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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 1997
THE BOEING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-442 91-0425694
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
7755 East Marginal Way South
Seattle, Washington
(address of principal executive offices)
Registrant's telephone number, including area code: (206) 655-2121
N/A
(Former name or former address, if changed since last report)
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<PAGE>
ITEM 5. OTHER EVENTS.
On July 1, 1997, the Federal Trade Commission announced that
it had closed the investigation of the proposed merger between a
subsidiary of The Boeing Company and McDonnell Douglas Corporation,
concluding that the proposed transaction would not substantially
lessen competition or tend to create a monopoly in either defense or
commercial aircraft markets.
A copy of the press release issued by the Federal Trade
Commission on July 1, 1997 with respect to the proposed merger is
attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired:
Not applicable.
(b) Pro forma financial information:
Not applicable.
(c) Exhibits:
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EXHIBIT NO. DESCRIPTION
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99.1 Press Release issued by the Federal Trade
Commission on July 1, 1997.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Date: July 2, 1997 THE BOEING COMPANY
By: /s/Theodore J. Collins
Senior Vice President and
General Counsel
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith:
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EXHIBIT
NO. DESCRIPTION
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99.1 Press Release issued by the Federal Trade
Commission on July 1, 1997.
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EXHIBIT 99.1
FOR RELEASE: JULY 1, 1997
FTC ALLOWS MERGER OF THE BOEING COMPANY AND MCDONNELL
DOUGLAS CORPORATION
The Federal Trade Commission staff has closed its
investigation of the proposed merger of The Boeing
Company and McDonnell Douglas Corporation.
The Commission has determined that no further action is
warranted at this time.
Chairman Robert Pitofsky and Commissioners Janet D.
Steiger, Roscoe B. Starek III, and Christine A. Varney
issued a joint statement. Commissioner Mary L.
Azcuenaga issued a separate statement. Both statements
are attached.
Copies of the letter closing the investigation and the
Commissioners' statements will be available on the
Internet at the FTC's World Wide Web site at:
http://www.ftc.gov (no period). FTC documents also are
available from the FTC's Public Reference Branch, Room
130, 6th Street and Pennsylvania Avenue, N.W.,
Washington, D.C. 20580; 202-326-2222; TTY for the
hearing impaired 202-326-2502. To find out the latest
news as it is announced, call the FTC's NewsPhone
recording at 202-326-2710.
MEDIA CONTACT:
Victoria Streitfeld or Bonnie Jansen
Office of Public Affairs
202-326-2718 or 326-2161
STAFF CONTACT:
William J. Baer
Bureau of Competition
202-326-2932
George S. Cary
Bureau of Competition
202-326-3741
(FTC File No. 971-0051)
<PAGE>
Statement of Chairman Robert Pitofsky and
Commissioners Janet D. Steigert, Roscoe B. Starek III and
Christine A. Varney
in the Matter of
The Boeing Company/McDonnell Douglas Corporation
File No. 971-0051
After an extensive and exhaustive investigation, the Federal
Trade Commission has decided to close the investigation of The
Boeing Company's proposed acquisition of McDonnell Douglas
Corporation. For reasons discussed below, we have concluded that
the acquisition would not substantially lessen competition or
tend to create a monopoly in either defense or commercial
aircraft markets.
There has been speculation in the press and elsewhere that the
United States antitrust authorities might allow this transaction
to go forward -- particularly the portion of the transaction
dealing with the manufacture of commercial aircraft -- because
aircraft manufacturing occurs in a global market, and the United
States, in order to compete in that market, needs a single
powerful firm to serve as its "national champion." A powerful
United States firm is all the more important, the argument
proceeds, because that firm's success contributes much to
improving the United States' balance of trade and to providing
jobs for U.S. workers.
The national champion argument does not explain today's decision.
Our task as enforcers, conferred in clear terms by Congress in
enacting the antitrust statutes, is to ensure the vitality of the
free market by preventing private actions that may substantially
lessen competition or tend to create a monopoly. In the
Boeing-McDonnell Douglas matter, the Commission's task was to
review a merger between two direct competitors.
We do not have the discretion to authorize anticompetitive but
"good" mergers because they may be thought to advance the United
States' trade interests. If that were thought to be a wise
approach, only Congress could implement it. In any event, the
"national champion" argument is almost certainly a delusion. In
reality, the best way to boost the United States' exports,
address concerns about the balance of trade, and create jobs is
to require United States' firms to compete vigorously at home and
abroad. Judge Learned Hand put the matter well a half century ago
in describing the reasons for the commitment in the United States
to the protection of the free market:
"Many people believe that possession of unchallenged economic
power deadens initiative, discourages thrift and depresses
energy; that immunity from competition is a narcotic, and rivalry
is a stimulant to industrial progress; that the spur of constant
stress is necessary to counteract inevitable disposition to let
well enough alone." (1)
<PAGE>
On its face, the proposed merger appears to raise serious
antitrust concerns. The transaction involves the acquisition by
Boeing, a company that accounts for roughly 60% of the sales of
large commercial aircraft, of a non-failing direct competitor in
a market in which there is only one other significant rival,
Airbus Industrie, and extremely high barriers to entry. The
merger would also combine two firms in the U.S. defense industry
that develop fighter aircraft and other defense products.
Nevertheless, for reasons we will now discuss, we do not find
that this merger will substantially lessen competition in any
relevant market.
The Commission reached its decision not to oppose the merger
following a lengthy and detailed investigation into the
acquisition's potential effects on competition by a large team of
FTC attorneys, economists and accountants. The Commission staff
interviewed over forty airlines (including almost every U.S.
carrier, large and small, and many foreign carriers), as well as
other industry participants, such as regional aircraft producers
and foreign aerospace companies. Staff deposed McDonnell Douglas
and Boeing officials responsible for marketing commercial
aircraft, assessing their firms' financial conditions, and
negotiating the proposed acquisition. Finally, the Commission
staff reviewed hundreds of boxes of documents submitted by the
merging companies and third parties, such as airlines and
aircraft manufacturers.
With respect to the commercial aircraft sector, our decision not
to challenge the proposed merger was a result of evidence that
(1) McDonnell Douglas, looking to the future, no longer
constitutes a meaningful competitive force in the commercial
aircraft market and (2) there is no economically plausible
strategy that McDonnell Douglas could follow, either as a
stand-alone concern or as part of another concern, that would
change that grim prospect.
The evidence collected during the staff investigation, including
the virtually unanimous testimony of forty airlines that staff
interviewed, revealed that McDonnell Douglas's commercial
aircraft division, Douglas Aircraft Company, can no longer exert
a competitive influence in the worldwide market for commercial
aircraft. Over the past several decades, McDonnell Douglas has
not invested at nearly the rate of its competitors in new product
lines, production facilities, company infrastructure, or research
and development. As a result, Douglas Aircraft's product line is
not only very limited, but lacks the state of the art technology
and performance characteristics that Boeing and Airbus have
developed. (2) Moreover, Douglas Aircraft's line of aircraft do
not have common features such as cockpit design or engine type,
and thus cannot generate valuable efficiencies in interchangeable
spare parts and pilot training that an airline may obtain from a
family of aircraft, such as Boeing's 737 family or Airbus's A-320
family.
In short, the staff investigation revealed that the failure to
improve the technology and efficiency of its commercial aircraft
products has lead to a deterioration of Douglas Aircraft's
product line to the point that the vast majority of airlines will
no longer consider purchasing Douglas aircraft and that the
company is no longer in a position to influence significantly the
competitive dynamics of the commercial aircraft market.
<PAGE>
Our decision not to challenge the proposed merger does not reflect a
conclusion that McDonnell Douglas is a failing company or that Douglas
Aircraft is a failing division. Nor does our decision not to challenge
the proposed merger reflect a conclusion that Douglas Aircraft could
maintain competitively significant sales, but has simply decided to
redeploy or retire its assets. While McDonnell Douglas's prospects for
future commercial aircraft sales are virtually non-existent, its
commercial aircraft production assets are likely to remain in the
market for the near future as a result of a modest backlog of aircraft
orders. As a result, it is unlikely that the aircraft division would
have been liquidated quickly. Moreover, the failing company defense
comes into play only where the Commission first finds that the
transaction is likely to be anticompetitive. Here, the absence of any
prospect of significant commercial sales, combined with a dismal
financial forecast, indicate that Douglas Aircraft is no longer an
effective competitor, and there is no prospect that position could be
reversed.
The merger also does not threaten competition in military programs.
Though both Boeing and McDonnell Douglas develop fighter aircraft,
there are no current or future procurement of fighter aircraft by the
Department of Defense in which the two firms would likely compete.
Finally, there are no other domestic military markets in which the
products offered by the companies are substitutes for each other. The
Department of Defense, in a letter to the Commission dated July 1,
1997, indicated that competition would remain in the defense industry
post-merger.
While the merger seems to pose no threat to the competitive landscape
in either the commercial aircraft or in various defense markets, we
find the twenty year exclusive contracts Boeing recently entered with
three major airlines potentially troubling. Boeing is the largest
player in the global commercial aircraft market and though the
contracts now foreclose only about 11 % of that market, the airlines
involved are prestigious. They represent a sizeable portion of
airlines that can serve as "launch" customers for aircraft
manufacturers, that is, airlines that can place orders large enough
and have sufficient market prestige to serve as the first customer for
a new airplane. We intend to monitor the potential anticompetitive
effects of these, and any future, long term exclusive contracts.
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1. United States v. Aluminum Company of America 148 F.2d 416.427 (2d
Cir.1945).
2. Our colleague Commissioner Azcuenaga seems to speculate that these
problems may be the result of "strategic behavior" to avoid government
challenge, and that others in the future may pursue a similar
strategy. Speculation is easy, but there is absolutely no evidence
that any such behavior occurred here.
<PAGE>
STATEMENT OF COMMISSIONER MARY L. AZCUENAGA
in The Boeing Company, File No. 971-0051
The Commission today announces that it will not challenge the
proposed merger of The Boeing Company and McDonnell Douglas
Corporation. I agree that no action is warranted against the
combination of assets in the defense and space lines of business,
which constitutes the greater portion of the proposed
transaction, although I do not join the discussion of the other
commissioners (1) on this point.
I also agree with my colleagues that no action is warranted
concerning the twenty-year exclusive arrangements for commercial
aircraft that Boeing recently reached with three major U.S.
airlines. The arrangements account for an estimated 11% of the
market, well below any level that should be of concern under the
laws enforced by the Commission. Given the state of the law and
the fact that the exclusive arrangements apparently are unrelated
to the proposed transaction, what is curious is that my
colleagues choose to mention them at all.
Another aspect of the proposed transaction is the combination of
two of the three remaining manufacturers of commercial aircraft
in the world. Boeing is the largest commercial aircraft firm in
the world; McDonnell Douglas, through Douglas Aircraft Company
("Douglas"), is number three in the industry. This horizontal
combination of two of the three firms in the market appears to
present a rather straightforward case for a challenge by the
Commission. Absent action by the Commission, the merger will
eliminate one of three firms in a highly concentrated market in
which entry is difficult and unlikely.
My colleagues conclude that most airlines will not buy planes
from Douglas, a factual conclusion with a surprising reach for a
simple announcement of failure to prosecute and a conclusion and
implication of competitive insignificance with which I disagree
after having reviewed the available information. It is true that
Douglas has a small share of the commercial aircraft market, but
that does not mean that it exercises no competitive
constraint.(2) The evidence shows that Douglas has added an
element of competition at the stage at which commercial aircraft
producers bid for the business of airlines, and it has continued
to win some business.
My colleagues rely in their statement on the so-called General
Dynamics (3) defense, that is, that market shares based on past
performance may overstate a firm's future competitive
significance. In General Dynamics, the government's statistical
case based on historical production of coal was deemed an
inadequate predictor of anticompetitive effects in light of the
acquired firm's inability to obtain additional coal reserves. The
company could not compete for future sales, because its coal
reserves already were committed and it could not acquire
additional reserves. No such definitive impediment is present
here. Douglas may need more customers for its products, but
having won fewer customers than it might want does not make
Douglas unable to compete for future sales.(4) One problem with
accepting a "flailing firm" or "exiting assets" claim is that it
creates an incentive for strategic action to avoid competitive
overlaps and government
<PAGE>
challenge under Section 7 of the Clayton Act.(5) This is a
dangerous precedent when we move from the realm of finite
reserves of natural resources to the more indeterminate realm of
managerial discretion, because of the susceptibility of the
defense to self-serving statements, manipulation and strategic
behavior.(6)
After reviewing the available information, I conclude that the
combination in the commercial aircraft market creates a classic
case for challenge in accordance with the merger guidelines, and
I find reason to believe that it would violate Section 7 of the
Clayton Act. What is less clear on the existing information is
the availability of an adequate remedy. On that issue, it seems
to me that reasonable people can disagree but, on balance, I
would pursue the matter further.
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1. See Statement of Chairman Robert Pitofsky and Commissioners
Janet D. Steiger, Roscoe B. Starek, III, and Christine A. Varney
in The Boeing Company, File No. 971-0051 (July 1, 1997).
2. In 1996, Douglas obtained orders amounting to "4 percent of
the total narrow-body and wide-body orders received in the
commercial aircraft industry, and its backlog of commercial
aircraft orders was $7 billion at the end of 1996, down from $7.2
billion at the end of 1995. 1996 McDonnell Douglas Corporation
Annual Report 30 & 34 (Jan. 1977). Although the six months since
the December 1996 announcement of the merger with Boeing may not
be representative (because one would expect customers to be chary
of placing orders for future delivery given the uncertainty about
the business), Douglas has continued to seek aircraft business.
See, e.g., "Customer Interest Is Renewed as First MD-95 Takes
Shape, Flight International, June 18, 1997; "Jet Leasing Takes
Off in Taiwan; McDonnell To Hold 20% Stake in Venture," Int'l
Herald Tribune June 20, 1997.
3. United States v. General Dynamics Corp., 415 U.S. 486 (1974).
4. The stringent requirements of the failing firm defense apply
to test whether a firm's imminent failure would, absent the
proposed transaction, cause the firm to exit the relevant market.
See 1992 Horizontal Merger Guidelines 5. As I understand it, the
parties to the transaction do not claim that the failing firm
defense applies to this proposed transaction.
5. 15 U.S.C. 18 (barring acquisitions the effect of which "may be
substantially to lessen competition, or to tend to create a
monopoly").
6. See Azcuenaga, "New Directions in Antitrust Enforcement,"
remarks before NERA 12th Annual Antitrust & Trade Regulation
Seminar 11- 15 (July 4, 1991).
