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Europeans Relent, Back Boeing Merger

From the AP
Shareholders of both companies have approved the merger. Get more updates on Boeing and McDonnell Douglas from the Associated Press wire.
By Steven Pearlstein
Washington Post Staff Writer
Thursday, July 24, 1997; Page E01

European authorities yesterday bowed to economic and diplomatic realities and reluctantly gave their blessing to a merger of the two remaining U.S. makers of commercial airplanes.

Top officials of Boeing Co. and McDonnell Douglas Corp. were at Washington's Mayflower Hotel when they received word that the European Commission had endorsed the merger of their two firms, once fierce rivals in the defense, space and commercial airplane businesses.

With approval from both European and American antitrust authorities, shareholders of the two companies are expected to approve the $15 billion transaction at meetings in Seattle and St. Louis tomorrow.

"We have reached a satisfactory conclusion with Boeing," said Karel Van Miert, the competition commissioner of the European Union who early on had vowed to scuttle the deal if Boeing did not make significant concessions to reduce its dominant hold on the world market for commercial jets.

vying for market share

Van Miert's tough stance, backed by top European leaders, had threatened to spark a nasty trade war between the United States and Europe. U.S. officials had characterized the European review as an unwarranted intrusion into the affairs of two U.S. companies and a blatant attempt to boost the prospects of Airbus Industrie, the European airplane consortium.

To win Van Miert's approval, Boeing reluctantly agreed not to enforce the agreements it had won from three U.S. airlines to buy only Boeing jets in the next 20 years, and to refrain from entering into other such contracts in the future.

All three airlines -- American, Continental and Delta -- issued statements yesterday saying Boeing's gesture would have little effect on their purchasing decisions.

"Boeing seems to best fit our needs," said Continental spokesman Dave Messing.

"It wouldn't change our plans, and we wouldn't go out and order Airbus jets next week," said American Airlines spokesman Tim Smith.

But Boeing's refusal to give up the exclusive arrangements through months of negotiations spoke eloquently of the cutthroat nature of the airplane market, where airlines are continuously playing suppliers against one another in an effort to win better prices or faster delivery or last-minute changes in the airplanes they have ordered.

At a news conference at the Mayflower, Boeing Chairman Philip Condit said he gave the go-ahead for the concession during a nine-way telephone conference call that he conducted from a phone booth last weekend in Boston, where he was visiting his daughter. He conceded that the threat of fines and confiscation of airplanes left him no choice but to accede to Van Miert's demand or scrap the merger entirely.

For his part, Van Miert backed off his original demand that Boeing put McDonnell Douglas's commercial aircraft division up for sale for six months to see if a firm other than Boeing was willing to buy and operate it.

The divestiture idea was being pushed hard by Airbus executives, who feared that Boeing would gain added leverage in converting old McDonnell Douglas customers to Boeing customers in the future. But Van Miert finally dropped that demand after a high-level delegation of U.S. officials convinced him that there were no likely buyers and that the six-month hiatus would jeopardize the jobs of 14,000 McDonnell Douglas workers in Long Beach, Calif.

Van Miert's concession on divestiture still was not sitting well in some European countries, particularly in France, where there is a growing resentment over U.S. economic hegemony in the world.

"The Americans have made some last-minute concessions, but in my mind they don't go far enough," Pierre Moscovici, the French European affairs minister, told French radio.

And in Toulouse, France, where Airbus completes production of its aircraft, spokesman Alain Dupiech said the company was disappointed in the decision and greatly regretted the "arrogant and confrontational attitude" taken by Boeing and U.S. government officials.

U.S. officials said yesterday they were prepared to retaliate against the European Union with trade sanctions if it had attempted to scuttle the Boeing-McDonnell Douglas merger. Although acknowledging that European antitrust law is more stringent than U.S. law, they feared the hard-line position was being driven more by political and trade considerations than strict legal analysis.

"There was a general concern that the Europeans were moving in a very politicized direction right from the start," one senior American official said. "And we made it plain that there would have been a serious response in the trade area if they continued to pursue that strategy."

Stonecipher and Condit
Announcing the merger in December: McDonnell Douglas CEO Harry Stonecipher, left, and Boeing CEO Philip Condit
Condit yesterday tried to defuse the transatlantic tension by noting that companies such as Boeing, with customers and suppliers on every continent, would benefit from having its transactions reviewed by a single, international authority rather than having to seek approval from several countries with divergent and competing interests.

"In a global economy, a single set of rules is, in fact, preferable," Condit said. "Over time, we have to keep working in that direction."

Copyright 1997 The Washington Post

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