1. NANYANG TECHNOLOGICAL UNIVERSITY
SCHOOL OF MECHANICAL AND AEROSPACE
ENGINEERING
L6003 - Corporate Resource Planning
Boeing Merges McDonnell Douglas,
Creating Aerospace Behemoth
Submitted by
Chandramohan Narendran (G1102353H)
Durairaj Shamugasundaram (G1102355H)
Kannathasan Nareshkumar (G1102357G)
Palanayakenpalayam Thangavelu Prakash (G1100884C)
Rajamurthy Kubendran (G1100824D)

2. Abstract
This report is about biggest merger that ever occurred in the
history of the aircraft industry. This report examines about the
compelling business environment that lead to the two major aircraft
firms making the decision about their integration. This report also
studies the factors that are persuasive as well as issues which are
conflicting to the merger. To better understand the situation of this
merger, we have briefly discussed the history the firms involved, their
respective market shares, the details of this merger and its aftermath
on the global aircraft industry. This report also includes the details
regarding the legal issues pertaining to the merger and resolution
associated with Federal Trade Commission (FTC) and European
Commission (EC).

3. Contents
Boeing Merges Douglas, Creating Aerospace Behemoth ..................................................................... 1
1.1 Introduction ...................................................................................................................................... 1
1.2 Mergers............................................................................................................................................. 1
1.2.1 Effect of Mergers on Efficiency.................................................................................................. 1
2.1 Boeing’s History ................................................................................................................................ 2
2.2 McDonnell Douglas’s History ........................................................................................................... 3
3.1 Boeing’s Revenues ............................................................................................................................ 4
3.2 Boeing’s Earnings .............................................................................................................................. 6
3.3 Contractual Backlog .......................................................................................................................... 9
State of competition in the industry.....................................................................................................10
4.1 Background of the Merging ............................................................................................................11
5.1 Key competitive strategies used by the three big players..............................................................12
6.1 Factors influencing the merging .....................................................................................................13
6.1.1 Buyers ......................................................................................................................................14
6.1.2 Suppliers...................................................................................................................................14
6.1.3 New Entrants ...........................................................................................................................14
6.1.4 Threats of Substitute Products or Services ..............................................................................15
6.1.5 Globalization of the Commercial Aircraft Industry ..................................................................15
7.1 Boeing & McDonnell Douglas Merger ............................................................................................15
7.1.1 Boeings View............................................................................................................................16
7.1.2 McDonnell Douglas’s View.......................................................................................................16
7.2 The Deal ..........................................................................................................................................16
8.1 Effects of Merger ...........................................................................................................................17
8.2 Potential competitive concerns about the merger........................................................................18
9.1 Antitrust review ..............................................................................................................................19
9.2 Substantive issues: FTC vs. EC.........................................................................................................20
9.3 Resolution of merger review ..........................................................................................................21
9.3.1 FTC approval ............................................................................................................................21
9.3.2 EC approval and Boeing undertakings .....................................................................................21
10.1 Conclusion.....................................................................................................................................22

4. Boeing Merges McDonnell Douglas, Creating
Aerospace Behemoth
1.1 Introduction
The worldwide market for jet aircraft is primarily dependent on long-term trends in
airline passenger traffic. And this trend can be explained by factors such as economic growth
in developed and emerging markets, political stability, profitability of the airline industry,
and the globalization and consolidation of the industry. Other important factors are
limitations in air transport infrastructure such as government and environmental regulations
and air traffic control. Finally product development strategy and overall competition between
manufacturers also impact the market. All these factors play a major role in making strategic
decision in concerning with firms future. Here we are going to discuss about one such
important decision of Boeing to merge with McDonnell Douglas.
1.2 Mergers
The purpose of most mergers, like that of companies, is to increase profitability.
There are three primary ways for the purchasing firms to gain control of the other firm.
 Approach the management, negotiate the terms of the offer, and have the management
recommend that the shareholders accept the offer.
 Make an offer directly to the shareholders of the firm to purchase their shares at a
stipulated price.
 Convince the shareholders to vote you into control because you would run the firm
more efficiently.
1.2.1 Effect of Mergers on Efficiency
Mergers that increase efficiency are desirable for both the companies involved and the
society. One way the efficiencies occur are when firms reduce duplication due to the merger.
Another possibility for efficiencies to increase is due to synergies. Firms may benefit from
economies of scope where it is less costly for one firm to perform two activities than for two
specialized firms to perform them separately. A final possible way that efficiencies occur is
when a badly managed firm is taken over by a better management group.
Some mergers reduce both efficiency and/or profitability, but are still favourable to
conduct. Taxes are one example. If one company is making positive economic profits while
the other company is losing money, the end result would be less or no taxes for the combined
firm. Another example is when firms are going to exploit the short-term gains even if there
are long-run losses. The final example of when firms merge even though there may not be
increased efficiencies is when firms acquire additional market power by merging. This gives
the new firm the ability to set price profitably above competitive levels, but is also carefully
monitored by the government’s anti-trust department.
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5. 2.1 Boeing’s History
The Boeing Company was founded by William E. Boeing in 1916. Their first
airplane, the B&W took its first flight on June 29, 1916. It was a wood, wire, and cloth two-
seater seaplane with a cruise speed of 67 mph. Boeing’s first jetliner, the 707, was built to
carry up to 181 passengers and cruise at 528 mph. Its first flight took place on December 20,
1957.
1980-2000
In 1983, the economic situation began to improve. Boeing assembled its 1,000th 737
passenger airliner. During the following years, commercial aircraft and their military versions
became the basic equipment of airlines and air forces. As passenger air traffic increased,
competition was harder, mainly from Airbus, Boeing had to offer new aircraft, and developed
the single-aisle 757, the larger, twin-aisle 767, and upgraded versions of the 737.
During the decade several military projects went into production, including Boeing
support of the stealth B-2 bomber. As part of an industry team led by Northrop, Boeing built
the outboard portion of the B-2 stealth bomber wing, the aft centre fuselage section, landing
gears, fuel system and weapons delivery system.
At its peak in 1991, the B-2 was the largest military program at Boeing, employing
about 10,000 people. The Avenger air defence system and a new generation of short-range
missiles also went into production. During these years, Boeing was very active in upgrading
existing military equipment and developing new ones. Boeing also contributed to wind power
development with the experimental MOD-2 Wind Turbines for NASA and US DOE, and the
MOD-5B for Hawaii.
Boeing was one of seven competing companies that bid for the Advanced Tactical
Fighter. Boeing agreed to team with General Dynamics and Lockheed, so that all three
companies would participate in the development if one of the three companies design was
selected. The Lockheed design was eventually selected and developed into the F-22 Raptor.
In April 1994, Boeing introduced the most modern commercial jet aircraft at the time,
the twin-engine 777, with a seating capacity of approximately 300 to 370 passengers in a
typical three-class layout, in between the 767 and the 747. The longest range twin-engine
aircraft in the world, the 777 was the first Boeing airliner to feature a "fly-by-wire" system
and was conceived partly in response to the inroads being made by the European Airbus into
Boeing’s traditional market. This aircraft reached an important milestone by being the first
airliner to be designed entirely by using CAD techniques. The 777 was also the first airplane
to be certified for 180 minute ETOPS at entry into service by the FAA. Also in the mid-
1990s, the company developed the revamped version of the 737, known as the 737 "Next-
Generation", or 737NG. It has since become the fastest-selling version of the 737 in history,
and on April 20, 2006 sales passed those of the "Classic 737", with a follow-up order for 79
aircraft from Southwest Airlines.
In 1995 Boeing announced that the headquarters complex on East Marginal Way
South would be demolished instead of being upgraded to match new seismic standards.
Boeing scheduled demolition of the facility in 1996 and moved the headquarters to an
adjacent building. In 1997 Boeing's headquarter was located on East Marginal Way South, by
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6. King County Airport, in Seattle. In 1996, Boeing acquired Rockwell’s aerospace and defence
units. The Rockwell business units became a subsidiary of Boeing, named Boeing North
American, Inc.
Boeing maintains a customer profile of 80% commercial and 20% defence. In August
1997, Boeing merged with McDonnell Douglas in a US$13 billion stock swap under the
name The Boeing Company. However this name had actually been Boeing's official name
previously adapted on May 21, 1961.
2.2 McDonnell Douglas’s History
McDonnell Aircraft Corporation was founded by James S. McDonnell, Jr., in1939.
The Douglas Aircraft Company was founded by Donald Wills Douglas in 1920. The two
companies came together in a 1967 merger creating the McDonnell Douglas Company. The
Douglas Cloudster, was the first airplane to carry a useful load exceeding its own weight and
first flew on February 24, 1921. The company then moved on to the Douglas World Cruiser
which completed its first around-the-world flight on September 28, 1924. The first entirely
McDonnell-designed aircraft, the XP-67, flew on January 6, 1944. McDonnell Douglas
maintains a customer profile of 28% commercial and 72%Defence.
1980–2000
In 1984, McDonnell Douglas expanded into helicopters by purchasing Hughes
Helicopters from the Summa Corporation for $470 million. Hughes Helicopters was made a
subsidiary initially and renamed McDonnell Douglas Helicopter Systems in August 1984.
McDonnell Douglas Helicopters’ most successful product was the Hughes-designed AH-64
Apache attack helicopter.
In 1986 MD-11 was launched, an improved and upgraded version of DC-10. The
MD-11 was the most advanced tri-jet aircraft to be developed. It sold 200 units, but was
discontinued in 2001 after the merger with Boeing as it competed with the Boeing 777. The
final commercial aircraft design to be made by McDonnell Douglas came in 1988. The MD-
90 was a stretched version of the MD-80, equipped with International Aero Engines V2500
turbofans, the largest rear-mounted engines ever on a commercial jet. The MD-95, a modern
regional airliner closely resembling the DC-9-30, was the last McDonnell Douglas designed
commercial jet produced.
On 13 January 1988, McDonnell Douglas and General Dynamics won the US Navy
Advanced Tactical Aircraft (ATA) contract. The US$4.83 billion contract was to develop the
A-12 Avenger II, a stealthy, carrier-based, long-range flying wing attack aircraft that would
replace the A-6 Intruder. Technical issues, development cost overruns, growing unit costs,
and delays led to the termination of the program on 13 January 1991 by Defence Secretary
Dick Cheney. Years of litigation would proceed over the contract's termination: the
government claimed that the contractors had defaulted on the contract and were not entitled
to the final progress payments, while McDonnell Douglas and General Dynamics believed
that the contract was terminated out of convenience and thus the money was owed. The case
continues to sit in litigation in 2011. The chaos and financial stress created by the collapse of
the A-12 program led to the layoff of 5,600 employees. The advanced tactical aircraft role
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7. vacated by the A-12 debacle would be filled by another McDonnell Douglas program, the
F/A-18E/F Super Hornet.
However the purchasing of aircraft was curtailed as the Cold War came to an abrupt
end in the 1990s. This curtailment in military procurements combined with the loss of the
contracts for two major projects, the Advanced Tactical Fighter and Joint Strike Fighter,
severely hurt McDonnell Douglas.
In 1991, MD-11 was not quite a success, on-going tests of the MD-11 revealed a
significant shortfall in the aircraft's performance. An important prospective carrier, Singapore
Airlines (SIA), required a fully laden aircraft that could fly from Singapore to Paris, against
strong headwinds during mid-winter; the MD-11 did not have sufficient range for this at the
time. Due to the less-than-expected performance figures, SIA cancelled its 20-aircraft MD-11
order on August 2, 1991, and ordered 20 A340-300s instead.
In 1992, McDonnell Douglas unveiled a study of a double deck jumbo-sized aircraft
designated MD-12. Despite briefly exciting the market, the study was perceived as merely a
public relations exercise to disguise the fact that MDC was struggling under intense pressure
from Boeing and Airbus. It was clear to most in the industry that MDC had neither the
resources nor the money to develop such a large aircraft, and the study quickly sank without a
trace. A similar double deck concept was used in Boeing's later Ultra-Large Aircraft study
intended to replace the 747, but ultimately the double deck concept would not see the light of
day until the Airbus A380 in the 2000s.
3.1 Boeing’s Revenues
Operating revenues for 1995 were $19.5 billion compared with $21.9 billion in 1994
and $25.4 billion in 1993. The declines in revenue for the past two years were due to fewer
commercial jet transport deliveries as a result of economic conditions and airline industry
overcapacity in most major market areas of the world. Additionally, a ten-week strike during
the fourth quarter of 1995 by the International Association of Machinists and Aerospace
workers (IAM) resulted in the delay of about 30 jet transport deliveries representing
approximately $2 billion in reduced sales in 1995. Adjusting for the impact of the labour
strike, the Company’s commercial jet transport market share has averaged approximately
60% in terms of sales value of deliveries over the three-year period. Commercial jet transport
deliveries by model (fig 1):
Figure 1 Deliveries by Boeing
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8. Commercial aircraft products and services accounted for 71%, 77% and 81% of total
operating revenues for the years 1995, 1994 and 1993.
Total commercial aircraft production declined from a rate of 32 1/2 aircraft per month
at the beginning of 1993 to 18 1/2 in the fourth quarter of 1995, prior to the IAM labour
strike. Production rates for all models are expected to recover to prestrike levels during the
first quarter of 1996.
Based on current schedules, total aircraft production will increase to 22 1/2 per month
by early 1997. The following production rate increases are planned for the second half of
1996: the 747 from 2 to 3 1/2 per month, the 767 from 3 1/2 to 4 per month, and the 737 from
7 to 8 1/2 per month. The 757 production rate will be decreased from 4 to 3 per month, also
in the second half of 1996. The 777 production rate is scheduled to reach 3 1/2 per month by
the third quarter of 1996 and 5 per month by early 1997.
Total commercial jet transport deliveries for 1996 are currently projected to be
approximately 215 aircraft. Commercial transportation sales trends are discussed further in
the Commercial Aircraft Business Environment and Trends section.
Sales by industry segment:
Figure 2 Sales by Industry Segment (Boeing)
Commercial aircraft sales by geographic region:
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9. Figure 3 Sales in Geographical Regions
Defence and space segment revenues, including activities previously identified as
"Other industries" in prior years, were $5.6 billion for 1995, compared with $5.1 billion and
$4.9 billion for 1994 and 1993, respectively. The International Space Station program was the
major contributor to the increase in defence and space revenues in 1994 and 1995, following
NASA’s selection of Boeing Defence & Space Group as the prime contractor for the
restructured Space Station program in 1993. The 707 and 767 Airborne Warning and Control
System (AWACS) programs and the V-22 program also had increased sales in 1995. Sales
associated with B-2 bomber subcontract work declined in both 1994 and 1995. The
Company’s Defence and space business is broadly diversified, and no program accounted for
more than 20% of total 1993–1995 Defence and space revenues. The International Space
Station program represented approximately 25% of total 1995 sales.
The principal contributors to Defence and space sales in 1995, in addition to the
Space Station program, included F-22 fighter aircraft engineering and manufacturing
development activities, production and remanufacturing of CH-47 helicopters, V-22 Osprey
tiltrotor transport development and test activities, E-3 AWACS updates, 767 AWACS
development and manufacturing, B-2 bomber subcontractor work, RAH-66 Comanche
helicopter development activities, and various facilities management and information services
contracts (previously reported as "Other industries"). U.S. Government classified projects
also continued to contribute to Defence and space segment revenues. The Company’s
activities on the F-22, RAH-66 and V-22 programs are under joint venture teaming
arrangements with other companies.
Defence and space activities are discussed further in the Defence and Space Business
Environment and Trends section. Based on current programs and schedules, the Company
projects total 1996 revenues to be approximately $22 billion.
3.2 Boeing’s Earnings
Net earnings of $393 million for 1995 include the recognition of a $600 million one-
time pre-tax charge, or $390 million after-tax, for the special retirement program offered in
the first half of 1995. Excluding the one-time special retirement program charge, net earnings
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10. for 1995 were $783 million, $73 million lower than the 1994 net earnings of $856 million.
The lower comparable earnings were primarily due to the decline in commercial jet transport
sales discussed above. Also contributing to lower earnings was an increase in interest expense
of $21 million in 1995 due to less interest being capitalized on plant and equipment
investments.
These factors were partially offset by lower research and development expense, an
increase in other income of $87 million principally attributable to increased interest income
on investments, and a negative income tax provision. Research and development expense of
$1,267 million for 1995 was down $437 million from 1994, primarily due to reduced 777
developmental expenditures. The negative effective income tax rate for 1995 was due to the
recognition of higher tax benefits, together with the lower relative pre-tax earnings after the
second quarter earnings charge for the special retirement program and the effect of the labour
strike in the fourth quarter. The tax benefit recognized for 1995 included a research and
experimentation tax credit of $90 million, primarily associated with the initial 777
development program that was substantially completed in 1995, and Foreign Sales
Corporation tax benefits of $75 million. Without the special retirement program charge, the
effective tax rate for 1995 would have been 18.4%, compared with 25.1% in 1994. Research
and experimentation tax credit and Foreign Sales Corporation tax benefits were $60 million
and $65 million, respectively, for 1994.
The special retirement program was offered during the first half of 1995 to achieve
desired workforce reductions corresponding with the lower production rates and major
process improvement initiatives. Approximately 9,500 employees – 9% of total employees –
accepted the early retirement offer. Funding of the program will occur over a minimum of ten
years through the Company’s retirement plan and will not have a significant impact on annual
cash flow.
The overall operating profit margin, exclusive of research and development expense
and the special retirement program expense, was 11.1% for 1995 compared with 13.0% for
1994. The lower overall operating profit margin was primarily attributable to Defence and
space segment sales being a higher percentage of total sales (28% in 1995, 23% in 1994) and
the commencement of 777 jet transport deliveries together with fewer deliveries of all other
commercial aircraft models. The overall profit margin before research and development
expense for the Defence and space segment is normally lower than for the commercial
aircraft segment. With regard to the 777 program, new jet transport programs normally have
lower operating profit margins than established programs due to initial tooling amortization
and higher unit production costs in the early years of a program.
Significant efficiencies have been gained through process improvements, but the
commercial jet transport market remains extremely competitive, resulting in continued price
pressure. The Company will continue to pursue major productivity gains to help ensure that
its favourable market position is maintained at acceptable profit margins.
The diversified programs of the Defence and space segment continue to demonstrate
solid technical and cost performance. The Defence and space segment operating profit
margin was 6.6% in 1995 exclusive of the special retirement program expense, compared
with 6.0% in 1994. Although the operating profit margin associated with the Company’s
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11. managing role for the Space Station program is relatively low (due to fee structure for
subcontracts), favourable performance was recognized on other programs in 1995.
Net earnings:
Figure 4 Net Revenue (Boeing)
Net earnings of $856 million for 1994 were $388 million lower than in 1993, primarily due to
the fewer commercial aircraft deliveries, a higher level of research and development
expenditures, increased debt expense, and lower corporate investment income. These factors
were partially offset by improved Defence and space earnings and a lower effective federal
income tax rate. Although commercial aircraft sales levels were down substantially in 1994
relative to 1993, the combined operating profit margin on commercial aircraft programs,
before research and development expenditures for new and derivative models, was
maintained through efficiencies gained by process improvements throughout the segment’s
operations. The lower effective federal income tax rate in 1994 was principally due to the
recognition of a research and experimentation tax credit of $60 million in 1994, whereas no
research and experimentation credit was recognized in 1993.
Figure 5 Expenditure on R&D
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12. Research and development expenditures charged directly to earnings include design,
developmental and related test activities for new and derivative commercial jet transports,
other company-sponsored product development, and basic Defence and space research and
development not recoverable under U.S. Government flexibly priced contracts. Research and
development associated with new commercial models and derivatives was maintained at
relatively high levels over the past three years even though sales were declining during this
period. These substantial investment levels are helping to ensure the Company is well
positioned to meet future commercial airline market requirements.
The principal commercial developmental program during the 1993–1995 time period
has been the new 777 wide-body twinjet. During 1993, the 777 development program
transitioned from primarily structural and systems design activities to primarily systems
integration and test activities. Flight testing of the Pratt & Whitney-powered 777 began in
mid-1994, and continued through the first half of 1995. Flight testing of General Electric-
powered and Rolls-Royce-powered 777s continued through 1995. Other commercial
development programs in 1994 and 1995 included the 777-200ER extended-range version of
the 777, the 737-600/700/800 next-generation 737 family, and a freighter version of the 767.
Additionally, in 1995 development efforts commenced for the larger capacity 777-300.
The Defence and space segment plans to selectively pursue commercial-type business
opportunities where it can utilize its technical and large-scale integration capabilities. Such
business pursuits, which are outside the traditional U.S. Government contracting
environment, may require increased levels of research and development expenditures for the
Defence and space segment over the next few years.
Total research and development expenditures for 1996 are currently projected to be in
the $1.2 billion range. Research and development activities are discussed further in the
Strategic Investments for Long-Term Value section. Essentially all of the Company’s
business is performed under contract, and therefore operating results trends are not
significantly influenced by the effects of inflation. Additional information relating to sales
and earnings contributions by business segment can be found in Note 18 to the Consolidated
Financial Statements. Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, becomes effective in1996. The Company does not plan to adopt
the expense-recognition alternative for stock options as permitted by the standard.
3.3 Contractual Backlog
Total contractual backlog of unfilled orders at December 31, 1995, was $72.3 billion,
compared with $66.3 billion at the end of 1994. Of the total 1995 backlog, $66.5 billion or
92% related to the commercial aircraft segment, compared with $60.6 billion or 91% in 1994.
Not included in contractual backlog are purchase options and announced orders for which
definitive contracts have not been executed. Commercial backlog includes orders for
deliveries that extend several years into the future. Approximately 30% of the commercial
aircraft backlog units are scheduled for delivery beyond 1998.
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13. Figure 6 Backlogs (Boeing)
U.S. Government and foreign military backlog is limited to amounts obligated to
contracts. Unobligated contract values not included in backlog at December 31, 1995 and
1994, totalled $7.6 billion and $5.9 billion.
4.1 State of competition in the industry
During the 1980s and 1990s, Boeing and Airbus invested heavily in new airplanes to
broaden their product lines. In 1982, Boeing made its first deliveries of two entirely new
airplane models, the wide-body 767 and the narrow-body 757. It also developed new
derivatives of the 737-200, with first deliveries of the 737-300 in 1984, the 737-400 in 1988,
and the 737-500 in 1990. Boeing also developed the all-new twin-engine wide-body 777,
with the first customer deliveries in 1995. The 737-600/700/800, comprising the latest
generation of the 737 family of airplanes, were all scheduled for initial deliveries during
1997-1998. Airbus made its first deliveries of the wide-body A310-a derivative of the A300-
in 1983. It also developed its first narrow-body airplane, the A320, with first delivery in
1988. Its new twin-engine A330 and four-engine A340 wide-body airplanes entered service
in 1993. Airbus also developed derivatives of the A320, with the stretched A321 first
delivered in 1994, and the shortened A319 in 1996.
In contrast, the only new McDonnell Douglas airplane introduced during the decade
of the 1980s was first delivered in 1980: the MD-80, a narrow-body derivative of the DC-9
that ultimately achieved sales in excess of 1000 airplanes. During the 1990s, McDonnell
Douglas delivered only two new airplanes: the MD-11, a three-engine wide-body derivative
of the DC-10, and the MD-90, a narrow-body derivative of the MD-80. A third airplane, the
MD-95-a smaller derivative of the MD-90, was scheduled for delivery in 1999, but its only
customer was ValuJet Airlines (now AirTran Airlines), a struggling start-up airline. The lack
of additional orders created great uncertainty about the future of the MD-95 program.
At the end of 1996, when the merger agreement between Boeing and McDonnell
Douglas was signed, the shares of undelivered order backlogs were as follows: McDonnell
Douglas (8% of the total), Boeing (60%), and Airbus (32%). While Boeing's share remained
relatively stable during the 1990s, Airbus grew significantly, largely at the expense of
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14. McDonnell Douglas. As of 1996, McDonnell Douglas' share had declined to a level
comparable to that of Lockheed in the late 1970s and early 1980s, when Lockheed took a
large write-off and decided to exit from the commercial jet airplane business.
4.2 Background of the Merging
Despite the steady growth in traffic after 1991 most airlines hold back their new
aircraft orders even though World air travel has been steadily increasing at an average annual
rate of 5%, including in 1994 (with the exception of the year 1991 due to the Persian Gulf
conflict). This is mainly due to their depressing financial performance, resulting in dramatic
reductions in aircraft manufacturers’ backlogs. For instance, Air France cancelled $500
million in orders from Boeing and Airbus in January 1995. Boeing, Airbus Industry and
McDonnell Douglas were major manufacturers dominating the commercial jet aircraft market
whose market estimate is given by the below table.
Company 1994 Sales in $m 1994 Earnings in $m Market Share %
Boeing 16,851 1,022 62
Airbus Industry 8,000 N/A 24
McDonnell Douglas 4,760 40 14
Table 1: Revenues and market share of jet aircraft industry leaders.
.
Former Soviet Union and other minor players, such as British Aerospace, Fokker and
manufacturers of short haul, turboprop engine commuter planes were not included in the
above market estimates.
The situation in 1994 alarmed significantly as there is no indication of recovery is in
prospect for 1995. Worldwide shipments of aircraft dropped sharply from 3189 units to 2402.
Boeing registered a decline of 14% in its revenues compared to 1993, and McDonnell
Douglas lost market share with its revenues shrinking by 9%. Due to a severe shortage of
orders, McDonnell Douglas was in a position to halt temporarily and perhaps permanently the
manufacturing of its wide body MD-11 plane. This may leave for the long term only Boeing
and Airbus competing in the long haul, wide body carrier segment. The struggle between the
three vendors seems to develop at the clear disadvantage of McDonnell Douglas. McDonnell
Douglas faithful customer SAS (Scandinavian Airlines System) whose 70% of fleet was
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15. Douglas, gave preference to Boeing for 35 new B737-600s over the MD-95, a new model
that Douglas was counting on SAS for its market launch.
The following table summarizes the new orders received by the three manufacturers in 1994.
Company Gross Orders Cancellations Net Orders
Boeing 120 46 74
Airbus Industry 125 54 71
McDonnell Douglas 23 19 4
Table 2: New Aircraft Orders in 1994
Although Boeing had a backlog of 959 units versus Airbus’ 615, if that trend
continued, Airbus would soon be in the number one position. In 1994 it looks like Airbus is
about to catch up with Boeing in market share, while McDonnell Douglas has further
receded: Indeed Airbus claimed it obtained “nearly 50% market share” in 1994’s orders for
new aircraft of more than 100 seats.
The industry is very capital intensive; it requires a long time to recoup investments
characterized by long development cycles. It needs a large base of skilled workers, high tech
sustaining industries and sophisticated and demanding customers to thrive. Government
intervention, different countries’ industrial policies and international trade relationships play
also a major role in shaping the industry forces.
The aerospace industry in which Boeing and McDonnell Douglas compete is one of
fierce competition and severe cyclical swings. A record number of mergers and acquisitions
have occurred over the past two years, largely due to the competition, volatility, and various
other determinants. More than 10,000 mergers have taken place this past year alone,
including over $660 billion changing hands.
5.1 Key competitive strategies used by the three big players
 Extensive aircraft portfolio to meet the desires of customer airlines across the world.
Boeing is the best stood with aircraft capacity ranging from 100 passengers (737-500)
to 500 (747-400). Airbus had entered the market with small and medium sized
carriers, but is grasping up with the introduction of its four engine long haul A340
aircraft. Only McDonnell Douglas relegated to the low end small carriers (MD-80 and
MD-90) as its facing the failure of the MD-11 tri-jet.
 Introducing high technology, electronic fly by wire techniques in order to reduce the
number of pilots needed from three to two and establishing easy transmission from
one type of plane to another, thus reducing training time by developing the family
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16. concept. For instance, Airbus succeeded in obtaining approval from the FAA to have
a single pool of pilots to operate its A320, A330 and A340 models.
 Developing solutions to improve cost effective exploitation of their planes, for
example general trend in migration to twin engine wide body planes, achieving fuel
efficiencies and quick reconfiguration of seating layouts to optimize the ratio of seat
occupancy by passenger class.
 Leasing and financing services to customers. As airlines face financial difficulties,
financing terms become a key selling factor. All three competitors run financial
services. In 1993, for instance, Boeing’s customer financing activities amounted to
$3,177 million, up from $2,295 million while its sales went down to $20,568 million
from an all-time high of $24,133 million in 1992. Airbus is also financing itself 5-
10% of its sales.
 Alliances, joint ventures especially with foreign government funded programs and
extensive lobbying, political posturing in national and international forums. “Some 45
businesses in 6 Asia- Pacific Economic Cooperation (Apec) economies provide
Boeing with about 70 different parts and major assemblies...”
6.1 Factors influencing the merging
Figure 7 Porter Competitive Model for the Commercial Jet Aircraft Industry
The Porter model provides a structural analysis of the aircraft industry. It defines all
the competitive forces in the market, existing alliances, potential threats and other sources of
positive and negative influence.
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17. 6.1.1 Buyers
The buyers, mainly airlines and leasing companies detain considerable power that is
increasing since there is a downturn in orders. As the airlines optimize their operations and
cut their investments, the competition among the suppliers becomes deadly. It can also be
assumed that the regulating bodies are buyers as well as suppliers. Indeed, the aircraft
industry has to constantly deal with these institutions to convince them to approve regulations
in their favour and not take decisions that would jeopardize their competitive positioning.
6.1.2 Suppliers
The suppliers can be split in two different groups, based on their relative bargaining
power; Engine manufacturers represent the single most significant group of suppliers and it
can be assumed that their bargaining power is going to significantly increase as they undergo
concentration. General Electric, Pratt & Whitney (US), Rolls Royce (UK), CFM (Europe) are
the main competitors. However, this power is somewhat balanced by the fact that oftentimes
airlines enter in separate negotiations with the engine suppliers to determine the choice of the
engine for their planes. Planes are usually designed for more than one engine type. On the
other hand, the required fuel efficiencies, increased reliability needs—especially for twin
engine transatlantic wide bodies—and the need to provide more power for the new large body
aircraft require aircraft manufacturers to enter in joint development programs.
Regulating bodies, such as the FAA, EPA, etc., may be considered as suppliers to the
industry as they determine a number of constraints that the industry has to deal with. The
bargaining power of these institutions is considerable as they can create major obstacles for
the final approval of the planes. As the industry is extremely capital intensive, all sources of
investment and financing detain considerable power. A recent trend is the development of
financing and leasing companies who buy planes from the manufacturers, then lease them to
various airlines. ILFC (International Lease Finance Corp) is one such company that recently
ordered 30 Airbus aircraft. Meanwhile Airbus Industry itself has formed its own financing
service which has access to more than $1.5 billion revolving credit facility from 46 different
banks. We anticipate that on the avionics and materials side, since the military markets keep
shrinking and there is heavy pressure on defence suppliers to move to commercial
applications, the bargaining power of these industries as they fight for additional share of the
commercial market is at the advantage of the aircraft industry.
6.1.3 New Entrants
At first look, any new entrant in this market faces a steep, uphill battle. Regulations,
capital requirements, extremely skilled labour needs and sophisticated support industries,
necessary proven track record and the perspective of a long wait to reach profitability are but
a few of the very high barriers to entry. However, one cannot completely exclude this
possibility. Just as Europe did, Japan or China may decide that this industry is strategically
vital for their long term wellbeing and encourage a highly subsidized entry in the market by
their national champions. In the case of Japan, subsidies may even not be necessary as the
sophisticated industrial infrastructure and naturally protective trade policies may very well
encourage Mitsubishi or another firm to engage in the battle.
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18. The former Soviet Union represents a significant growth potential for the big three,
but also has its own national aircraft industry. While this market may be open to competition,
it also possible that the Russian Tupolev enhances its capabilities, rationalizes its operations
and succeeds in entering the market with a low cost, no frills product strategy, especially in
emerging countries. Finally, although highly unlikely, existing defence aerospace companies
may be tempted by a late entry or re-entry such as Lockheed as they see their traditional
military market dwindle.
6.1.4 Threats of Substitute Products or Services
It is difficult to imagine, for the foreseeable future, a direct substitute for commercial
aircraft, especially in the long haul transport. Air travel is the most effective, secure,
convenient and economic transportation method. However, a few threats exist, especially in
the low end: Fast bullet trains offer between cities less than 400 miles apart a very attractive
solution. As their speeds approach and exceed 200 mph, they bring such travel below two
hours from downtown to downtown; a performance that hardly any airline can match. After
the start of TGV service between Paris and Lyons, Air Inter faced a 50% reduction in air
travel between the two cities. If such solutions are implemented widely in the USA—a very
speculative assumption—between, say San Francisco and Los Angeles for instance, a great
many airlines may lose market share and as a consequence reduce their fleets.
Likewise, advances in automotive industry, such as cars capable of very high speeds,
under electronic control on specially equipped freeways may have an impact on air travel.
Finally, advances in telecommunications techniques, collaborative computing, desktop video-
conferencing based on broadband ISDN type services may reduce business travel
requirements and impact the airlines’ investment in new planes and routes.
6.1.5 Globalization of the Commercial Aircraft Industry
There are very few players, but intense competition and very high capital
requirements drive the need to maximize volume and tap all possible markets. It is
unthinkable to have a national or regional strategy and expect to succeed in this industry. As
many customers including various governments across the world consider the aircraft
industry strategic, they want a share of the action. As a consequence, partnerships, joint
ventures are aplenty. In fact such deals, mergers and joint ventures become a must in order to
remove trade barriers.
7.1 Boeing & McDonnell Douglas Merger
Meetings and talks about making this merger a reality began three years ago between
these two stellar companies. At the time, neither one could agree on the underlying decision
of setting a fair price. Although, time brought forth many changes for each company, and
started the wheels turning.
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19. 7.1.1 Boeings View
Boeing has gone through periods of high demand making airplanes for WW II, to a
depressed commercial market where they were forced to cut employment by two-thirds, to
the period where they are now. There were two enormous factors that impacted Boeing’s
current condition: deep cuts were being made in defence spending and solid growth was
expected on the commercial side largely due to growth in air travel in the world’s emerging
markets. Obviously this heavily favoured Boeing because of their 80% commercial and 20%
defence outlay. Although these factors heavily favoured Boeing’s make-up, Boeing was still
concerned with the severe cyclical swings that the commercial market faces.
7.1.2 McDonnell Douglas’s View
McDonnell Douglas was seeing things from a much different perspective than that of
Boeing. A fundamental problem was quickly growing to place McDonnell Douglas in a very
bad position. McDonnell Douglas made two-thirds of its revenues and almost all of its
earnings from defence products, but defence spending was drastically shrinking. This was a
based more on information and intelligence. At the same time the defence market was
shrinking, the commercial market was expanding worldwide. The problem here was that
Douglas Aircraft was steadily losing market share to Boeing and Airbus.
McDonnell Douglas faced a series of rapid-fire blows to both the civilian and military
sides of the company to cast a large amount of doubt on the prospects of the company
(Bryant, D14). First, their ValuJet order came into question after the crash of Flight 592.
After this incident, the company failed to interest any other buyers in the MD-95. Next, in
October, the company scrapped the plans to develop a big new long-range jetliner, the MD-
XX, because of prohibitive costs. This was the first time that McDonnell Douglas had ever
abandoned the top of the airliner market.
In November, the Department of Defence eliminated them from contention for a
contract to build the Joint Strike Fighter combat aircraft to serve all branches of the United
States military. The company regarded this project as a key to the company’s future as a
military plane maker since the contract is potentially worth $750 billion or more. McDonnell
Douglas was beat out of contention by Boeing and Lockheed Martin. Later in November, one
of McDonnell Douglas’s best customers, American Airlines, made a statement that they will
place all new airline orders with Boeing. The final straw occurred at the beginning of
December when McDonnell Douglas made a deal with Boeing to develop wide body
commercial jets jointly. The question left for McDonnell Douglas management was “will we
buy or be bought” (Whitford, 98).
7.2 The Deal
The primary problem with completing the deal in the past was the decision about the
price. Both sides agreed that things would have to change before they could go any further,
and those changes did occur. By the end of 1996, Boeing’s orders for new aircraft were up,
the backlog was rising, and more than 12,000 laid-off workers were called back to work
(Bryant, 98). On the other hand, McDonnell Douglas was heading in the opposite direction
with their dying commercial side, and the setbacks on the military side. McDonnell Douglas
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20. was in a critical stage where they were seriously considering the purchase of the defence
divisions from General Motors, Texas Instruments, or both. That is when CEO of Boeing,
Phil Condit, called McDonnell Douglas’s CEO, Harry Stonecipher, to meet about a possible
merger. In less than one hour, the two CEO’s sketched out a rough agreement. Under terms
of the contract, McDonnell Douglas shareholders will receive 65 shares of Boeing common
stock for each 100 shares of McDonnell Douglas common stock. The deal is estimated to be
worth approximately $13.3 billion, but the transaction is subject to approval by the
shareholders of both companies and certain regulatory agencies.
The merged company will have approximately 200,000 employees which include the
recent Boeing merger of Rockwell aerospace and defence units. It will operate with estimated
1997 revenues in excess of $48 billion, making it the largest integrated aerospace company in
the world. The company will retain the formal name of The Boeing Company, and will
remain to be headquartered in Seattle. The company will operate in three major locations: St.
Louis, MO, Southern California, and the Puget, Washington. Phil Condit will be Chairman
and Chief Executive Officer, and Harry Stonecipher will be President and Chief Operating
Officer of the merged company. Two-thirds of the new board will be drawn from the current
Boeing board, while one-third of the new board will be drawn from the current McDonnell
Douglas board.
8.1 Effects of Merger
The effects of the merger are going to encompass several different aspects of the
industry. First, the merger is going to affect Boeing and McDonnell Douglas directly. The
Boeing Company is now going to enjoy much new efficiency due to the addition of
McDonnell Douglas. A synergistic effect of combining the two companies is the first
efficiency improvement. By adding McDonnell Douglas, Boeing solidifies itself as the
number one commercial airline company and jumps to the number one position in defence
since that was the strength of the McDonnell Douglas Company. The McDonnell Douglas
addition enhances Boeing’s commercial lines while drastically improving their defence
expertise. On the cost side, they synergies include facilities rationalization, research and
development, business systems, and material purchasing.
The merged Boeing Company believes the potential cost reductions could reach as
much as $1 billion a year. The second way that this merger increases efficiency is by it filling
the gaps of both companies while at the same time eliminating duplication and redundancies.
Many of the gaps that are being filled include the facilities and manufacturing capacity to fill
the Boeing backorders.
The management of the Boeing Company will also improve with the addition of the
highly skilled McDonnell Douglas employees. In these ways, the new improved Boeing
Company is going to be much more efficient. The mammoth size of the firm is going to be
one area to watch for in-efficiency because of the massive number of workers and facilities.
The merger basically brought the number one commercial airplane company together with
one of the best defence companies to form a colossal giant in the aerospace industry. The
flow of communication will be a key to the company’s success.
The second way to look at the merger is how it affects the other competitors. In the
defence industry, the merger places the Boeing Company in the number one position pitted
against the number two defence company of Lockheed-Martin. The primary difference is that
Lockheed Martin has moved heavily into electronics, while Boeing must now try to build that
business from within. The merged Boeing does have several advantages too though. For
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21. instance, Seattle-based Boeing and McDonnell Douglas of St. Louis together command more
than 60% of the world market for large commercial jetliners. In the commercial airline
industry, Boeing’s in the number one position again against Airbus Industry, the European
consortium. Boeing’s merger is placing even more pressure on Airbus Industry to get their
four partner companies to turn their now loose consortium into a centralized company in
order to boost efficiency.
Most companies aren’t worried about the massive new company that is now
overwhelming in size to all of the others. A way to handle the change to fewer companies is
similar to China’s preference of splitting up contracts to even out the competition which
would now help or favour Airbus. Customers thinking similar to China will also split up their
orders between companies to keep competition fierce, and prevent a monopoly or powerful
duopoly from forming. A similar worry-free feeling stirs because of feelings about
McDonnell Douglas. Many of the customers agree that McDonnell Douglas was no longer a
threat, and hasn’t been a threat for a long time. This sudden merger decision between Boeing
and McDonnell Douglas has placed the remaining defence/aerospace companies in a bind.
Mergers are expected between Northrop Grumman and either General Motors defence unit,
Texas Instruments defence unit, or possibly even both. No-matter what the combination, it
will not stack up against the power and experience that the new Boeing Company will
possess. Many officials like the merger activity in this industry because they feel that it is
easier and less expensive to keep a couple of strong powerful companies going that can
handle anything, than several small companies that are only specialized.
8.2 Potential competitive concerns about the merger
The main competitive concerns about the proposed merger of Boeing and McDonnell
Douglas arose from the premerger and postmerger structure of the commercial jet airplane
business. Here was a multibillion-dollar industry that provided crucial input airplanes to the
even larger worldwide air transportation industry. There were only three major competitors
and a long-term record of exit from the industry. Potential entrants faced high barriers, and
the only successful entrant in the last 30 years-Airbus-had required substantial, long-term
financial support from European governments and aerospace companies. Moreover, even
with its sales successes, Airbus had yet to generate a competitive return on its massive
investment. In this context, a merger that would shrink the number of competitors from three
to two clearly called for careful scrutiny.
The technology and economics of the industry, as well as its history, indicated that the
commercial jet airplane business necessarily would have only a small number of competitors,
but that coordinated behaviour among the rivals was quite unlikely. The appropriate merger
analysis therefore focused on the following three questions:
Was McDonnell Douglas currently a significant competitive factor in the industry, i.e., did it
have a significant effect on the prices or product characteristics of the airplanes purchased by
airlines or leasing companies?
If not, was there any plausible scenario that would transform McDonnell Douglas into a
significant competitive factor in the industry?
If not, would the combination of Boeing and McDonnell Douglas enhance the position of the
combined entity so as to harm competition in the industry?
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22. If the answers to all three questions were no, it would mean that McDonnell Douglas was
neither a current nor prospective competitive force in the industry, the merger would not
enable Boeing to engage in anticompetitive behaviour, and there would be no antitrust policy
basis for blocking the proposed merger. During the course of the FTC and EC proceedings,
these questions (and many others) were investigated in considerable detail.
9.1 Antitrust review
PROCEDURE AND LEGAL ISSUES
Despite the high public profile of this merger, the procedures and standards governing
review were those familiar to United States antitrust practitioners. The primary steps in FTC
review may be summarized as follows:
12/14/96: Merger agreement signed;
12/116/96: Initial courtesy contacts made with FTC, DOD and NASA;
1/9/96 & 1/10/96: Initial substantive meetings accomplished with FTC, DOD and NASA in
which parties committed to provide all needed documents, information, interviews and white
papers on voluntary basis with goal of expediting decision process;
1/29/97: HSR filing made;
2/28/97: FTC Second Requests issued to parties;
6/18/97: Substantial compliance with Second Requests acknowledged by FTC; and
7/1/97: FTC Commissioners issue joint statement clearing merger, with dissent by
Commissioner Azcuenaga.
The FTC Statement issued at the close of the investigation best summarizes the result
of its review:
After an extensive and exhaustive investigation, the FTC 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 defence or commercial
aircraft markets.
The FTC Statement outlined the reasoning leading to the Commission's decision and
emphasized that the decision was reached based upon well-established antitrust principles
rather than a desire to protect Boeing as a "national champion." The Statement observed that
while the merger "on its face . . . appears to raise serious antitrust concerns," the Commission
"following a lengthy and detailed investigation" concluded that the evidence established that:
 McDonnell Douglas no longer constitutes a meaningful competitive force in the
commercial airplane market;
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23.  There is no economically plausible strategy that McDonnell Douglas could follow
that would change that grim reality; and
 The merger does not threaten competition in military programs since the companies'
military programs are not competitive, as affirmed by the Department of Defence in a
letter to the Commission.
The FTC Statement detailed the extent of the document review, industry interviews,
depositions and legal, economic and accounting analyses involved in its investigation;
elsewhere, the document demands and production by the parties have been described as the
most extensive in FTC merger review history. With respect to legal theory, the Statement
expressly disclaimed any reliance on a failing company or failing division defence and
instead described reliance on what Commissioner Azcuenaga correctly referred to in her
dissenting statement as the so-called General Dynamics/diminished competitor defence.
Interestingly, the FTC Statement also dealt in passing with the Boeing exclusive
airline requirements contracts that were to become such a controversial aspect of the EC
merger review. The Commission observed that while these 20-year exclusives foreclosed
only about 11% of the market for new commercial jet airplanes, they were sufficiently
troubling in their implications for the future that the FTC intends to monitor the potential
effects of these and any future contracts of this sort. Most significantly, however, it is
apparent from the statement that these exclusive contracts were viewed by the Commission as
a separate issue for analysis, rather than issues that should affect the Commission's decision
as to whether the merger should be challenged. As discussed below, this was in marked
contrast to the
9.2 Substantive issues: FTC vs. EC
The FTC was persuaded that McDonnell Douglas was no longer an effective
competitor and had dim prospects of becoming one. The closest substitute for a Boeing
airplane was one from Airbus-not McDonnell Douglas-so there would be no increase in
market power as a result of the merger. The FTC came to understand that a divested
McDonnell Douglas commercial airplane business would likely fail as an airplane
manufacturer and would simply "milk" the spare parts business at the expense of its
customers. In contrast, the EC began with the assumption that Boeing was a dominant firm.
While it also came to recognize that McDonnell Douglas was no longer viable, it still viewed
any aspect of the proposed merger that enhanced Boeing's position as anticompetitive
because it created a relative disadvantage for Airbus. This explains the specific concerns
voiced by the EC and the undertakings it eventually obtained from Boeing, i.e., no
withholding of support for McDonnell Douglas airplanes to influence new airplane sales, no
exclusive contracts with airlines, mandatory licensing of government-funded patents, and
periodic reports on government R&D projects.
There are important reasons why one might not be able to generalize from the EC's
handling of the Boeing/McDonnell Douglas merger. First, it is hard to imagine a more
obvious symbol of European unity and cooperation than Airbus. Second, European
governments and government-owned companies have poured billions of dollars of taxpayer
money into Airbus over the course of decades. It would be naive to believe that a merger
review process conducted by the EC could ignore the impact of the proposed merger on
Airbus. Third, it is possible that the widespread criticism of the EC's handling of this merger
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24. may lead to some modification in approach by the European antitrust authorities in the future,
including a diminished role for political considerations. The authors do not feel qualified to
venture a prediction.
Nevertheless, there is a history of philosophical differences between the American
and European approaches to antitrust policy. Again at the risk of oversimplification, the long
tradition of American antipathy toward cartel behaviour and a concern for the public as
consumers can be contrasted with what appears to be a European sympathy (or at least some
tolerance) for certain types of government-supported restrictions on competition and a
concern for the public primarily as employees. Therefore, arguments that a merger enhances
efficiency will probably carry little weight in Europe, since such mergers create relative
disadvantages for competitors and usually lead to job cuts.
In addition, structural characteristics of an industry-particularly market shares are
likely to be the focus of the European analysis. Undue importance may be attached to
Herfindahl Hirschman indexes (HHIs), thereby leading to disputes over market definition that
only the lawyers and economists involved would view as a productive use of resources.
Finally, it is the authors' impression that the threshold for what is considered "economic
evidence" can be quite low in Europe by comparison to the standards applied by United
States antitrust agencies. This observation is not intended to encourage such an approach, but
merely as a warning that the "economic evidence" one may confront from opponents in the
context of an EC merger review must be taken seriously despite how it might be viewed in a
United States agency merger review.
9.3 Resolution of merger review
9.3.1 FTC approval
Despite the massive nature of the FTC investigation, the merger ultimately was
cleared without condition based upon conclusions that reasonably closely match the theory of
review espoused by the parties in presentations to the FTC. Fortunately, for purposes of
understanding and analysis of the basis for the result, the Commission chose to take the
unusual step of issuing a statement describing the reasoning on which their decision not to
challenge the merger was based. The authors believe that many antitrust practitioners would
encourage more extensive resort to this practice by the FTC in order to make more accessible
the reasoning behind antitrust agency decisions on merger regulation that now are largely
known only in part by the parties, lawyers and economists involved in each individual merger
review.
9.3.2 EC approval and Boeing undertakings
The EC's analysis and ultimate decision clearing the merger are reflected in two
decisions-one confidential and the other public. The first contains the Commission's tentative
analysis forming the basis for its full-scale investigation. The second recites the
Commission's analysis of competitive difficulties with the merger, the undertakings
negotiated with Boeing as a condition of clearance, and the conclusion that based upon these
undertakings the merger was cleared.
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25. Pursuant to the undertakings required in order to obtain EC clearance of the merger,
Boeing agreed to commitments that can be summarized as follows:
Boeing agreed for a period of 10 years to maintain Douglas Aircraft Company (DAC)
in a separate legal entity and to supply to the Commission an audited report describing the
business performance for continued DAC activities.
Boeing agreed to provide the same high quality level of customer support for DAC
aircraft as for Boeing aircraft and not to withhold or threaten to withhold such support or
access to spare parts in order to influence new airplane sales.
Boeing agreed not to enter into any additional exclusive airplane supply agreements
until 8/l/2007, unless required to meet competition.
Boeing agreed not to enforce its exclusivity rights under the agreements with
American, Delta and Continental.
Boeing agreed to license on request and on a nonexclusive, royalty-bearing basis any
government-funded patent that could be used in the manufacture or sale of commercial jet
aircraft, and related know-how necessary to exploitation of the patent. Boeing also agreed to
similarly license any blocking patent and related know-how as described above to another
aircraft manufacturer that agrees to similar terms with respect to its blocking patents. Boeing
agreed to provide information on non-classified, government-funded research and
development projects so as to provide increased "transparency" with respect to information
pertinent to the government bilateral treaty on aircraft manufacturing subsidies.
Boeing agreed not to exert undue influence on its suppliers in order that the suppliers
should refuse to deal with other aircraft manufacturers as described more fully in the
undertakings portion of the decision.
10.1 Conclusion
The Boeing - McDonnell Douglas merger is definitely one that makes a very loud statement.
It combines two companies who were both leaders in their respective specialties, and
simultaneously capitalized on utilizing each other’s strengths to develop a company that will
stand out as the best world-wide. Within the one short hour that the decision was made, one
of the greatest aerospace companies of the world was created. The much efficiency that
occurs because of this merger is a definite sign of why this merger is a good event for the
company and the industry. The effects of this merger on Boeing’s competitors show an
example of what shear power and dominance this company already possesses. Boeing is
proving to all that it plans on leading others into the future rather than following on the
coattails of others. The Boeing – McDonnell Douglas merger is one that was driven by global
forces, consolidation, changing economics of the defence industry, and many other variables.
It was truly a strategic merger.
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