Boeing rejects Europe's complaints on pounds 8bn merger

Boeing yesterday rejected the European Commission's objections to its $14bn (pounds 8.6bn) merger with the rival US aircraft manufacturer, McDonnell Douglas, saying it remained confident that the deal would be completed this summer.

The company was responding after the EU Commissioner for Competition, Karel Van Miert, issued a formal statement of objections to the planned merger.

The 40-page document objects to the deal on several grounds, mainly concerned with the commercial power the merged group would have to dictate terms to airline customers and disadvantage its European rival Airbus Industrie.

Although Boeing would emerge with a smaller share of the world market than it enjoyed even 10 years ago, it would account for 84 per cent of all aircraft in service.

Mr Van Miert is particularly concerned about the exclusive long-term supply deals Boeing has struck with two US airlines, American and Delta. It is about to sign a similar agreement with Continental.

Observers on both sides of the Atlantic fear that the stand-off could escalate into a serious trade dispute between the Clinton administration and Brussels if the EU attempts to stop the merger or take punitive measures against Boeing.

Phil Conduit, chairman of Boeing, said it would continue to work with the EU "to help the Commission better understand" the issues involved. But he added: "The US Federal Trade Commission should be given the lead in this case as it so obviously concerns key US interests, not the least of which is the sovereign area of defence."

Mr Conduit said that on the fundamental anti-trust issue of whether the merger would restrict competition the answer was a resounding no. Last year, he said McDonnell Douglas accounted for only 4 per cent of airliner sales while Airbus had become a stronger competitor.

It has also emerged, however, that Brussels is using its opposition to the deal in an attempt to re-open a bilateral agreement on aircraft subsidies signed by the US and the EU in 1992. Airbus executives want Mr Van Miert to lever a better deal out of the US.

The agreement limits direct government support for large aircraft programmes to 33 per cent and restricts governments from indirectly subsidising civil aircraft manufacturers through defence programmes.

Mr Conduit said there continued to be debate about "spill-over" from Department of Defense and NASA funded programmes to commercial aircraft programmes but said that Boeing had not benefited in this way since 1993.

As for the issue of exclusive contracts, he maintained that both American and Delta had approached Boeing with the idea after it had fought aggressive sales campaigns with Airbus.