prod-
uct and geographic markets.
Although the Regulation fails to expressly list factors for application
with respect to the significant impediment test, the Commission generally
employs the following factors in determining whether a notified concen-
tration significantly impedes competition: 1) the need to preserve and de-
velop effective competition within the common market in consideration
of, inter alia, the actual or potential competition from undertakings lo-
cated either within or outside of the Community and 2) the market posi-
tions of the undertakings concerned and their economic and financial
power, including, a) barriers to entry, b) the opportunities available to
suppliers and users, and, c) the interests of both intermediate and ulti-
97. See id.

98. See id. at 92-93.
99. See CCH Commentary, supra note 7, at 2099.
mate consumers."l° In this respect, the barriers to entry and the potential
existence of prospective competition represent the most important
considerations.
The Regulation requires the Commission to consider a notified con-
centration's effect on, "actual and potential competition, both inside and
outside the community."' 0' These criteria then enable the Commission to
block mergers by international conglomerates because of their dominance
in other markets. On the other hand, this third step in the competition
analysis allows the Commission more flexibility in its decision- making
process. Before the Regulation, Article 86 required the Commission to
block any merger establishing a dominant position in the common mar-
ket. The Regulation's significant impediment test, however, analyzes the
degree to which competition impacts upon the Common Market. The
Commission, therefore, could block a proposed concentration as it did in
the de Haviland case, or choose another avenue, such as approval condi-
tioned upon accepting certain concessions, as it did in the Boeing/Mc-
Donnell Douglas merger decision.
VI. APPLICATION OF THE REGULATION: THE DE HAVILAND DECISION - THE

BENCHMARK FOR FUTURE MERGER ANALYSIS
On May 13, 1991, Avions de Transport Regional (ATR)10 2 notified

the Commission of an offer to acquire a Canadian corporation, de Havi-
land, owned by Boeing. 0 3 After examining the notification pursuant to
Article 6(1) of the Regulation, the Commission determined that the pro-
posed concentration fell within the purview of the Regulation. Question-
ing its compatibility with the Common Market, the Commission opened
formal proceedings to examine the impact of the proposed merger on the
European Community. 1°4 After concluding an in-depth investigation of the
notified concentration on October 2, 1991, the Commission, for the first
time, decided to prohibit the proposed merger from proceeding. The
Commission determined that the proposed concentration, "[c]reates a
dominant position on the world market . . . [t]his dominant position is
100. See Regulation, supra note 19, at art. 2(1). This list is by no means exhaustive
as the Commission does use other factors listed in article 2 of the Regulation.
101. See Andersen, supra note 64, at 28.
102. Commission Decision, Case IV/M.053, Aerospatiale- Alenia/de Haviland V.
Commission, 1991 O.J. (L 334) 42 (hereinafter "de Haviland"). At the time of this
merger, Aerospaitle SNI, a French aerospace company, and Alenia- Aeritalia e Selina
SpA, an Italian aerospace company controlled ATR. Alenia-Aeritalia e Selina SpA was
part of the Finmeccania group of de Haviland, a Canadian division of Boeing. See id.
103. See id.
104. See id.
not merely temporary and will therefore significantly impede effective

competition . . .[w]ithin the meaning of Article 2(3) of the Merger
Regulation." 05
The significance of the de Haviland case flows from the Commis-
sion's assessment of the proposed merger, pursuant to Article 2 of the
Regulation. An examination of the Commission's decision, therefore, pro-
vides a practical framework for Article 2 application to future merger de-
cisions, as well as a reference point for analyzing the Boeing McDonnell
Douglas decision.
A. Relevant Product and Geographic Markets
1. Relevant Product Market

At the time of the proposed merger, both ATR and de Haviland de-
signed, manufactured, and sold medium and regional transport aircraft
and turbo-prop aircraft. De Haviland featured two types of regional
turbo-prop aircraft. Given the differences in the products manufactured
by these respective undertakings, the Commission defined the relevant
product market as "[a]ll those products and/or services which are re-
garded as interchangeable or substitutable by the consumer, by reason of
the products' characteristics, their prices and their intended use.' 1°6 The
Commission initially identified product market(s) potentially affected by
the proposed merger and subsequently determined and targeted the re-
gional turbo-prop market as its main concern. 10 7 The principal issue con-
sidered by the Commission in this respect involved the lack of sub-
stitutability of the different aircraft across the different product markets.
First, the Commission distinguished the regional turbo-prop aircraft mar-
ket from regional and medium-haul jet aircraft and asserted, "[r]egional
jet aircraft have significantly higher operating costs, and furthermore, the
time saving which a regional jet would offer compared to turbo-props is
not significant . . .",08 Differences in operating costs and disparities in
distances flown, in the Commission's view, made these jets devoid of
overlap and not easily substituted for one another. Given the differentials
in the two product markets, the Commission proceeded to divide the
turbo-prop market into three relevant product markets according to pro-
duction and purchasing patterns: 1) 20-39 seaters; 2) 40-59 seaters; and
3) 60 and over seaters.' °9 Such a division enabled the Commission to de-
105. De Haviland, supra note 102, at 72.

106. Id. 1 10.
107. See id. 8.
108. Id.
109. See id. 1 10. See also Appendix I at A-1.
1998l THE BOEING/MCDONNELL DOUGLAS MERGER
termine what, if any, competition existed in the turbo-prop market. The

other "players in the field" factored heavily into this aspect of the com-
petition analysis. For example, the other industry players furnished state-
ments showing the aircraft that each airline offered in each sub-division
of the turbo-prop market. 110 This sub-market segmentation was "generally
consistent with the views of the overwhelming majority of customers and
competitors who replied to the Commissions inquiries."' 11
The parties fervently disagreed with the Commission's division of
the turbo-prop market into three product markets. The parties claimed
that all 20-70 seaters comprised one relevant product market and consid-
ered any further segmentation arbitrary. 1 2 Furthermore, the parties argued
that customers consider technological features and direct operating costs
of aircraft, in addition to the number of seats." 3 The Commission rebut-
ted these arguments with a general analysis of exactly how a customer
decides which aircraft to acquire and determined that customers place
particular emphasis on the number of seats needed to fulfill a given
route.' '4 Furthermore, the inquiry responses by competitors in the market
exhibited a general consensus respecting the accuracy of the relevant
market product as defined by the Commission. These inquiry responses
helped to substantiate the Commission's rejection of the parties'
claims. 15
Thus, the Commission's definition of the relevant market generally
rests on its perception of the customer preference when purchasing a
given product. Supply-side substitution constitutes an additional consider-
ation, one that the Commission addressed in the de Haviland case." 6
Supply-side substitution notwithstanding, the determination of the rele-
110. See id. 8. Other "players in the field" included, inter alia, British Aerospace,
Saab, Dash, Fokker and Casa. For an actual graphic breakdown of each sub-market and
the aircraft offered by these respective competitors see de Haviland, supra note 102,
10.
111. De Haviland, supra note 102, 13.
112. See id. 16.
113. See id 17.
114. See id.
115. This demonstrates how the "veto power" of other competitors in a given mar-
ket potentially operates. This is an indirect veto power. The parties, by responding to the
Commission's inquiry, influence the Commission's product market determination. In this
instance, most competitors, much to the dismay of ATR and de Haviland, believed the
product market should be divided into three sub-markets. See id.
116. The Commission remained skeptical of the potential for supply-side sub-
stitutability between segments. It noted that, according to a study carried out on behalf of
the parties, "[it would take longer than three or four years, for manufacturers for exam-
ple of 30-seat aircraft to switch their facilities to produce 50-seat aircraft, to the extent
that these facilities already exist." Id. 1' 14.
vant product market from the customers' perspective constitutes the dom-
inant analytical criteria.
2. Relevant Geographic Market

The Commission determined that the world market, excluding
China, Eastern Europe and the former Soviet Union, constituted the rele-
vant geographic market. 1 7 From an economic perspective, the absence of
tangible political or economic barriers to prevent the sale of aircraft be-
tween world markets necessitated this determination. ATR, for example,
sold 39 percent of its ATR 42 aircraft in North America. 118 Similarly, de
Haviland sold 58 percent of its Dash 8-300 aircraft in Europe." 9 This
market analysis excluded China, Eastern Europe and the former Soviet
Union because of the lack of current and prospective interpenetration into
these markets. The Commission noted, however, that the general eco-
nomic state of the Eastern European countries in the future would deter-
mine the duration of their exclusion from the world market. 120 The par-
ties concurred with the Commission's geographical market delimitation.
B. Dominant Position Assessment

1. Market Share
The Commission calculated market share based upon firm orders for
new technology aircraft, including deliveries to date and all soon-to-be-
delivered orders for existing aircraft.' This calculation discounts existing
stock of "technology aircraft," aircraft still flying because, "[ilt is mean-
ingless to analyze market shares for the former generation of products in 22
assessing the market power of manufacturers now and in the future."1
The Commission focused closely upon the effect of the notified concen-
tration on the 40-59-seat market, as 84 percent of the turbo-prop aircraft 123
ordered in the Community involved aircraft in the 40-59-seat range.
ATR/de Haviland potentially occupied a 64 percent world market share
and a 72 percent Community market share in this sub-market. 24 Further-
more, de Haviland's elimination as the third largest competitor in the 40-
117. See de Haviland, supra note 102,. f 20.

118. See id.
119. See id.
120. See id.
121. See id. 21.
122. Id. 1 22.
123. See de Haviland, supra note 102, 28.
124. The new firms market share, then, increased 19 percent, or from 45 percent to
64 percent. See id. 1 23.
19981 THE BOEING/MCDONNELL DOUGLAS MERGER
59 seater market left only Saab and Casa, who represented the next larg-
est competitors with scant 7 percent market shares.'25
Thus, the Commission utilized a prospective evaluation of the aero-
space industry to determine the relevant market share. It considered a
manufacturer's earlier performance in selling lower technology products
as irrelevant in assessing the firms market power now and in the future.
The bottom line figures raised serious concerns. 26 The Commission,
therefore, concluded that the proposed merger allowed ATR/de Haviland
an anti-competitive share of the world and EC markets for the three sub-
categories on relevant market product.
2. Impact of the Concentration
In this second phase of the dominant position assessment, the Com-

mission focused on four main factors: 1) the effect of eliminating de
Haviland as a competitor; 2) coverage of the whole range of commuter
aircraft and the effect on customer base; 3) evaluation of the remaining
and potential competition; and 4) the position and strength of the custom-
ers of regional turbo-prop aircraft.'27
a. Effect of Eliminating de Haviland as a Competitor
De Haviland, the third largest manufacturer before the proposed

merger, experienced periods of growth enabling it to gain on the number
two company, Fokker.'28 Furthermore, de Haviland began to develop an
aircraft in the 60 and over seater market, where ATR already enjoyed a
76 percent world market share. If the Commission approved the proposed
concentration and de Haviland succeeded in manufacturing aircraft in this
sub-market, ATR/de Haviland would potentially occupy 76 percent in the
29
over 60-seat market.
The parties vehemently argued that Boeing eventually might phase
out production at de Haviland, thereby eliminating effective competition,
even if the Commission cleared the proposed concentration. In response,
the Commission stated, "[w]ithout prejudice to whether such a considera-
tion is relevant pursuant to Article 2 of the Merger Regulation, the Com-
125. See id. See also Appendix II at A-2.

126. In the 60 and over seat market, the ATR/de Haviland would potentially occupy
76 percent of the world market and 74 percent of the Community market share. See id.
127. See id. at 49-56. See generally, Henriette K.B. Andersen, EC Merger Control
Regulation as Applied in the De Haviland Case, supra note 62.
128. See De Haviland, supra note 99, 131 at 50.
129. See id. at 50.
mission considers that such elimination is not probable." 310 This determi-
nation implied that, even if, arguendo, the evidence overwhelmingly
shows that a given company may falter even in the absence of merger,
the Commission considers such evidence irrelevant, even when relied
upon by the parties in seeking approval of the proposed transaction.
b. Coverage of the Whole Range of Commuter Aircraft

and the Effect on Customer Base
With the acquisition of de Haviland, ATR formed the only company

able to offer a "full range of seating capacity under the same um-
brella,"'' or aircraft in all three product markets. The Commission be-
lieved that such a result in the aftermath of the merger might reduce de-
mand for the products of other existing manufacturers, thereby causing a
13 2
"lock-in" effect on customers, once they made their initial purchase.
The "lock-in" effect, in the Commission's view, exacerbated these tech-
nical and economic constraints and tended to prevent airlines from
switching from one manufacturer to another, thereby making market en-
try difficult. 33 Customers, then, in order to avoid incurring. high fixed
costs associated with each different make of aircraft, such as training pi-
lots and mechanics and maintaining parts stock, would be "locked-in" to
purchasing aircraft from ATR/de Haviland. The new firm could negotiate
134
a lower price for a 30-seater in return for the purchase of a 60-seater.
This conclusion additionally illustrated the importance of the customer
base in the market power for aircraft manufacturers. Furthermore, the
Commission believed ATR/de Haviland could undercut the market by re-
ducing prices once it benefited from the overlap in ATR's and de Havi-
land's spare parts stock. In so concluding, the Commission, in essence,
stated that each manufacturer must have the same disadvantages, because
a single manufacturer endowed with the ability to completely cover the
entire aerospace market operates in contravention of the principles under-
lying the creation of the European Community.
c. Evaluation of the Remaining and Potential Competitors
The Commission assessed the current and expected future strength

of the remaining competitors in order to determine, "[w]hether the new
combined entity would be able to act independently of its competitors, in
130. Id. at 51.

131. Id. 32.
132. See id. 33.
133. See id.
view of its strengthened position .. . 135 The only significant competi-

tion in the market, Fokker and British Aerospace, occupied low market
shares. Fokker previously attempted to expand its customer base in the
40-59 seat aircraft for the Fokker 50. Given ATR's existing financial
power, disparities between Fokker and ATR, and the putative competitive
advantages created by the concentration would inhibit Fokker from
broadening product and customer bases and further marginalize it in the
commuter markets. 13 6 Other companies, such as Embraer, a Brazilian air-
craft manufacturer, faced difficulties expanding beyond the 20-39 seat
market if the Commission allowed the proposed concentration to pro-
ceed.1 37 Furthermore, the Commission believed that British Aerospace
had the resources to expand in the turbo-prop market, although it ex-
pressed reluctance to focus resources on the turbo-prop market if the
concentration proceeded. The Commission, therefore, concluded, in the
markets of 40 seats and over, that, "[i]t is questionable whether the other
existing competitors could provide effective competition in the medium
to long term." 1 31 With no effective competition in the medium to long
term, ATR/de Haviland could potentially run roughshod over the entire
product market.
d. The Position and Strength of the Customers of Regional
Turbo-prop Aircraft
The Commission next examined the position of the customers in the
commuter markets, in order to evaluate whether the, "[n]ew combined
entity would be able to act independently of customers, in view of its
strong position and the relative weakness of the competitors."' 3 9 In this
segment of the dominant position analysis, the Commission distinguished
between established airlines and airlines yet to emerge, for purposes of
assessing the effects of the proposed merger on customers. 40 Established
customers would possess limited bargaining power if the Commission ap-
proved the merger because of the "lock-in" effect of purchasing deci-
sions.1 41 Therefore, a direct negative effect of the proposed merger would
not appear initially, but rather over time. Established airlines may have
an obligation to a particular aircraft manufacturer, or the high fixed costs
may make switching airlines in the near future impractical.
135. Id. 1 34.

136. See id. 36.
137. See id. 38.
138. Id. 42.
139. Id. 43.
141. See id. 45.
The new airlines would have a free choice to a certain extent, be-
cause they typically enter the market through leasing agreements, rather
than buying new aircraft.142 New airlines would indirectly have a limited
choice because leasing companies generally place their orders where a
majority of customers have their preferences.1 43 ATR/de Haviland could
benefit from this situation because leasing companies generally place
their orders with the company with the greatest market share. Given
these considerations, the Commission concluded that ATR/de Haviland,
"[c]ould act to a significant extent independently of its competitors and
customers, and thus would have a dominant position on the commuter
markets as defined. ' ' 44
C. The Significant Impediment Test
According to the Commission, a concentration creating a dominant
position may nevertheless remain in the common market "[i]f there ex-
ists strong evidence that this position is only temporary and would 'be 45
quickly eroded because of high probability of strong market entry.'
The Commission, therefore, focused mainly on the potential for quick
market entry by competitors. In addition, the Commission set forth two
other general considerations as part of the significant impediment test: 1)
whether the proposed merger would contribute to the interests of the cus-
tomer and the development of technical and economic progress, and 2)
potential market disturbances caused by the concentration.
With respect to the potential for new market entry, the Commission
examined whether the turbo-prop market had already reached maturity. In
this regard, the Commission's examined demand trends and time and cost
considerations in the targeted markets and determined that the level of
demand would remain constant through the mid- 1990's when demand
would decrease and thereafter stabilize. 46 The time and cost considera-
tions, however, yielded different results. The Commission discovered
that, at a minimum, companies incur two or three years of expensive re-
search in order to align commercial jets with the needs of the market.' 4 7
Further, an additional four years would elapse from the time of initial re-
search and development to production and delivery. Thus, notwithstand-
ing the time required for construction, or to acquire the facilities neces-
sary for aircraft construction, companies typically entered the market
142. See id 47.

143. See id.
144. Id. 56.
145. Id. 53.
146. See De Haviland, supra note 99, 54.
147. See id. 55.
seven years after launching their initial research and development pro-
grams. 148 As a consequence, the Commission concluded that the market
matured before the proposed concentration. Given the cost and time con-
siderations, the Commission considered entrance into the market irra-
tional, both now and in the foreseeable future.
Finally, the Commission looked for evidence of market disturbances
caused by the concentration. One market disturbance that concerned the
Commission was ATR/de Haviland's potential ability to exploit their
149
dominant position and create a monopoly through predatory pricing.
British Aerospace argued, and the Commission agreed, that if the merger
proceeded, ATR/ de Haviland would pursue a price cutting agenda de-
signed to drive competitors out of the market. 150 Such a price war would
force many weaker companies out of the market and negatively affect
their jet manufacturing capability. Furthermore, the aftermath of such a
price war could result in a monopoly, culminating in the ability to raise
prices without suffering any competitive consequences.
D. The Commission's Disposition of the Proposed Merger
The Commission decided against permitting the merger to proceed

on the premise that it created a powerful and unassailable dominant posi-
tion in the world market for commuter aircraft.' 5 ' This merger signifi-
cantly impeded effective competition in the Common Market within the
meaning of the Merger Regulation. The projected weak market position
of ATR's competitors and customers, coupled with the limited bargaining
power of customers, forced the Commission to conclude that the merger
enabled ATR/de Haviland to act independently of customers and competi-
52
tors on the commuter markets.1
Six years later, in the case of Boeing/McDonnell Douglas, the Commis-
sion again applied the Regulation in evaluating the legality of the noti-
fied concentration, giving it yet another opportunity to reject a merger
proposal for only the second time in Commission history.
VII. THE BOEING/MCDONNELL DOUGLAS MERGER DECISION

At the time of the proposed merger, Boeing operated in two princi-
pal areas: commercial aircraft, and defense and space. McDonnell Doug-
las, at the time of the proposed merger, operated in four principal areas:
148. See id.

149. See id. 69.
150. See id.
151. See id. 72.
152. See de Haviland, supra note 99, 72
military aircraft and missiles, space and electronic systems, commercial

aircraft, and financial services. Due to U.S. defense interests, the Com-
mission limited the scope of the merger analysis to the civil side and as-
serted that its examination of the proposed merger "[h]as not established
that a dominant position has been strengthened or created in the defense
sector as a result of the proposed concentration."' 3
A. Relevant Product and Geographic Markets
1. Relevant Product Market
The Commission determined that the merger affected the market for
large commercial jet aircraft. Boeing identified the relevant product mar-
kets with the large commercial jet aircraft sector as "narrow-body" and
"wide-body" commercial jet aircraft. 154 The Commission agreed with this
distinction, largely due to the discernible differences between the two
types of aircraft. Narrow-body jets feature an operating range of approxi-
mately 2000 to 4000 nautical miles and seating capacity for about 100 to
200 passengers.155 For wide-body jets, the corresponding parameters are
4000 to 8000 nautical miles with seating capacity of 200 to 400 passen-
gers.15 6 Furthermore, the Commission determined that the relevant aircraft
were Western-built jets, since non-Western jets, such as the Russian Ily-
ushin, are neither technologically advanced nor reliable. 157 Notwithstand-
ing the two distinct product markets, the Commission decided to assess
the effects of the merger on both markets together, "[s]ince the structure
of the narrow-body and the wide-body markets is similar and the compe-
tition problems resulting from the proposed merger are the same for both
markets." 158
In so concluding, the Commission remained consistent with the Reg-
ulation analysis in de Haviland, although the Commission defined the
relevant product market with more particularity in that case. In de Havi-
land, the Commission initially distinguished the regional turbo-prop mar-
ket from the regional and medium-haul jet aircraft as disparities between
the two hampered their substitutability. 159 The Commission proceeded to
further define the regional turbo-prop market with the three seat class
153. Boeing, supra note 1, 13.

154. See id. 16.
155. See id. For a further description of the segmentation of narrow-body and wide-
body jets, see id. 38.
156. See id.
157. See id.
158. Id.
distinctions. 160 In Boeing, however, it refrained from further segregating

the market with seat distinctions after initially labeling the large commer-
cial jet market as the relevant product.
As in de Haviland, the Commission declined to include second-hand
aircraft in the overall product comprising the large commercial jet aircraft
market. Approximately 30 percent of passenger aircraft change airlines
while remaining in passenger service.' 61 Furthermore, converted used pas-
senger aircraft account for almost two thirds of the total demand for
freighters. 62 Nevertheless, the Commission cited de Haviland and opined
that used aircraft, as a general rule, find safe harbor with smaller airlines
where limited financial resources constrict their ability to purchase new
equipment. While used aircraft sometimes alleviate specific short-term
needs for larger airlines, they are complements rather than substitutes for
163
new aircraft.
The Commission in Boeing relied heavily on the demand side analy-
sis in determining the relevant product market. The Commission ex-
amined the average customer's considerations in a purchasing decision
and divided up the process into several stages, including operating re-
quirements, technical requirements and, finally, economic and financial
aspects. 64 The operating criteria included, inter alia, routes, traffic den-
sity, distances and optimal seating, and loading considerations. 165 Techni-
cal characteristics included performance and reliability, and range and
fleet commonality; that is, the new fleet's compatibility with existing air-
craft. Economic and financial considerations included the new present
value according to the purchase price, forecasted revenues and costs, and
residual value. 66 The Commission's assessment of the relevant product
and market, primarily from the customer's perspective, followed the ap-
proach used in de Haviland where the demand-side approach also domi-
nated the relevant market product analysis.
2. Geographic Market
Large commercial jet aircraft in use today are operated throughout

the world under similar conditions of competition, relative transportation
costs notwithstanding. 167 The Commission, therefore, labeled the world
160. See id. 1 10.

161. See Boeing, supra note 1, 17.
162. See id.
163. See id.
164. See id. 14.
165. See id.
166. See id.
market as the geographic market. In de Haviland, the Commission simi-

larly determined that the world market comprised the geographic market
for the turbo-prop plane, although it declined to include the former So-
1 68
viet Republic, China or Eastern Europe as part of the world market.
The Commission did, however, leave open for another day the possibility
of including Eastern Europe in the world market analysis, depending on
the future economic development of the Eastern European countries.
These countries received no discussion in the Boeing decision and, there-
fore, it is unclear whether the Commission included the former Soviet
Republic, China, and the Eastern Bloc countries in the world market. The
de Haviland decision indeed allowed the Commission to consider these
countries upon a showing of sufficient evidence of economic maturity.
Speculation merits noting that, in all likelihood, the Commission re-
frained from considering these countries as part of the world market be-
cause only Western-built aircraft comprised the relevant market product.
The Commission opined that non-Western aircraft, "[c]annot compete on
technical grounds in their current versions, for reasons of reliability, af-
ter-sales service and public image." 1 69
B. Dominant Position Assessment
The Merger Regulation empowers the Commission to block any

concentration that creates or strengthens a dominant position within the
community.1 70 In Boeing, the test, performed in the conjunctive, required,
inter alia, present and potential market share analysis to determine
whether the merger created or strengthened a dominant position within
the community. 17' In part two of the dominant position analysis, it con-
sidered Boeing's prospective market share, as well as the potential bene-
fits and favorable industry scenarios bestowed upon Boeing, to assess
whether the merger strengthened its dominant position in the market vis-
ji-vis its competitors. 172 This approach is consistent with the approach of
168. See de Haviland, supra note 99, at 20.

169. Boeing, supra note 1, at 15.
170. See generally, Merger Regulation, supra note 19, at art. 2, 8.
171. See Boeing, supra note 1, at 20-24. In this case, Boeing's dominant position
in the large commercial jet aircraft occurred before the proposed merger.
172. See id. at 53-113
the de Haviland Commission, although the Boeing Commission drafted

this segment of the opinion in far greater detail.
1. Market Structure for Large Commercial Jet Aircraft
a. The Competitors
Before it undertook the merger analysis, the Commission briefly dis-
cussed the interested parties. At the time of the proposed merger, only
three companies, Boeing, Airbus, and MDC, competed on the world mar-
ket for large commercial jet aircraft. Boeing remained active in all aero-
space sectors--commercial, defense, and space-but derived 70 percent
of its annual revenues from commercial jet sales. 173 MDC, the third larg-
est producer of large commercial jet aircraft at the time of the proposed
merger, derived approximately 30 percent of its annual turnover from the
large commercial jet aircraft and the rest from the military and defense
sectors. 174 Airbus, a groupement d'interet economique, a consortium of
European economic interests and the world's second largest producer of
large commercial jet aircraft at the time of the proposed merger, com-
peted with Boeing in most of the aerospace sectors.'
b. The Customers
Customers of large commercial jet aircraft, the Commission opined,

included 561 airline companies, scheduled or non-scheduled, and leasing
companies. 176 The customer's demand for large commercial jet aircraft is
cyclical and predicated upon the demand for air transportation. 77 The in-
dustry continues to expand due to the economic liberalization processes
within the European Community, China and the former Eastern Block. In
the next ten years, figures project Europeans to account for 28 percent of
the demand for Boeing planes or $490 billion in market potential in 1996
178
U.S. dollars.
The de Haviland opinion, devoid of summaries of the customers and
competitive landscape prior to the dominant position analysis, differs
from the Boeing opinion in this respect. Perhaps the Commission in Boe-
ing, through these summaries, attempted to justify its incursion into the
173. See id. T 22. The turnover figures were based on figures from 1996.
174. See id. 23.
175. See id. 24. Airbus consortium include Daimler-Benz Aerospace Airbus of
Germany (DASA) (37.9%), British Aeropsace (20%), and government owned Aerospa-
tiale of France and CASA of Spain, (37.9%) and (4.2%) respectively. Id.
177. See id. 26.
178. See id. 27.
388 MD. JOURNAL OF INTERNATIONAL LAW & TRADE (Vol. 22
affairs of two well-known, non-European companies. The claim that Eu-

rope will account for 28% of Boeing's revenue over the next ten years
allows the Commission to assert some control over the transaction. Oth-
erwise, the Commission's decision becomes more susceptible to argu-
ments from "protectionist" groups. Moreover, those searching for the
subtle political considerations and other "hidden" motivations behind the
Boeing decision could undermine the credibility of the opinion and the
Commission.
2. ConsiderationsExamined in Part One of the Dominant Po-
sition Analysis
The Commission considered the following criterion in this segment
of the dominant position analysis: 1) market share; 2) market segments;
3) fleet in service; 4) exclusive deals; 5) future market growth; 6) poten-
tial competition. In light of these various characteristics, the Commission
concluded that Boeing already enjoyed a dominant position on the over-
all market for large commercial jet aircraft, as well as in the two sub-
179
markets for narrow-body and wide-body aircraft.
a. Market Shares
As in de Haviland, the Commission calculated Boeing's pre-merger
market share on the basis of backlogs that indicated the number of net
orders, or the number of new firm orders minus the number of canceled
orders. 18 0 Backlog data, widely viewed as the best indicator of market po-
sition in the industry, adequately reflects the market share, provided that
the analysis conceptualizes backlog in terms of value to take into account
disparities in prices of different aircraft.' 81 According to the information
provided by Boeing in the notification and data provided by Airbus, the
overall market for large commercial jet aircraft in terms of backlog re-
vealed Boeing comfortably ahead with a market share of 64 percent,
Airbus with 30 percent and MDC with 6 percent. 182 In comparison, ATR,
at the time of the de Haviland merger, enjoyed a 51 percent market share
in the 40-seater turbo-prop jet market. Like MDC, de Haviland boasted
the third highest market share with 15 percent. 83 Thus, Boeing's 64 per-
cent market share alone justified the determination of dominance. ATR's
179. See id. 52.

180. See id. 28. Data based on 1996 figures. See also, Appendix III, at A-3.
181. See Boeing, supra note 1, 28. A Boeing 737-300, for example, costs approxi-
mately $38 to $44 million, whereas, the Boeing 747-400 ranges from $156 to $182
million.
182. Id. 29.
51 percent, at a minimum, represents a floor for a presumption of domi-

nance, an indicator which Boeing exceeded by 13 percent.
b. Market Segments
The Commission segmented the market to determine whether Boe-
ing enjoyed a dominant position prior to the merger, or if the merger cre-
ated a position of dominance. Whereas in de Haviland, the Commission's
primary concern rested in the regional turbo-prop market, in Boeing, the
large commercial jet market represented the area of concern. Thus, the
Commission, pursuant to Boeing's notification, divided the market into 4
segments; 100-120-seaters; 120-200-seaters; 200-320-seaters; and 400 +
seaters.
This segmentation revealed Boeing's ability to offer a complete fam-
ily of aircraft, due to its presence in every segment. 184 As in de Haviland,
the Commission, with the customer in mind, remained skeptical of the
substitutability of one segment for another. In the narrow-body sub-
market, the high per-trip operating costs of the 120-200-seaters demon-
strated the lack of fluidity for substituting in favor of the 100-120-seat
aircraft. 85 At the other end of the spectrum in the wide-body aircraft,
Boeing offered the only aircraft in the 400 range, the Boeing 747-
400.186
c. Fleet in Service
Prior to the proposed merger, Boeing led the world production of
commercial airplanes for over three decades and manufactured more jet
aircraft than all the other industry manufacturers combined. 18 7 Boeing,
then, enjoyed a significant advantage vis-li-vis its competitors because the
long operating life of airplanes endowed Boeing with a broad customer
base. "88
' The Commission estimated that Boeing supplied approximately
60 percent of the Western-built aircraft in service at the time of the pro-
posed merger, in comparison with MDC's 24 percent and Airbus' 14
percent. 18 9
Following the dictates of the customer or demand-side rationale in
de Haviland, a large in-service fleet, combined with a broad product
range, influenced decisional bodies within aircraft companies in charge of
184. See Boeing, supra note 1, 138. See also, Appendix IV at A-5.
185. See id.
186. See id.
187. See id. 40. Boeing stated this in its 1995 annual report.
188. See id.
189. See id. 41. The remaining 2 percent belonged to Lockheed, despite its inac-
tivity in the commercial aircraft sector since 1984.
fleet planning and acquisitions. 190 In this regard, the Commission con-
cluded that saving some of the high fixed costs mentioned in the de Hav-
iland decision, such as commonality benefits, "[firequently lead to the
acquisition of a certain type of aircraft even if the price of competing
products is lower." 191 As in de Haviland, the Commission received in-
quiry returns from other industry players such as Airbus, who empha-
sized the importance of the existing fleet in service consideration. 9
d. Exclusive Deals as Evidence of an Existing Dominant

Position
Prior to the proposed merger, Boeing concluded exclusive dealing

agreements for the supply of large commercial jet aircraft to American
Airlines (American), Delta Airlines (Delta), and Continental Airlines
(Continental). 193 Valued at about $6.6 billion, 194 the arrangement with
American, for example, made Boeing the exclusive supplier of jet aircraft
to that airline until 2018.195 In exchange, American received price-
protection purchase rights for 527 additional jets during the twenty-year
exclusivity period and retroactive price reductions of aircraft purchased
by American in the past.
The Commission concluded that the exclusive dealing agreements
with three of the biggest airlines in the world indicated Boeing's enjoy-
ment of a dominant position in the large commercial jet market, even
before the proposed merger. The Commission acknowledged that some
customers received economic benefits from these exclusive deals, albeit
the "lock- in" effect, as discussed in de Haviland, counterbalanced these
benefits. As a consequence of the "lock-in" effect, customers often find
themselves locked in to a single supplier such as Boeing, in the face of
lower prices, increased technology and related services from
96
competitors. 1
e. Future Market Growth and Potential Competition
Boeing tried to rebut the dominant position assessment and argued

that second hand aircraft and potential competition effectively constrained

191. Id.
192. See id.
193. See id. 43.
194. American placed firm orders for 103 aircraft. See id.
195. See id.
196. See Boeing, supra note 1, 45. See also, supra notes 136-141 and accompany-
ing text for a discussion of the "lock- in" effect in de Haviland.
Boeing's ability to increase its market share. 197 Earlier in the Boeing
opinion, the Commission, following the de Haviland decision, deemed
second hand aircraft ineffective substitutes. Studies show a projected
growth rate of 80 percent in future demand for large commercial jet air-
craft over the next twenty years. Second-hand aircraft cannot meet more
than a fraction of this demand, given that more than 80 percent of ex-
isting aircraft, "[w]ill need to be retired and replaced during this same
98
period." 1
Boeing also argued that potential new market entrants situated in

Russia, India, and the Far East effectively circumscribed its ability to in-
crease market share. The Commission, however, rejected this argument,
because Boeing previously admitted that massive barriers to entry in the
large commercial jet industry inhibit new market entrants. 199 Initial re-
search and development costs, economies of scale and strict safety stan-
dards severely limit market entry. 200 Thus, the Commission discounted
prospective competition and its effect on the present competitive land-
scape in the large commercial jet aircraft over the foreseeable future. 20'
Most of these factors cited above, even in the abstract, provided
substantial grounds for the Commission to conclude that Boeing enjoyed
a pre-merger dominant position in the world market for large commercial
jet aircraft. Nevertheless, pursuant to the dictates of the Regulation and
the de Haviland decision, the Commission continued to painstakingly
evaluate each factor attributed to Boeing's dominant position. Next, the
Commission analyzed the effect of the proposed merger on Boeing's
dominant position in the large commercial jet aircraft market.
3. The Strengthening of Boeing's Dominant Position
The acquisition of MDC, the Commission believed, determined the

degree to which Boeing enhanced its market position vis-b-vis other com-
petitors in the industry. Thus, the Commission examined the impact of
Boeing's acquisition of both MDC's commercial aircraft business and the
overall effects resulting from the defense and space business. In the end,
the Commission concluded the obvious: that the proposed concentration,
"would lead to the strengthening of a dominant position through which
197. See id. 47.

198. Id.
199. See id 49.
200. See id.
201. See id. 51.
effective competition would be significantly impeded in the Common ' 20 2

Market within the meaning of article 2(3) of the Merger Regulation."
a. Impact of MDC's Commercial Aircraft Business
The Commission cited several factors that illustrated the immediate

effect of the proposed merger on the large commercial jet aircraft market.
These factors included, inter alia, MDC's remaining viability as a com-
petitor, increases in Boeing's customer base, and the increase in Boeing's
skilled work force.
The Commission began with a redacted rehash of Boeing's increase
in market share as a result of the merger.203 Boeing, as a result of the
proposed merger, increased its market share in terms of backlog from 64
to 70 percent, including increases to 73 and 66 percent respectively in
the wide and narrow-body market. 2°4 More specifically, the Commission
noted Boeing's ability to enjoy a further monopoly in the smallest nar-
row-body segment with 100-120 seats, in addition to its existing monop-
oly in the largest wide-body segment. 205 At the time of the proposed
merger, only Boeing and MDC competed in the smallest narrow-body
segment. Airbus, further marginalized by the proposed merger, would
find competing in the aerospace market difficult in the foreseeable future.
If that happened, it would frustrate the goal of economic integration in
the European Union.
b. Competitive Potential of MDC
The inquiries received by the Commission in response to the noti-

fied concentrations' proposed merger revealed that 2 of 31 airlines that
purchased new large commercial jets over the past 5 years purchased
MDC aircraft.20 6 The Douglas Aircraft Company (DAC), the commercial
arm of MDC, showed a backlog of $7 billion, although these earnings
essentially related to DAC's spare parts and product support business,
rather than the sale of new aircraft. 20 7 DAC, in the nine months preceding
the proposed merger, lost as customers American, Northwest Airlines
(Northwest), Delta and Continental, the four largest operators of DAC

203. See id 55. See also, infra, market share, notes 214- 217 and accompanying
text.
204. See id.
205. See id. 56.
206. A study conducted by Lexecon Ltd., on behalf of Airbus and presented at the
hearing, confirmed the accuracy of the inquiries. See id. 58.
207. See id. 59.
aircraft. 208 Based upon these findings, the Commission concluded that,
"[D]AC would have no real prospects in the market for large commercial
jet aircraft," and, thus, "[D]AC is no longer a real force in the market
on a stand-alone basis." 209 Furthermore, the Commission noted that, due
to the deterioration of DAC, aside from Boeing, "[n]either Airbus, the
only competitor left in the market for large commercial jet aircraft, nor
one of its parent companies, showed any interest in the acquisition of
210
DAC."
Nevertheless, the Commission feared the competitive potential of
MDC's commercial aircraft business, when integrated into the Boeing
group. 211 The negative perception that pervaded MDC's product line
before the merger potentially benefited Boeing in the long run if it con-
tinued to manufacturer MDC aircraft. 2 12 Boeing's ability to remove the
stigma attached to MDC planes based on the strength of its reputation in
the aerospace industry troubled the Commission. Furthermore, the after-
math of the proposed merger allowed Boeing to decide when to place
DAC aircraft into the stream of competition. Alternatively, the Commis-
sion noted, Boeing benefited from preferential access to the large cus-
tomer base of DAC, even if Boeing phased out the production of DAC
aircraft over time.213
c. Increases in Customer Base
Boeing, after the merger, increased its share in the existing fleet in
service from 60 to 80 percent, in comparison to only 14 percent for
Airbus. 214 Such an effect significantly broadened Boeing's customer base.
Of the 561 airlines that operated Boeing, MDC and Airbus aircraft at the
end of 1996, 75 airlines used only MDC aircraft and 10 operators used
both MDC and Airbus products. 215 In addition, 316 airlines operated only
216
Boeing aircraft and 50 airlines operated both Boeing and MDC aircraft.
These figures evidence the potential for closer contacts and new found
208. See Boeing, supra note 1, 58

209. Id.
210. Id 60.
211. See id
212. See id. 61.
213. See id.
215. See id.
216. See id.
opportunities for future sales. The proposed merger, then, further

weighted the market in Boeing's favor.
d. Increase in Boeing's Skilled Work Force
The Commission unearthed strong evidence demonstrating Boeing's

desire to access MDC's engineers for its own commercial aircraft produc-
tion. MDC's 1996 annual report revealed that several hundred MDC en-
gineers began to work for Boeing in December, 1996, in anticipation of
the merger. 217 "In the aircraft industry, flexibility of capacity, or the abil-
' 218
ity to increase and decrease production easily, is an important factor.
An airline that offers timely delivery in periods of rapidly increasing de-
mand clearly has an advantage, vis-ai-vis other industry competitors. An
essential element needed to establish flexibility of capacity is the availa-
219
bility of skilled labor.
The de Haviland Commission considered similar factors when it as-
sessed whether the ATR/de Haviland merger strengthened ATR's domi-
nant position. Unlike MDC, de Haviland exhibited a greater ability to
compete vis-ai-vis its competitors. De Haviland planned to develop new
aircraft, the Dash 8-400, and the proposed merger effectively eliminated
de Haviland from competition in the 60 seat and over market. 220 Further-
more, unlike the present merger situation, where only Boeing expressed
an interest in purchasing MDC, British Aerospace and others had ex-
221
pressed an interest in buying de Haviland.
Notwithstanding these differences, the acquisition of MDC enabled
Boeing to bolster its already thorough coverage of the whole range of
large commercial jet aircraft. The de Haviland merger likewise enabled
ATR to cover the whole range of commuter aircraft. 222 Furthermore, in
both cases, the "lock-in" effect enabled both ATR and Boeing to
broaden their customer bases, notwithstanding the customer's actual de-
sire to purchase their aircraft. Only the Boeing opinion, however, exhib-
ited exclusive airline agreements and the pre-merger movement of skilled
workers from McDonnell Douglas to Boeing. These considerations, indi-
vidually and in the aggregate, relegate Boeing's lone desire to purchase
MDC to a position of irrelevance. Finally, placing the interests of the in-
terested parties in both mergers aside, such post-merger effects inhibit the
217. See id. 65.

218. Id. 1 67.
219. See id.
221. See id.
222. See id. 32.
gradual transformation of the European Union into a complete common

market.
4. Overall Effects Resulting from the Defense and Space Bus-

iness of MDC
The Commission posited a further strengthening of Boeing's domi-

nant position through the take-over of MDC's defense and space busi-
ness. In particular, the Commission analyzed Boeing's increase in overall
financial resources, Boeing's increased access to publicly funded research
and development and intellectual property portfolios, and Boeing's in-
creased bargaining power vis-i)-vis suppliers.
a. Overall FinancialResources
The proposed merger would create the largest integrated aerospace

company in the world, with estimated 1997 revenues in excess of $48
billion. 223 Boeing's commercial aircraft division accounted for 70 percent
of the $48 billion. For MDC, however, 70 percent of its total business
related to defense and space operations.2 24 Thus, the merger potentially
allowed Boeing to triple its defense and space activities. Even with the
cyclical nature of the commercial jet market, Boeing arguably would
cope and possibly thrive during recessionary periods in the commercial
sector, because, inter alia, revenues generated in the defense and space
sectors appeared much more stable than those generated in the commer-
cial sector.225 Airbus, a groupement d'interet economique, or a consortium
of economic interests, does not publish its own financial accounts thereby
making a comparison among Airbus, Boeing and MDC impossible. The
1996 turnover figures for Airbus ($8.9 billion), Boeing ($22.7 billion),
and MDC ($13.8 billion), however, indicated the great disparity among
these undertakings, both before and after the proposed merger. 226 The
Commission believed that Boeing would use the increases in turnover
and general revenue in the furtherance of anti- competitive pricing tac-
tics. 227 To bolster this argument, the Commission cited Boeing's conduct
on an order placed by Scandinavian Airline Systems (SAS) in March,
1995. SAS's internal evaluating committee recommended purchasing 50
of DAC's proposed new MD-95 jetliners for $20 million each. 228 In the

224. See id.
225. See id.
226. See id. 74.
227. See id. 78.
228. See id. 79.
end, SAS ordered 35 Boeing 737 aircraft for a price of $19 million per
plane.229 When Boeing undercut DAC, it demonstrated an ability to effec-
tively impede competition in the aerospace market even without access to
MDC's panoply of space and defense resources.
b. Access to Publicly Funded Research & Development
Above and beyond predatory pricing, Boeing's increase in its de-
fense and space activities, benefited, aliunde, from a greater access to re-
search and development funded by the US Department of Defense
(DOD) and the National Aeronautics and Space Administration (NASA).
Research and development budgets vary in amount from project to pro-
ject, although approximately $50 billion represented the total research
and development budget for the DOD and NASA. The merged entity, at
the very minimum, would participate in all the current DOD programs
with the highest research and development budgets. 230 By contrast, the
1996 European Ministries of Defense (MoD) combined budget in the
Community barely exceeded $11 billion, with $10.6 billion accounted for
by the MoD of France, Germany, and the United Kingdom, the main
23
Airbus consortium partners. '
Obvious advantages from defense research and development for a
manufacturer of commercial aircraft inhere in the transfer of this technol-
ogy to the commercial sector. More importantly, Boeing's extensive par-
ticipation in highly sophisticated research and development projects helps
"[t]rain technical personnel in those companies and therefore increases
general know-how. ' 232 Military research and development, the Commis-
sion noted, also pays for basic equipment and highly specialized tools
frequently used in the commercial sector.2 33 Increases in general know-
how usually arise in the areas of design and manufacturing processes.
For example, the Commission examined the DOD's major program on
the use of synthetic design technology, which significantly limits the time
and risk involved in producing new aircraft. 234 Thus, the disparities in re-
search and development spending between the DOD and the MoD evi-
denced Boeing's ability to enhance its market dominance vis-a-vis Airbus
and to cross-fertilize know-how between the commercial and defense sec-
tors. Boeing's activities in the past led the Commission to believe Boeing

230. See id. 1 90. Exact figures are not available because the Commission intention-
ally omitted them from the Boeing opinion. See also, Appendix V at A-6.
231. See id. 86.
232. Id. 92.
233. See id.
234. See id. 93.
would use these newfound advantages in the aerospace market in contra-

vention of the goals of the Common Market.
In a technology intensive industry such as commercial aircraft man-
ufacturing, intellectual property, in the form of unpatented know-how,
plays an extremely important role for the competitive potential of the
players in the market. 235 The Commission appeared extremely concerned
that the, "[c]ombination of the world's largest manufacturer of commer-
cial aircraft with the world's leading manufacturer of military aircraft will
lead to the combination of two large portfolios of intellectual
'236
property.
At the time of the merger, Boeing and MDC held a combined 500
patents that the Commission deemed relevant to the commercial aircraft
industry. 23 7 Further, a combined 112 patents restricted access to important
future technology. 238The Commission, then, considered the combination
of Boeing and MDC's know-how and patent portfolios a further element
strengthening Boeing's dominant position in the large commercial aircraft
sector.
c. Bargaining Power vis-a-vis Suppliers
The proposed merger substantially increased Boeing's buying power
with many suppliers that furnish parts for both the civil and military sec-
tors. The Commission feared MDC's buying power in the military sector
when coupled with Boeing's strong position in commercial aircraft. It be-
lieved this combination would increase suppliers' overall reliance on
Boeing. 23 9 This in turn potentially placed suppliers in a position where
Boeing would receive priority over Airbus. 24° Boeing, then, could exert
pressure on suppliers to discourage them from selling to Airbus and fur-
ther diminish Airbus's competitive ability in the commercial aircraft sec-
tor. Such business practices could permanently cripple Airbus and afford
Boeing a monopoly in the commercial aircraft sector.
C. Disposition of the Boeing McDonnell Douglas Merger
For the reasons outlined above, the Commission, not surprisingly,
determined that the proposed concentration, "[w]ould lead to the
strengthening of a dominant position through which effective competition

236. Id.
237. See id.
238. See id. For a detailed discussion of these patents see pages 34-35 of the Boeing
opinion.
239. See id. 106.
240. See id.
would be significantly impeded in the common market within the mean-

ing of Article 2(3) of the merger regulation. The Commission failed to
designate a section of the opinion, "significant impediment to effective
competition," but rather considered that the reasons outlined above
demonstrated a significant impediment. In de Haviland, the benchmark
for comparing future merger decisions, the Commission devoted a entire
section to the significant impediment test. The Regulation itself does not
expressly list factors for application in the significant impediment test, al-
though many scholars suggest that the dominant position criteria in Arti-
cle 2(1) remain relevant in this context. These factors, however, are con-
tinuously evaluated throughout the merger analysis and the Commission
most likely remained cognizant of the potential for redundancy when it
omitted this section from the Boeing merger analysis. Alternatively, the
merger analysis evolved through a body of doctrine that expanded the
meaning of the Merger Regulation and obviated the need for a separate
significant impediment analysis.
VIII. CONCLUSION
The de Haviland decision sets the standard for the evaluation of a

proposed concentration seeking to do business in the European Union.
The Commission, in de Haviland, painstakingly set forth the evaluative
criteria espoused in the Regulation in order to demonstrate the Regula-
tion's practical application. Throughout the opinion, the de Haviland
Commission faithfully applied the Regulation to the facts at hand and
reached a result consistent with both the dictates of the Regulation and
the goals of the Common Market. Furthermore, the de Haviland decision
contemplated the permissibility of attributing international anti-trust im-
plications to the Regulation. The Boeing Commission followed the de
Haviland decision in this respect, because it too analyzed a merger be-
tween Boeing and McDonnell Douglas, two American corporations.
A. Dominant Position: Correct Assessment, Unfaithful Decision

By any and all standards espoused in the Regulation, Boeing occu-
pied a dominant position before the merger. Furthermore, by virtue of the
merger, Boeing significantly enhanced its position in the large commer-
cial jet aircraft vis-h-vis other industry competitors. The de Haviland de-
cision established ceilings with respect to the dominant position in almost
every segment of the merger analysis that, if they succeeded, either indi-
vidually, or in the aggregate, mandated a presumption of dominance.
1. Market Share
Before the merger, Boeing and de Haviland enjoyed 46 and 64 per-
cent market shares respectively in the relevant product markets.2 41 The

Boeing Commission faithfully applied the correct test set forth in de
Haviland when it quantified the market share in the overall market for
large commercial jet aircraft in terms of backlog.2 42 The calculations
demonstrate that the Boeing merger exceeded the de Haviland standard
by 18 percent, and, in fact established a new threshold presumption of
dominance, namely, a 64 percent market share, in the aftermath of the
Boeing merger. Of far greater import in the commercial jet landscape in
Boeing, Airbus, the only other viable commercial aircraft competitor,
lagged far behind Boeing with a scant 30 percent market share. Clearing
a merger exhibiting a 34 percent pre-merger market share disparity de-
tracts from the goals of the Common Market. In de Haviland, on the
contrary, the Commission blocked a merger exhibiting a 32 percent pre-
merger market share disparity between ATR and Fokker, the other major
competitor.243 In addition, the Commission cleared Boeing's merger with
a prospective 70 percent market share, compared to ATR's 63 percent.
The Commission, therefore, established a new floor in the prospective
market share as well. Further troubling, newly established production
synergies between Boeing and McDonnell Douglas arguably laid a foun-
dation for this market share to continue to increase.
2. Exclusive Deals and the "Lock-In" Effect
The Commission concluded that the exclusive dealing arrangements

with Delta, American, and Continental, three of the biggest airlines in the
world, evidenced Boeing's enjoyment of a dominant position in the large
commercial jet market, even before the proposed merger. The Boeing
Commission followed the rationale of de Haviland in this respect and
noted that the "lock-in" effect would hinder these customers from
switching manufacturers. In order to avoid incurring high costs associated
with different types of aircraft, such as training pilots and mechanics, and
maintaining parts stock, these customers must purchase from Boeing.
Furthermore, customers presently using McDonnell Douglas commercial
aircraft would experience a "lock-in" dependency because of the merger,
especially in the face of lower prices, increased technology and related
services from competitors. As with the market share, this "lock-in" fac-
241. See Appendices LI-I1 at A-2, A-3. See also, Boeing, supra note 1 at 17. De
Haviland's 46 percent represents its overall market share before the merger.
243. See Appendices AlI-AIII at A-2, A-3. Figures are based on the 40-59 seat
world market.
tor alone created a presumption of dominance and enough ammunition

for the Commission to block the merger.
B. Significant Impediment to Competition: Predatory Pricing and

Publicly Funded Research and Development
The Commission faithfully applied the de Haviland decision in mea-

suring the impact of the merger and determined, on the strength of a
myriad of factors, that Boeing indeed occupied a dominant position in
the commercial jet aircraft market. After the step two analysis, the Com-
mission further determined that the merger strengthened Boeing's domi-
nant market position vis-a-vis the rest of the industry players, because the
proposed merger effectively impeded true competition within the Com-
mon Market. The Commission linked Boeing's potential market share,
exclusive dealing agreements, and the potential benefits conferred from
increased research and development allotments, to a prospective course
of conduct unfavorable to both Airbus and to the Common Market.
Inquiries into Boeing's past conduct, mostly within the past two
years, revealed that Boeing already used its competitive advantage to en-
gage in some of the very practices the Commission feared most, namely,
predatory pricing to drive other industry competitors from the market.
The de Haviland factual scenario, devoid of predatory pricing considera-
tions, clearly exhibited far fewer flagrant characteristics than the Boeing
factual scenario. Yet paradoxically, the Commission still found it viola-
tive of EC competition law and blocked the merger.
The acquisition of new research, development and other resources
certainly increased the likelihood that Boeing would continue such prac-
tices. Obvious advantages from defense research and development for a
manufacturer of commercial aircraft result in the transfer of this technol-
ogy to the commercial sector. The acquisition of highly specialized tools
frequently used in the commercial sector and a new skilled work force
increases production efficiency. Furthermore, access to new technology
and patents would increase suppliers' overall reliance on Boeing. Boeing,
in turn, could exert pressure on suppliers and discourage them from sell-
ing to Airbus. Such a course of action could freeze-out Airbus and fur-
ther diminish its competitive ability in the commercial aircraft sector. For
the above reasons, the Boeing Commission correctly followed the de
Haviland decision and concluded that the merger effectively impeded
competition and strengthened Boeing's already dominant position in the

large commercial jet aircraft market.
C. Incongruity in the Commission's Findings and its Disposition
The Commission, however, thereafter failed to apply the logic of de

Haviland to the Boeing situation. The de Haviland Commission, on the
strength of a less egregious factual scenario, blocked the merger between
ATR and de Haviland. It disregarded foreign and domestic political and
economic interests and faithfully interpreted and applied the Regulation.
The Boeing Commission, however, decided against blocking the merger,
but only contingent upon Boeing agreeing to certain concessions, to
which Boeing ultimately acquiesced in order to obtain approval. On the
strength of the facts alone, a faithful application of the de Haviland deci-
sion and the Merger Regulation unquestionably required the Commission
to block the proposed Boeing merger. Clearly, the decision to propose
concessions as an alternative to blocking the merger directly contradicts
the dictates of the de Haviland decision, the Regulation and, as a conse-
quence, economic integration, the chief goal of the Common Market.
The Commission imposed concessions in lieu of blocking the
merger. These concessions embodied the Commission's biggest fears in
the aftermath of the merger.244 Some of the concessions appear illusory.
1. Exclusive Dealings
Boeing, for example, agreed to refrain from entering into exclusive
agreements with other manufacturers until August 1, 2007, a period of
ten years, unless another manufacturer offers to enter into such an agree-
ment. 245 In addition, Boeing agreed to refrain from enforcing the exclu-
sivity rights established under agreements with American, Delta and Con-
tinental. 246 Such a covenant purportedly enables Airbus to better compete,
while at the same time decreases Boeing's monopoly potential in the
commercial aircraft industry. This conclusion discounts the existing
"lock-in" effect resulting from Boeings' 64 percent pre-merger market
share and overall customer loyalty. Players in the aerospace industry,
content with the manufacturer's product, frequently enter into tacit exclu-
sive agreements without an express written agreement. Therefore, it
seems unlikely that this concession would help to establish a new status
quo on the commercial jet aircraft market. If anything, Boeing agreed not
244. For a complete discussion of the concessions made by Boeing, see Boeing,
supra note 1, at 36-39.
245. See Boeing, supra note 1, at 116.
246. See id.
to enter into formal written agreements with other industry players for
ten years. Informal understandings still abound and could ultimately en-
able Boeing to further its dominance.
2. Suppliers and Manufacturer Discrimination

Boeing agreed not to exert, or attempt to exert, undue or improper
influence on suppliers and discriminate against other manufacturers of
commercial jet aircraft. 247 In this respect, Boeing must refrain from lever-
aging supply relationships by requiring that suppliers should, 1) refuse to
take up or seek out supply relationships with other manufacturers of large
commercial aircraft; 2) refuse to increase their supply relationships with
other manufacturers of large commercial jet aircraft; and 3) refuse to
enter into subcontracts with other manufacturers on research or develop-
ment for large commercial jet aircraft. 248 With this concession, Boeing
appears to have substantially limited its bargaining power vis-a-vis other
suppliers and manufacturers. The Merger Regulation already prohibits
predatory pricing, an anti-competitive technique Boeing arguably em-
ployed to secure the SAS order for commercial jet aircraft. The SAS sit-
uation illustrates Boeing's willingness to engage in anti-competitive activ-
ity. Yet, according to the concession, Boeing may engage in some of
these activities with, "reasonable business justification." The Commis-
sion, by allowing the continuance of these practices upon a showing of a
"reasonable business justification," may afford Boeing legal justification
for engaging in anti-competitive activities.
Both the concessions on exclusive dealings and supplier and manu-
facturer discrimination appear illusory. Only time will reveal the hollow-
ness of these concessions. Boeing, if neither adversely affected nor con-
strained by these concessions, may still dominate the aerospace market.
D. Final Thoughts
Perhaps in order to avoid a trade war with the United States, or the
imposition of unilateral sanctions against the European Union, the Com-
mission decided to extract numerous concessions from Boeing as a face-
saving gesture, as well as to avoid an unpleasant economic and political
battle. These concessions, in the Commission's view, legitimize the deci-
sion and, at the same time, supposedly protect Airbus' viability as a
competitor in the commercial aircraft industry. Nevertheless, these con-
cessions represent nothing more than a pyrrhic victory for Van Miert and
the European Commission. Customers like Delta, American, and Conti-
247. See Boeing, supra, note 1 at 19.

248. See id.
nental still may purchase solely from Boeing, notwithstanding Boeing's

concessions on exclusivity. Furthermore, Boeing's past conduct indicated
a tendency to engage in predatory pricing even before the proposed
merger. The concessions do not constrain Boeing's ability to engage in
predatory pricing and, therefore, appear unlikely to deter a course of con-
duct practiced by Boeing on the Common Market and on other markets
prior to the merger.
In short, the Boeing decision clearly compromises the merger law of
the European Union, probably for the greater good of furthering diplo-
matic and trade relations with the United States. Nevertheless, the Com-
mission necessarily failed to fully and completely apply the Regulation to
inhibit the strong market dominance exhibited by Boeing, both before
and after the merger. Such a compromise results in the willingness of
other major non-European companies to test the Commission's applica-
tion of the Regulation to this extreme factual scenario. Such companies
are now cognizant of the fact that the desire to maintain favorable trade
relations with the United States sufficiently deters the Commission from
blocking one American business' attempt to merge with another Ameri-
can corporation.
It is doubtful whether the Commission, in the future, will be able to
adhere to the benchmark de Haviland decision and block a merger featur-
ing a company consistently engaging in anti-competitive and opprobrious
behavior. The Commission, by disregarding its own case law and compe-
tition jurisprudence, established unprecedented minimum standards in the
dominant position analysis. Examples include the new 64 percent pre-
merger market share and the 70 percent prospective market share. A mar-
ket share of lesser magnitude fails to meet the threshold presumption of
dominance. As a consequence, the Commission, unable to block a merger
exhibiting a far less egregious factual scenario, could face both corporate
and country antagonism due to an unpredictable decision making process.
Assuming, arguendo, that the Commission begins to reevaluate the
merger threshold standards on an ad hoc or case-by-case, basis, undertak-
ings doing business in the European Union, unable to conform their con-
duct to a consistent and identifiable standard, will become frustrated with
future merger decisions. If the Commission desires to return to a unitary
standard and greater predictability in a subsequent merger decision, it
should remove the incongruity between the analysis and disposition in
Boeing as a misleading shibboleth.
Jeffrey A. Miller
APPENDIX I
Relevant Product Market: Aircraft in Current

Production in Turbo-prop Market
20 to 39 seats 40 to 59 seats 60 seat and over
BAe** J41 (27 seats) Casa CN235 (44 seats) BAe** ATP (64 seats)
Embraer 120 (30 seats) ATR 42 (48 seats) ATR 72 (66 seats)
Domier Do 328 (30 seats) de Hav* Dash 8-300 (50 seats)
Saab 340 (33 seats) Fokker 50 (50 seats)
de Hav* Dash 8-100 (36 seats) Saab 2000 (50 seats)
APPENDIX I
MARKET SHARE
20 to 39 seats 40 to 59 seats 60 seat and over
World EEC World EEC World EEC

Saab 34 Embraer 41 ATR 45 ATR 51 ATR 76 ATR 74
Embraer 31 Saab 31 de Hav* 19 de Hav* 21 BAe** 24 BAe** 26
de Hav* 25 de Hav* 21 Fokker 22 Fokker 22
Domier 8 BAe** 6 Saab 7 Casa 6
BAe** 2 Domier 1 Casa 7
*de Hav = de Haviland

**BAe = British Aerospace
APPENDIX Ill
Large Commercial Jet Aircraft-World

Backlog Market Shares Evolution By Value-1987-1996
Market Share-Total (pctaes rounded -
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Avg.
Total 62 61 57 59 62 62 62 59 64 64 64
Boeing
Total 14 19 16 16 12 10 9 8 8 6 12
MDC
Boeing 74 80 73 75 74 72 71 67 71 70 73
and
MDC
Total 24 20 27 25 26 28 29 13 29 30 27
Airbus
Market Share-Narrow Bod
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Avg.
Total 50 55 61 60 64 64 62 56 54 55 58
Boeing I I
Total 19 20 16 15 11 11 11 11 14 11 14
MDC
Boeing 69 75 77 75 75 75 73 67 68 66 72
and
MDC
Total 31 25 23 25 25 25 27 33 32 34 28
Airbus
Market Share-Wide Bod-
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Avg.
Total 74 68 53 59 60 60 62 61 70 71 64
Boeing
Total 8 19 16 16 13 10 7 6 3 2 10
MDC
Boeing 83 87 69 75 73 70 69 67 73 73 74
and
MDC
Total 17 13 31 25 27 30 31 33 27 27 26
iAirbus
APPENDIX IV
Commercial Aircraft Segments
Narrow Body Wide Body
Narrow Body Wide Body
Approximate 100-120 120-200 200-320 320-400 400+

Seating
Capacity
Boeing 737-500 737-300 767-200 777-200 747-400

737-600 737-400 767-300 777-300
737-700
737-800
757-200
757-300
MDC MD-95 MD-80 MD-11
MD-90
Airbus A319 A310 A330-200
A320 A300 A340-200
A321 A330-200
A340-300
APPENDIX V
DEPARTMENT OF DEFENSE BUDGET (millions US $)
1995 1996
F-22 2,281 2,165 2/3 = Lockheed

113 = Boeing
F/A-18 1,249 824 MDC
V-22 Osprey 453 737 Boeing
RAH-66 Comanche 475 292 Boeing
B-2 366 589 Boeing
JSF 182 193 Boeing & Lockheed in

competition
C-17 Globemaster III 184 71 MDC

The Boeing/Mcdonnell Douglas Merger: The European Commission'S Costly Failure To Properly Enforce The Merger Regulation

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Maryland Journal of International Law

Volume 22 | Issue 2 Article 7

The Boeing/McDonnell Douglas Merger: the

Follow this and additional works at: http://digitalcommons.law.umaryland.edu/mjil

THE BOEING/McDONNELL DOUGLAS MERGER: THE

The Boeing/McDonnell Douglas1 merger passage through the Euro-

1. Commission Decision of 30 July 1997 Declaring a Concentration Compatible

tions ourselves." 5 Nonetheless, in Boeing, the European Commission

Boeing and McDonnell Douglas competed in the aerospace market

5. Mitchell, Alison, Clinton Warns Europeans of Trade Complaint on Boeing Deal,

major competitor. 8 When the merger between Boeing and McDonnell

ket share greater than 60 percent. 14 Furthermore, Boeing increased both

The Federal Trade Commission (hereinafter FTC) also analyzed the

III. SUMMARY OF THE COMMISSION'S REASONING

After an initial evaluation of the proposed merger, the Commission

sion. See CCH Commentary, supra note 7.

seats. 29 Additionally, the Commission reviewed the merger because the

forcement of Boeing's dominance in the aerospace industry, however,

world's number two defense manufacturer and leading manufacturer of

IV. SUMMARY OF THE FEDERAL TRADE COMMISSION'S REASONING

After an extensive investigation, the Federal Trade Commission (FTC)

commercial aircraft sales, of a non-failing, direct competitor in a market

51. See id.

tive dynamics of the commercial aircraft market.5 8 As a result of this

A. The Origins of European Competition Law: Articles 85 & 86

European states created the European Community (EC) in 1957 as a

58. See id.

Articles 85 and 86 and currently forms the cornerstone of competition

Article 86 of the Treaty of Rome regulates unilateral behavior of

further regulates decisions by associations of undertakings and concerted

B. The Merger Regulation

The Merger Regulation codifies Articles 85 and 86 and simplifies

ceptance of supplementary obligations which, by their nature or according to commercial

merger with Community competition policy78 and must decide whether to

78. See Merger Regulation, supra note 19 at art. 2(1)(b).

tive competition, 2) actual or potential competition from the EC or

C. Three Step Analysis of the Commission

The Commission analyzes these criteria for review in a three-step

1. Relevant Product and Geographic Markets

The Merger Regulation fails to provide decisive guidance on how to

Form CO defines the relevant geographic market as "[t]he area in

2. Dominant Position Assessment

The Merger Regulation empowers the Commission to block any

determine the relationship between a concentration's market share and its

3. Significant Impediment to Effective Competition

The Commission's determination that a concentration either creates

97. See id.

VI. APPLICATION OF THE REGULATION: THE DE HAVILAND DECISION - THE

On May 13, 1991, Avions de Transport Regional (ATR)10 2 notified

not merely temporary and will therefore significantly impede effective

1. Relevant Product Market

105. De Haviland, supra note 102, at 72.

termine what, if any, competition existed in the turbo-prop market. The

2. Relevant Geographic Market

B. Dominant Position Assessment

117. See de Haviland, supra note 102,. f 20.

2. Impact of the Concentration

In this second phase of the dominant position assessment, the Com-