Boeing will fight EU merger ban

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Boeing will challenge any adverse decision by the European Union over its proposed merger with McDonnell Douglas in the European Court of Justice.

Preliminary hearings would be expected to take place shortly after the European Commission reports its findings on the proposed merger between the US aerospace giants, which will create a company that has 70 per cent of the world's commercial airliner market.

Following the recommendation from the European Commission's competition directorate, the EU is expected to block the merger on competition grounds on Wednesday. If Boeing goes ahead with the merger in August, as it has said it plans to do, the Commission can fine the company up to 10 per cent of its turnover and ban the sale of its products in Europe.

The purpose of the hearings before the European Court of First Instance, stage one of the two-stage European Court judicial process, would be to stay any punitive action by the EU pending a full hearing sometime next year.

A further appeal can be made to the full European Court of Justice, but this process would take a further two years.

Company sources confirmed that a challenge was planned. "It is the only option available to us, short of a political solution," said one Boeing insider.

While the legal process of appealing EU competition decisions to the European Court is well established, it has not been tested in such a high profile - and politically sensitive - international case. According to EU competition experts, any Boeing challenge would be fraught with political tensions.

"International competition law is a very delicate area. It is where the law starts to touch on international politics, and brings into question how much jurisdiction one can have beyond one's own borders," said Dorothy Livingston, a partner in European and Competition Law at Herbert Smith.

Boeing said it welcomed the support of the US government, but would have preferred to have received clearance than get embroiled in a political row.

Three issues remain unresolved. The EU has asked for Boeing to renegotiate its 20-year single supplier agreements with United, Continental and American, which it sees as anti-competitive. Boeing has indicated willingness to shorten the contracts, but the airlines are likely to make the company stick to its original agreement, according to American Airlines chairman Robert Crandall.

The EU is also concerned about the possible use of US government-funded military technology by a combined Boeing-MDC in its commercial aircraft, which the EU argues is tantamount to a subsidy. There is also the issue of commercial airliner servicing and spare parts contracts, a market which Boeing-MDC will dominate.

Boeing have offered to put the commercial airliner division of McDonnell Douglas up for sale. EU officials argue this is not a genuine concession as McDonnell Douglas itself searched unsuccessfully for some years to find a buyer for this arm.