The threat of a trade war between the US and the European Union loomed last night after a key EU competition panel recommended that the $13.3 billion (£8 billion) merger of Boeing and McDonnell Douglas should be blocked unless the deal was substantially changed.
The ruling of the advisory committee of EU states' representatives came only three days after the US regulator, the Federal Trade Commission, nodded through without preconditions what would be the 10th largest US merger.
It represents an ultimatum to Boeing to come up with what EU experts called adequate remedies'' to their competition concerns before July 23 - when the European Commission is expected to take a final decision - or see the deal vetoed.
The next week will be crucial for Boeing to come out of the bushes,'' said one EU official.
US officials were irritated by the timing of the decision, which came at the beginning of the Independence Day holiday. Happy Fourth of July,'' said a White House spokesman wryly. The FTC said on Saturday that the EU experts' conclusion did not affect its decision.
We're done. We have completed our review. We will not challenge the merger,'' it said. If the merger went ahead in defiance of an EU block, Brussels has already indicated that the new company could be declared illegal in Europe and face an EU fine of up to $5 billion - equivalent to 10 per cent of the enlarged Boeing's turnover.
Boeing has warned that EU prohibition of the merger could provoke a transatlantic trade war. The EU advisory committee - which issues opinions on all problematic mergers -unanimously backed the tough stance of Karel Van Miert, competition commissioner, that the merger would strengthen Boeing's already dominant position on the global airliner market.
They said concessions offered so far by Boeing were not sufficient'' to prevent its becoming even more dominant, according to EU officials.
The ruling will greatly strengthen Van Miert's hand in negotiations with the two companies before the final Commission decision. EU concerns are known to centre on three areas.
First is the 20-year exclusive sales contracts Boeing has with Delta, American Airlines and Continental Airlines.
The US regulator, while leaving them intact, also called the deals potentially troubling''. Boeing has offered to shorten the contracts, but Brussels may now demand their cancellation.
Secondly, it emerged this week that the Commission had serious concerns about McDonnell Douglas's commercial aircraft business.
The US authorities ruled that McDonnell Douglas was no longer a viable competitor in commercial aircraft, so its merger with Boeing would not greatly strengthen Boeing's position.
But the Commission believes that McDonnell Douglas's competitive potential would be greatly enhanced if it were taken over by Boeing - so a merger would bolster the latter's business. The EU authorities could demand exclusion of McDonnell Douglas's civilian aircraft business from the merged company, or that parts of the business be hived off, or even that McDonnell Douglas should be forced to look for an alternative partner. The Commission has previously required problem businesses in mergers to be divested, or placed with a ''trustee''. Brussels is also worried that access to McDonnell Douglas's technology and expertise in space and defence aircraft could boost Boeing's civilian aircraft business. Boeing was ''clearly disappointed'' by the EU experts' conclusions, a company official said. ''We will continue to work with the commission to understand their position and try to get them to understand ours,'' he added. Copyright Financial Times Limited 1997. All Rights Reserved.
