2000/182/EC: Commission Decision of 14 September 1999 relating to a proceeding pursuant to Article 81 of the EC Treaty (Case IV/36.213/F2 - GEAE/P & W) (notified under document number C(1999) 2901) (Text with EEA relevance) (Only the English text is authentic)
Date: 1999-09-14
Institutions: European Commission
Subjects: European Commission, aircraft, application of EU law, economic concentration, engine, merger control

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 14 September 1999

relating to a proceeding pursuant to Article 81 of the EC Treaty

(Case IV/36.213/F2 — GEAE/P & W)

(notified under document number C(1999) 2901)

(Only the English text is authentic)

(Text with EEA relevance)

(2000/182/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to the Agreement on the European Economic
Area,

Having regard to Council Regulation No 17 of 6 February
1962, First Regulation implementing Articles 85 and 86 of the
Treaty (1), as last amended by Regulation (EC) No 1216/
1999 (2), and in particular Articles 6 and 8 thereof,

Having regard to the application for negative clearance and the
notification for exemption submitted, pursuant to Articles 2
and 4 of Regulation No 17, on 26 September 1996,

Having published a summary of
fication pursuant to Article 19(3) of Regulation No 17 (3),

the application and noti-

After consulting the Advisory Committee for Restrictive Prac-
tices and Dominant Positions,

Whereas:

I. THE FACTS

(2)

A. INTRODUCTION

(1)

On 26 September 1996, General Electric Aircraft
Engines (GEAE) and Pratt & Whitney (P & W) notified
three agreements to the Commission regarding the crea-

(1) OJ 13, 21.2.1962, p. 204/62.
(2) OJ L 148, 15.6.1999, p. 5.
(3) OJ C 339, 7.11.1998, p. 3.

tion of a joint venture formed by the two companies,
the GE-P & W Engine Alliance LLC (‘the Engine Alli-
ance’). The Engine Alliance was formed to develop,
manufacture, sell and support a new aircraft engine,
known as the GP7000 engine (‘the new engine’). The
new engine is intended for future, very large commercial
aircraft, namely the envisaged Airbus A3XX aircraft and
possible Stretch versions of
the Boeing B747-400
aircraft. There are only three full-capacity manufacturers
on the market for jet engines intended for such aircraft:
GEAE, P & W and Rolls-Royce plc (‘Rolls-Royce’).

B. BACKGROUND

The Engine Alliance was initially formed to develop a
new jet engine for the Growth version of the B747-400
aircraft that the Boeing company (‘Boeing’) planned to
develop, known as the Growth 747. The Growth 747
was intended to be a long-range, four-engine, aircraft
with 450-550 seats, scheduled to enter into service at
the end of the year 2000. The Growth 747 required a
technically advanced engine with a thrust of 70 000 to
85 000 lbs
requirements
very
regarding size, weight, noise level, emissions and oper-
ating costs. None of the three engine manufacturers

stringent

fulfilling

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(7)

(8)

(9)

could offer an existing engine fulfilling all these criteria.
Rolls-Royce did not, however, have to develop a
completely new engine, but could offer a derivative of
an existing engine. After several unsuccessful attempts to
develop derivatives of their existing engines, P & W and
GEAE decided to create the Engine Alliance. Boeing
announced in January 1997 that it would not pursue its
Growth 747 project, due to insufficient and uncertain
demand and high development costs. Airbus Industrie
(‘Airbus’), the other manufacturer of large commercial
aircraft, announced that it would pursue its plans to
develop a new long-range, four-engine aircraft, known
as the A3XX.

(3)

On 6 November 1997, the Engine Alliance amended the
notification and declared that,
following Boeing's
decision to abandon the Growth 747 project, the Engine
Alliance would instead develop a new engine for the
envisaged A3XX aircraft. The A3XX is intended to carry
480-650 passengers and scheduled to enter into service
in the year 2004. It will require engines with approxi-
mately the same technical requirements as the Boeing
Growth 747. The thrust range was extended to cover
70 000 to 85 000 lbs ± 10 %, i.e. 63 000 to 93 500 lbs.
Airbus has signed Memoranda of Understanding for an
engine to equip the A3XX with the Engine Alliance as
well as with Rolls-Royce.
Instead of developing the
Growth 747, Boeing is currently considering launching
Stretch versions of its B747-400 aircraft, but has not yet
taken a definite decision. The new engine may also be
suitable for certain Stretch versions.

(4)

The Engine Alliance was notified to the US Federal Trade
Commission, which declared on 22 November 1996
that it had closed its investigation. This decision was
confirmed in October 1997. The parties have under-
taken to inform the Federal Trade Commission of any
change in scope of the Engine Alliance.

C. THE PARTIES

(10)

1. General Electric Aircraft Engines

(5)

General Electric Aircraft Engines (GEAE) is one of 11
businesses of the General Electric Company of Fairfield,
Connecticut, United States of America. GEAE manufac-
in the
tures aircraft engines and related services,
commercial as well as in the military field. The General
Electric Company is active in the field of aircraft leasing
through GE Capital Aviation Services (GECAS) which is
a unit of its finance business GE Capital Services.

2. Pratt & Whitney

Pratt & Whitney (P & W) is a division of United Technol-
ogies Corporation (UTC) of Hartford, Connecticut,
large
United States of America. P & W produces
commercial aircraft engines. Other activities include
military aircraft engines, propulsion systems for missiles
and industrial turbines.

In 1998, the total turnover of UTC was USD 25 715
million. The turnover of P & W in 1998 was USD 7 876
million.

D. THE NOTIFIED AGREEMENTS

1. The agreements

agreements were originally notified on 26

Three
September 1996:

— the Memorandum of Understanding of 16 August
1996 concluded between the Engine Alliance and
Boeing concerning an engine for the larger versions
of the 747-400 aircraft including the commitment to
cooperate, the list price for the new engine and the
technical requirements to be fulfilled,

— the Transaction Agreement of 28 August 1996
including the general framework for the cooperation
describing the legal representations, warranties and
covenants made by the parties, grounds and condi-
tions for termination, and

— the Limited Liability Company Agreement of 28
August 1996 (LLC Agreement) between GEAE,
P & W and the Engine Alliance containing the terms
of the functioning of the Engine Alliance.

The Memorandum of Understanding concluded with
Boeing on 16 August 1996 concerning the Growth 747
is no longer valid following Boeing's decision not to
develop the Growth 747 aircraft. It has been replaced by
a Memorandum of Understanding of 27 May 1998
between the Engine Alliance and Airbus concerning the
envisaged A3XX aircraft. The Transaction Agreement
and the Limited Liability Company Agreement remain in
force.

2. Contractual provisions

a) Management structure of the Engine Alliance

(6)

the total

In 1998,
the General Electric
turnover of
Company was USD 100 469 million. The turnover of
GEAE in 1998 was USD 10 294 million.

(11)

The Engine Alliance is a joint venture between GEAE
and P & W, created for an unlimited period, with the
following management structure.

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(12)

Each party will have a 50 % equity interest, ‘membership
interest’, in the joint venture and will share programme
revenues and responsibilities [...] (*). The parties will
establish a Committee consisting of six representatives,
three from each party. The Committee will have the
authority to conduct the affairs of the Engine Alliance
and be responsible for the establishment of general
policy, approval of major projects, contracts, purchase
orders and product and service distribution decisions.
The Committee will hold regular meetings. All six repre-
sentatives constitute a quorum. Unanimous consent of
the Committee is necessary for organisational matters of
importance, such as any amendment to the LLC Agree-
ment or any change in the scope of the company's
business or transactions, such as the acquisition of
another person or of assets outside the ordinary course
of the company's business.

(13)

The President will serve for a term of three years. The
members will select
the assembly site and principal
offices/headquarters of the company with the intention
of achieving the lowest cost and best integration for the
new engine. The member not having the assembly site
and principal offices/headquarters will nominate the first
President. Thereafter
alternate
between the parties. The President will be responsible for
the general management of the company's business and
affairs, in particular for overseeing the company's sales
and marketing of the new engine.

the Presidency will

(14)

The sale of the new engine will be the responsibility of
the Engine Alliance. Officers and company personnel
with responsibility for the new engine will not partici-
pate in the sale or marketing of any of the party's other
engine programmes.

(15)

The company will maintain proper and complete books
and records with all
transactions and other matters
relating to the company's business entered fully and
accurately. The financial statements will be kept on an
(United
accrual basis and in accordance with ‘GAAP’
States' generally accepted accounting principles) consist-
ently applied. The financial statements will be audited
annually by independent public accountants.

(*) Business secret.

(16)

(17)

(18)

(19)

(20)

b) The functioning of the Engine Alliance

The Engine Alliance will not itself produce the new
engine, but coordinate the parent companies' activities
for the design and production of the new engine. Each
party will bear all production costs relating to its manu-
facture of parts and modules. The party who produces a
module is responsible for the design of such module.
The design responsibilities have been allocated as
follows: GEAE will be responsible for the design of the
core system, and P & W for the design of the low-pres-
sure system. The parties will perform an equal amount
of the development programme. If it is not possible to
balance the development programme, one party may be
required to make cash payments to the other party.

The parties may subcontract any portion of its member-
ship interest
to any supplier who meets the source
approval requirements. The parties may also transfer a
portion of its new engine programme and related risk
and revenues to any third party provided that the other
party is consulted and informed of the party's identity
and responsibilities [...] (*).

The parties will establish an integrated product support
services programme to provide the customers with low-
cost service and maintenance. The overhaul and repair
of the new engine will be coordinated by and performed
in the name of the Engine Alliance by utilising the
existing capabilities of the parties. Customers for the
new engine who want to invest in the overhaul and
the product can be granted non-exclusive
repair of
licenses for an agreed fee.

c) Intellectual property

is and will remain the property of

The proprietary information disclosed under the LLC
Agreement
the
disclosing party. Each party will establish reasonable
procedures to ensure that the other party's employees
located in its facility will not have access to its undis-
closed proprietary information located at its facility. The
parties will establish appropriate procedures and training
to ensure that these procedures are met.

The parties agree to grant each other a free, worldwide,
non-exclusive licence to use the existing technology
(background technology) for the purpose of: (i) the joint
interface of
the operation and
review of the new engine, and (iii) obtaining certification

the components,

(ii)

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or performing maintenance, overhaul and repair of the
new engine. The parties may only disclose such back-
ground technology to third parties with the permission
of the owning party, to the extent necessary for the
parties to carry out of their duties under the LLC Agree-
ment and provided that third parties agree in writing not
to disclose such information.

d) The use of parts or components

(21)

[...] (*).

(22) Notwithstanding the above,

the parties may use the
technology developed or acquired either in the course of
its participation in the Engine Alliance or in rendering
performance under the LLC Agreement at their discre-
including on any other engine programme.
tion,

E. THE MARKETS CONCERNED

1. The relevant product market

and cargo versions as well as in combi versions carrying
both passengers and cargo. Airbus plans to first launch
the A3XX-100 (550 seats) followed by the A3XX-200
(656 seats), both with a range of 7 650 to 8 750 naut-
ical miles. Airbus is also studying the possibility of
launching a reduced version, the A3XX-50 (481 seats).
Airbus' current estimate is that the A3XX-100 version
will require engines with a thrust of 67 000 lbs and the
A3XX-200 version engines with a thrust of 75 000 lbs.
According to Airbus's preliminary plans, a smaller deriv-
ative A3XX-50R would need engines with a thrust of
67 000 lbs. The thrust requirements have not yet been
finally determined by Airbus. The possible Stretch
versions of the Boeing B747-400 aircraft will, according
to Boeing's current estimates, require engines with a
thrust of 67 000 lbs.

(27)

The envisaged A3XX aircraft, as well as possible Stretch
versions of
require jet
the B747-400 aircraft, will
engines with very specific and demanding technical
characteristics relating to thrust power, size, weight,
noise level, emission, fuel consumption and operational
costs. Because of the specific characteristics, the new
engine cannot, from the point of view of the demand
side, be substituted by any existing engine.

The market for jet engines developed for the envis-
aged Airbus A3XX aircraft and possible Stretch
versions of the Boeing B747-400 aircraft

(28)

(23)

(24)

(25)

(26)

The parties have identified the relevant market as the
market for jet engines with a thrust power of 70 000 to
85 000 lbs ± 10 % (i.e. 63 000 to 93 500 lbs) intended
to equip the envisaged Airbus A3XX aircraft and
possible future Stretch versions of Boeing's B747-400
aircraft.

it does not

Certain third parties have submitted that this market
definition is too narrow and that
take
account of the fact that the new engine could be adapted
also for use on other aircraft. According to them, the
relevant product market is wider and should be defined
as the market for jet engines with a thrust power of
63 000 to 93 500 lbs able to equip existing commercial
wide-body aircraft.

the demand side,

From the point of view of
the
Commission takes account of the intended use of the
new engine.
Jet engines are specifically designed and
developed to fit the requirements of a specific aircraft
model. The requirements, which relate to the engine's
thrust power, size, weight, noise level, emission, fuel
consumption and operational costs, differ depending on
the type and size of aircraft. Those requirements are set
by the airframe manufacturers in cooperation with the
airlines.

The envisaged A3XX four-engine aircraft, for which the
new engine is intended, will be the first twin-aisle, twin-
deck aircraft on the market with a bigger passenger
capacity
aircraft
currently operating. It will be available in both passenger

(480-650 passengers)

than any

(*) Business secret.

From the point of view of the supply side, the manufac-
turers cannot offer their existing engines for the above-
mentioned aircraft, nor can they adapt their engines in
the short term to fulfil the specific characteristics. The
three manufacturers can only develop an engine fulfil-
ling the characteristics in the medium term, either by
developing a derivative of an existing engine (Rolls-
Royce) or by developing a new engine (P & W and
GEAE).

(29)

The Commission concludes, in the light of the above,
that the relevant product market is the market for jet
engines intended for the envisaged Airbus A3XX aircraft
and possible Stretch versions of Boeing B747-400
aircraft.

2. Neighbouring product market

The market for jet engines for existing commercial
wide-body aircraft

(30)

It would not be possible to offer the new engine for use
on any other aircraft than the envisaged A3XX aircraft
and possible Stretch versions of the B747-400 aircraft
without adaptation. However, the notifying parties, as
well as Rolls-Royce, have confirmed that it would be
possible to adapt the new engine, in the medium term,

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(34)

for use on other commercial wide-body aircraft, but that
it would entail high costs and be time-consuming (at
least 36 months). The market for jet engines for existing
commercial wide-body aircraft
is therefore a neigh-
bouring market to the market for jet engines developed
for the envisaged A3XX aircraft and possible Stretch
versions of the B747-400 aircraft. It could be argued
that there are different sub-markets within the market
for
for existing commercial wide-body
aircraft. However, this question can be left open for the
assessment of the notified arrangement.

jet engines

(31)

Commercial wide-body aircraft are usually defined as
commercial aircraft with more than 200 seats (4).
Commercial wide-body aircraft require more powerful
engines
than commercial narrow-body aircraft. The
latter are usually defined as commercial aircraft with
100-200 seats. The jet engines that equip existing
narrow-body aircraft have a thrust of less than 45 000
lbs and are not substitutable with engines for wide-body
aircraft, all of which require engines with a minimum
thrust power of approximately 60 000 lbs.

(32)

The wide-body commercial aircraft currently in produc-
tion can be divided into twin-engine and four-engine
aircraft. The only three-engine commercial aircraft still
in production is the freighter version of the MD-11.

Existing commercial wide-body aircraft

Type of aircraft

Twin-engine

Four-engine

Boeing

B767
B777

B747

Airbus

A300
A310
A330

A340

additional

to provide

Experience in the aero-engine industry shows that jet
engines for commercial wide-body aircraft are often
modified
characteristics or
performance to be fitted on other aircraft than originally
intended. In this respect, engines developed for a specific
four-engine aircraft cannot only be modified to fit on
another four-engine aircraft, but also for use on a twin-
engine aircraft. The three manufacturers have in the past
developed such derivatives by adapting engines ori-
ginally intended for the B747-400 aircraft for use on a
twin-engine aircraft. Therefore, although the new engine
will be developed, in the first place, for a four-engine
wide-body aircraft, this does not exclude the possibility
of later adapting it for use on a twin-engine wide-body
aircraft.

(35)

The market for jet engines for existing commercial wide-
body aircraft is characterised by the development of
‘families’ of engines with a number of derivatives. Exam-
ples of such ‘families’ of engines are the Rolls-Royce's
Trent engine, P & W's PW4000 engine GEAE's CFM56
and CF6 engines which are developed in cooperation
with the French manufacturer Snecma. These ‘families’
include engines for the whole range of existing commer-
cial wide-body aircraft.

Engine family

Applications

PW4000

CF-6

Trent

B747-400
B767
B777
A300/A310
A330

B747-400
B767
A310
A330

B767
B777
A330
A340

(33)

The indicated thrust range of the new engine is 63 000
to 93 500 lbs. All of the abovementioned commercial
wide-body aircraft are equipped with engines, which
have a thrust capacity within this thrust range. The
thrust required of an engine depends not only on the
size of the aircraft which it equips, but also on the
number of engines. A twin-engine aircraft requires, for
example, engines with a higher thrust than a four-engine
aircraft of equivalent size.

(4) Commission Decision 97/816/EC, Case IV/M.887 — Boeing/McDon-
nell Douglas (OJ L 336, 8.12.1997, p. 16, paragraphs 16 and 38).

(36)

The fact that all three manufacturers have developed
‘families’ of engines which can power the whole range of
existing commercial wide-body aircraft suggests that also
the new engine could, in the medium term, be adapted
for use on other commercial wide-body aircraft than the
envisaged A3XX aircraft and possible Stretch versions of
the B747-400 aircraft.

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Official Journal of the European Communities

(37)

(38)

(39)

for

the market

jet
The Commission considers that
engines intended for existing commercial wide-body
aircraft is a neighbouring market, since it follows from
the above that derivatives of the new engine could, in
the medium term, be adapted for use on existing
for which it was not
commercial wide-body aircraft
initially intended.

3. The relevant geographic market

The Engine Alliance will market, sell and support the
new engine on a worldwide basis. The transportation
costs of delivery will be negligible. The Commission
therefore considers the geographic market for jet engines
intended for the envisaged A3XX aircraft and possible
Stretch versions of the B747-400 aircraft to be world-
wide.

This applies also to the market
for jet engines for
existing commercial wide-body aircraft which are sold
on a worldwide basis under
similar conditions of
competition. Relative transportation costs of delivery are
negligible. All three manufacturers, GEAE, P & W and
Rolls-Royce, are active on this market on a worldwide
basis. The market for jet engines for existing commercial
wide-body aircraft is therefore worldwide.

4. Market shares

(40)

There are no market-share figures available for the
market for jet engines intended to equip the envisaged
A3XX aircraft or possible Stretch versions of
the
B747-400 aircraft, since there are currently not engines
on this market. The market shares shown below concern
the neighbouring market for jet engines for existing
commercial wide-body aircraft.

(41) Market shares can be calculated either on the basis of the
number of engines installed, on the order backlog or on
the number of orders received. The number of engines
installed shows the existing situation in the sector as a
whole. The yearly backlog numbers reflect the develop-
ment of net orders (number of new firm orders minus
number of cancelled orders) over a certain period and
thus show the development. The number of orders
received reflects the situation at a certain time.

a) Jet engines installed on existing commercial wide-body

aircraft

(42)

The market shares by units of the world market for
engines installed on existing commercial wide-body
aircraft delivered between January 1996 and March
1999 are the following.

L 58/21

(%)

1996-1999

34

29

16

20

GEAE

P & W

Rolls-Royce

CFMI (1)

(1) CFMI is a 50/50 cooperation between GEAE and Snecma.
Source: Airbus Industrie and Boeing.

b) Backlog for jet engines for existing commercial wide-body

aircraft

(43)

The worldwide market shares in the market
for jet
engines for existing commercial wide-body aircraft in
terms of order backlog (by units) are the following.

(%)

1997
(August)

1998
(April)

32

30

14

17

6

29

27

11

25

8

GEAE

P & W

CFMI

Rolls-Royce

Undecided (1)

(1) Aircraft for which an engine has not yet been selected.
Source: Air Transport Intelligence.

c) Orders received for jet engines for existing commercial

wide-body aircraft

(44)

The worldwide market shares for engines for commer-
cial wide-body aircraft on the basis of orders received in
terms of units are the following.

1997

1998

[...] (*)

[...] (*)

[...] (*)

[...] (*)

[...] (*)

[...] (*)

[...] (*)

[...] (*)

GEAE

CFMI

P & W

Rolls-Royce

(*) Business secret.
Source: GEAE.

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(45)

The market shares show that the notifying parties have a
very high combined market share on the market for jet
engines for existing commercial wide-body aircraft, both
in terms of backlog and in terms of engines installed and
on order. However, the figures for orders received show
that Rolls-Royce's market share is increasing.

envisaged A3XX are routes on which the B-747 fleet is
currently employed,
i.e. Transatlantic, Trans-Pacific,
Asia-Europe and within Asia.

(46)

(47)

(48)

5. Estimated demand for the new engine

The demand forecast until the year 2020 for the envis-
aged A3XX aircraft is estimated to be approximately
[...] (*) aircraft according to the Engine Alliance. The
estimated demand will thus be at least [...] (*) engines
excluding spare engines and parts. The demand for the
A3XX aircraft and possible Stretch versions of
the
B747-400 aircraft is, however, uncertain and depends
factors. Boeing currently makes a
on a number of
different market forecast from Airbus and considers the
demand for a new ‘super jumbo’ aircraft to be too small
to justify the very high development cost. The demand
depends, inter alia, whether or not the airline traffic will
go towards an increased ‘fragmentation’ of hubs. Such
development could push airlines towards the purchase
of smaller aircraft, such as the A340, instead of very
large ‘super jumbo’ aircraft such as the A3XX.

in cooperation with Boeing for

Boeing does not currently plan to build a new very large
aircraft, but considers the possibility of developing
Stretch versions of its existing B747-400 aircraft. The
Engine Alliance is continuing to study engine configur-
ations
the Stretch
versions. Boeing is currently considering developing two
larger versions of its 747-400 model, the 747-400X
Stretch (approximately 485 passengers) and the 747-
400Y Stretch (approximately 500 passengers), for which
the new engine may be suitable. However, Boeing has
not yet taken a definite decision whether or not to
launch these models. Rolls-Royce is expected to be able
to offer a derivative of its Trent 600 engine for the
747-400X/Y Stretch models.

networks

long-distance

The potential customers for the new engine are Airbus
and Boeing and ultimately certain airlines with extensive
flights.
route
operating
According to Airbus's estimates, over half of
the
projected deliveries (58 %) are expected to go to airlines
in the Asia-Pacific region. Around 20 % of the projected
deliveries are expected to go to North America and
around 20 % to Europe.
In terms of customers, 20
airlines are expected to purchase 72 % of the aircraft and
42 other airlines the remaining part. The potential
customers for the A3XX are big airlines which typically
have a strong bargaining position against airframe and
aircraft engine manufacturers. The major routes for the

(*) Business secret.

6. Structure of the market for the new engine and
for jet engines for

the neighbouring market
existing commercial wide-body aircraft

a) Supply

(49)

(50)

(51)

the neighbouring market

The structure of the market for the new engine is very
similar to that of
for jet
engines
for existing commercial wide-body aircraft.
Currently, three engine manufacturers have the capa-
bility to develop independently jet engines intended for
these markets: GEAE, P & W and Rolls Royce (5). Each of
those three aircraft engine manufacturers offers a
number of engine ‘families’ based on common elements
and technology. Rolls-Royce has an increasing market
share and a good capacity for developing new engines
and derivatives of existing ones, as shown by the Trent
family. The French manufacturer, Snecma, is active in
the manufacture of
jet engines in cooperation with
GEAE through the CFMI, but does not produce such
engines by itself. In the light of the above, no entries are
foreseen on this market in the near future.

The barriers to entry are very high to the abovemen-
tioned markets. The development of such jet engines
entails very high costs (approximately USD 1 billion) on
research and development, product design,
testing,
production tooling, and related marketing and after-sale
service. A large part of these costs are incurred before
any engines are sold. GEAE and P & W estimate the
non-recurring costs of developing the new engine to
exceed USD 800 million. Aircraft engine manufacturers
typically do not recover their investment until after 15
to 20 years. The life cycle of an engine is approximately
40 years.

engine

Jet engines for existing commercial wide-body aircraft
are usually manufactured by consortia including one
manufacturer having a complete
capability
(GEAE, P & W or Rolls-Royce) and a number of engine
component manufacturers which share
the work,
revenue and investment risks. These component manu-
facturers are called risk- and revenue-sharing participants
(RSPs). In general, a ‘programme share’ percentage is
negotiated with the RSP to reflect the scope of work
provided by the latter during the programme. The
engine manufacturer then compensates the RSP from
revenues actually generated from sales of engines and

(5) Snecma and BMW do not have the capacity to develop such jet
engines independently, but can only do so in cooperation with one
of the three manufacturers GEA, P & W and Rolls-Royce.

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Official Journal of the European Communities

L 58/23

spare parts based on that RSP's programme-share
percentage. Certain obligations and liabilities are also
shared by the RSP based on the same percentage. RSPs
may also be restricted in their ability to conclude agree-
ments to participate in programmes led by competing
prime manufacturers.

an engine development programme, since it is important
to have the engine selected for a new airframe by a
substantial airline. However, even after airlines have
selected an engine supplier,
it sometimes occurs that
they switch engine supplier. Airlines typically prefer a
degree of engine manufacture commonality throughout
their fleet. This gives the advantage of commonality of
spare and replacement parts as well as advantages in
technical training and general care and maintenance of
the engines.

(52)

(53)

(54)

The notified cooperation is an example of the increasing
cooperation between manufacturers for the development
of new jet engines. Other examples include Rolls-Royce
and P & W who are shareholders in International Aero
Engines (IAE), a project involving also Daimler Chrysler
Aerospace Motoren-
(MTU)
(Germany), Fiat Avio (Italy) and Japanese Aircraft
Engines Corporation (JAEC) (Japan). IAE is active in the
thrust range 22 000 to 33 000 lbs where it manufac-
tures the engine V2500. Another example of coopera-
tion is the joint venture CFMI between GEAE and
Snecma, producer of the CMF56 engine which equips
the Airbus 320 aircraft and, as a sole supplier,
the
Boeing B-737 and Airbus A340.

Turbinen-Union

und

b) Demand

The engine manufacturers must, at a first stage, compete
to satisfy the requirements of the airframe manufacturer
to be able to offer engines for a particular airframe. At
this stage, the engine manufacturer typically deals ‘prin-
cipally with the airframe manufacturer, who collaborates
closely with its prospective airline customers to define
the airframe and engine requirements. The airframe
the engine
manufacturers
(Boeing and Airbus)
airline
requirements based on demand from the
customers. The airframe manufacturer thus acts largely
as a representative for
the airlines. However, since
engines typically take longer to develop than the corre-
sponding airframes, the engine manufacturer must also
anticipate airlines’ needs when launching development
work. The ultimate customers
for
commercial wide-body aircraft are the airlines, which
frequently purchase airframes and engines separately.
Such aircraft are typically offered with more than one
type of engine.

jet engines

for

set

concerns

The airlines have typically a strong bargaining power.
Competition
price,
performance, reliability and longevity of the competing
engines as well as likely repair and maintenance costs.
Competition is particularly intense in the early phases of

life-cycle

costs,

i.e.

F. OBSERVATIONS FROM THIRD PARTIES

(55) A number of interested third parties submitted observa-
tions in response to the Notice published pursuant to
Article 19(3) of Regulation No 17 (‘the Notice’) (6). The
submissions concern primarily the content and wording
of the undertakings given by the parties and, in partic-
ular, the scope of the Engine Alliance. According to
certain third parties, the increased thrust range of the
new engine has become too wide and may reduce
competition between the parties in engine segments
where they currently compete. Other third parties have
commented on the undertaking concerning the access of
third parties to perform aircraft engine maintenance
including repair and overhaul.

(56) Airbus has stated that it is in favour of the Engine
Alliance, since this will increase its choice of engine for
the envisaged A3XX aircraft from one supplier (Rolls-
Royce) to two.

(57)

The third engine manufacturer, Rolls-Royce, has on
several occasions made observations concerning the
Engine Alliance. Rolls-Royce also submitted comments
in the form of a formal complaint pursuant to Article 3
of Regulation No 17. The complaint was subsequently
withdrawn. Rolls-Royce believes that the Engine Alliance
restricts both actual and potential competition between
the parties and that the scope of the Engine Alliance, as
is so wide that its approval
described in the Notice,
would restrict competition and affect
trade between
to a significant degree. Rolls-Royce
Member States
believes that the undertakings listed in the Notice are not
sufficiently stringent and submits that the Engine Alli-
ance should be permitted to exist only under certain
additional conditions.

'

(58)

In this respect, Rolls-Royce believes that the scope of the
Engine Alliance should be strictly limited to the develop-
ment, manufacture, sales and marketing of a new engine
with a minimum thrust of 67 000 lbs ± 15 % to allow
for engine growth. The scope of the Engine Alliance
should also exclude any joint design and development

(6) See footnote 3.

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(59)

(60)

than that necessary for module integration,
other
application of the engine to the airframe, testing and
validation. The application of the new engine should be
strictly limited to aircraft carrying more than 475
passengers, which would accommodate Airbus' current
specification for the A3XX. Finally, the Engine Alliance
should be required to notify any change in scope to the
Commission without delay and not to put into effect
any such change prior
to receiving Commission
approval.

in order

Rolls-Royce further submits that the Engine Alliance
should be required to trade at arm's length with its
parents
to preclude the Engine Alliance
receiving any cross-subsidy from its parent companies.
The Engine Alliance should be an independent, self
standing entity without any direct or indirect subsidy or
the
support
Engine Alliance
an
accounting system separate from that of the parents
which should also be audited every year by an indepen-
dent auditor and published on an annual basis.

from its parent companies. Moreover,
should be obliged to adopt

suggests

that GEAE and its

Rolls-Royce also considers that
the Engine Alliance
should be prohibited from entering into any exclusive
arrangements for the new engine with airframe manu-
facturers. Rolls-Royce fears that GEAE and P & W could
exercise their combined market power and ‘buy’ exclu-
sivity in an airframe, which would create a significant
risk of foreclosure with regard to Rolls-Royce. Finally,
Rolls-Royce
leasing
subsidiary, GECAS, should be obliged to offer prospec-
tive customers a genuine choice of engine and support
services on non-preferential terms if it is to finance the
purchase of any four-engine aircraft with more than 475
passengers. This would prevent GECAS from being able,
due to its considerable strength and bargaining power,
to commit its customers to leasing aircraft equipped
with GEAE or Engine Alliance engines, which would
restrict the choice of potential customers and distort
competition between the Engine Alliance and Rolls-
Royce.

G. UNDERTAKINGS OFFERED BY THE PARTIES

(61)

The Commission has carefully reviewed all comments
received and has concluded that they were not of such a
nature so as to make it modify its preliminary favourable
position as expressed in the Notice. Nevertheless,
following further discussions, the parties have offered a

number of undertakings concerning the possibility for
third parties to perform service and maintenance of the
new engine, exclusivity agreements with regard to the
new engine and the activities of General Electric Com-
pany's leasing subsidiary GECAS. The undertakings, of
which the Commission takes note, are the following.

The Engine Alliance will make available to third parties,
on terms customary in the industry, the engine manuals
and related technical publications required in order to
perform basic service and maintenance on the new
engine.

The Engine Alliance will not seek, solicit or impose
conditions of exclusivity in its bids or contracts for the
development or supply of the new engine to airframe
manufacturers, except for campaigns in which another
engine manufacturer has offered to enter
into an
exclusive agreement.

(62)

(63)

(64) GEAE will report to the Commission in writing of any
purchase orders placed by its subsidiary General Electric
Capital Aviation Services (GECAS) for any new aircraft
powered by the new engine.

II. LEGAL ANALYSIS

A. ARTICLE 81(1) OF THE EC TREATY AND ARTICLE 53(1)

OF THE EEA AGREEMENT

1. Cooperative joint venture

(65)

(66)

The Engine Alliance must be assessed pursuant to the
rules applicable at the time of the notification which was
before Council Regulation (EEC) No 4064/89 of 21
December 1989 on the control of concentrations
between undertakings (7) was amended by Regulation
(EC) No 1310/97 (8).

The joint venture is under the joint control of the parent
companies. The governing structure of the Engine Alli-
ance implies that no single parent company is in a
position to separately exercise a decisive influence on
the decision-making of the joint venture. Unanimous
consent of all members of the Committee is required for
all organisational matters of importance.

(67) While the parent companies will remain responsible for
the design and production of the components of the
new engine, the Engine Alliance will be in charge of the
final assembly, sales and marketing of the new engine
independently from its parent companies. The new
engine will be marketed under the name of the Engine
Alliance. GEAE and P & W will sell to the Engine Alli-
ance the parts for which they have the production
responsibility at a price determined on the basis of a
fixed formula. The Engine Alliance will have its own
profit and loss accounts. The profits and losses will be
allocated between the parent companies at the end of
each fiscal year.

(7) OJ L 395, 30.12.1989, p. 1; corrected version in OJ L 257,

21.9.1990, p. 13.

(8) OJ L 180, 9.7.1997, p. 1.

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(73)

(74)

(68) On the basis of the above elements, the Engine Alliance
is considered to perform, on a lasting basis, all the
functions of an autonomous undertaking. It is therefore
a full-function joint venture within the meaning of
Article 3(2) of Regulation (EEC) No 4064/89.

(69) However, since the creation of the Engine Alliance could
the parent companies'
give rise to coordination of
behaviour on the neighbouring market for jet engines
for existing commercial wide-body aircraft, on which the
parties currently compete (9),
it is excluded from the
scope of Regulation (EEC) No 4064/89. In conclusion,
the parties have, through the creation of the Engine
Alliance, set up a cooperative joint venture over which
they have joint control and which falls to be assessed
under Article 81(1) of the Treaty.

2. Applicability of Article 81(1) of the EC Treaty
and Article 53(1) of the EEA Agreement to the
creation and functioning of the Engine Alliance

(70) An agreement to set up a joint venture does not, in itself
constitute a restriction of competition, but can be caught
by the prohibition in Article 81(1) (ex Article 85(1)) of
the EC Treaty if all the prerequisites set out in that
Article are fulfilled. Cooperative joint ventures may
prevent, restrict or distort competition between the
parent companies to the extent the parties are already
actual or potential competitors.

(71)

The parties claim that they are neither actual nor poten-
tial competitors for the new engine, since they can only
develop it within the stipulated time schedule by
combining their complementary technologies. However,
the time pressure has considerably decreased since the
time of
the initial notification in 1996, where the
aircraft engine had to be developed within a very short
time. According to Airbus's current estimates, the envis-
aged A3XX aircraft will not enter into service before, at
the earliest, the year 2004.

means that they do not have to overcome any substan-
tial barriers to entry.

The parties further claim that they would not carry the
financial risk of developing the new engine indepen-
dently due to the high development costs and the uncer-
tain and limited demand. The investment costs of indi-
vidually developing a new engine would have been
approximately USD 1 billion compared to the estimated
cost of USD 800 million of jointly developing it. The
parties claim that they would only make this investment
individually if GEAE and P & W could expect to earn a
sufficient profit to recoup its investment and obtain a
sufficient return to compensate it for the significant risks
involved. The parties estimate that the break-even point
will not occur before the year 2020.

considerable

companies with

for just a few years (e.g.

Even though the development cost for the new engine is
very high, this in itself would not be a fundamental
obstacle to the parties developing the new engine inde-
pendently of each other. The parties have, until now,
separately undertaken substantial investment in respect
of their current families of engines, some of which have
been in the market
the
P & W 4000). Moreover, both parties belong to inter-
national
financial
resources. GEAE forms part of
the General Electric
the world's largest company, and P & W
Company,
belongs to the United Technologies Corporation, both of
which are
financial
resources see recitals 5 to 8). Both parties could there-
fore, on their own, be reasonably expected to bear the
technical and financial risks associated with the develop-
ment and production of a new engine. It would also be
possible for the parties to reduce the financial risk by
sharing the cost with risk- and revenue-sharing partici-
pants (RSPs), who would act as suppliers and subcon-
tractors.

companies with considerable

(72) Moreover, both parties are active on the neighbouring
market for jet engines for existing commercial wide-
body aircraft. On this market, both parties offer
competing jet engines within the thrust range of the new
engine, i.e. 63 000 to 93 500 lbs. The fact that both
parties have succeeded in the past in developing new
engines independently within the thrust range in ques-
tion indicates that both parties possess the necessary
technical know-how and production technique to be
able to produce the new engine independently. The fact
that they already are active on the neighbouring market

(9) For a definition of the neighbouring market, see recitals 30-37.

(75)

In the light of the above, the Commission considers that,
while it may be economically more efficient for the
parties to develop the new engine in cooperation,
it
would be technically and economically feasible for both
parties to develop the new engine independently. The
parties are thus potential competitors for the new engine
in what would be a tight oligopoly containing, at most,
three manufacturers. The creation and functioning of the
Engine Alliance appreciably restricts competition for the
new engine, since it reduces the choice of suppliers from
three potential suppliers (GEAE, P & W and Rolls-Royce)
to two (the Engine Alliance and Rolls-Royce).

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3. Effect on trade between Member States

(76)

Since the potential customers for the new engine are
primarily airlines with extensive route networks oper-
ating on long-distance flights, mainly in the Asia-Pacific
region, the effects of the Engine Alliance will mainly be
felt in that region. However, jet aircraft are bought and
used by airlines throughout the EEA and by airlines
outside the EEA, carrying passengers between EEA coun-
tries. The potential customers for the new engine also
include airlines based in the EEA as well as one of the
airframe manufacturers, Airbus, which is based in
France. Moreover, both GEAE and P & W market their
products through sales representatives located in the
EEA and maintain overhaul and repair facilities and
spare-parts inventories there. The creation of the Engine
Alliance may thus appreciably affect
trade between
Member States within the meaning of Article 81(1) of
the EC Treaty.

which they have a technological advantage, i.e. the fan-
blade technology of P & W and the technology for the
high pressure compressor of GEAE. The cooperation will
enable the parties to develop an engine that is less
expensive in maintenance and cost per passenger and
per mile covered, has lower gas and noise emissions
than the existing engines of the parties. There is no
engine fulfilling these criteria on the market.

(80)

The design and production responsibilities within the
Engine Alliance will be allocated between the parties
according to their technological advantages. This will
allow the parties to develop the new engine within a
shorter time-frame frame than would otherwise have
been possible. The cooperation will also lead to substan-
tial cost savings. The investment cost of individually
developing the new engine would, according to the
parties, have been approximately USD 1 billion
compared to approximately USD 800 million for the
joint development.

B. ARTICLE 81(3) OF THE EC TREATY AND ARTICLE 53(3)

OF THE EEA AGREEMENT

2. Benefit for consumers

(77)

The notified cooperation between GEAE and P & W is
characterised by the following elements. It concerns the
development of a new aircraft engine for envisaged
aircraft, which are not yet launched, and for which the
demand is uncertain. It involves high financial invest-
ments, which are not likely to be recovered before at
least 15 years. Moreover, while it reduces the number of
potential competitors, it offers a realistic alternative to
the one, remaining engine supplier, Rolls-Royce, who
will be able to offer a derivative of an existing engine.

(78)

Taking account of those circumstances, the Commission
finds that the notified arrangement between GEAE and
P & W fulfil
the four conditions for an exemption
pursuant to Article 81(3) of the EC Treaty and Article
53(3) of the EEA Agreement.

1. Technical and economic progress

(79)

The competitive pressure in the air transport sector
results in stricter performance targets, especially with
regard to operating costs and environmental standards.
The performance targets apply to new aircraft operating
long distance routes as well as for the engines for such
aircraft. The new engine needs
stricter
performance targets
than any existing engine. The
cooperation enables the parties to concentrate on the
development of the specific elements of the engine in

to fulfil

(81)

(82)

(83)

The new engine will offer both airframe manufacturers
In this
and airlines a technically advanced engine.
respect, Airbus has declared that it is in favour of the
Engine Alliance, which will provide it with an additional
offer of engines for the envisaged A3XX aircraft.

The new engine may also offer other benefits, since it
will reduce operating costs, service longer routes on a
non-stop basis and meet new airport noise restrictions.
The reduced operating costs are likely to benefit airframe
manufacturers and airlines and also, ultimately, airline
passengers by means of lower prices, due to the strong
competitive pressure on the market.

3. Indispensability

Even though the parties would be technically and finan-
cially able to develop the new engine independently, that
could not be achieved within the same time-frame and
at
the same cost as the Engine Alliance. There is
currently no competing engine on the market, but Rolls-
Royce is developing a derivative of its Trent engine for
the envisaged A3XX aircraft. The cooperation is there-
fore necessary in order to have a competing engine on
the market at an earlier stage than would otherwise be
possible.

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(84)

(85)

The creation and functioning of the Engine Alliance can
therefore be considered indispensable to achieve the
abovementioned benefits. However,
it is important to
ensure that the cooperation does not extend beyond
what has been notified and regarded as indispensable to
achieve the abovementioned benefits.

The Commission considers that there is a risk that the
new engine could be adapted, at a later stage, for use on
for which it was originally
aircraft other than that
intended. The parties have themselves confirmed that the
new engine could be adapted for use on other aircraft,
even though that such adaptation would be costly and
time-consuming. As explained in recitals 34 and 35, jet
engines are often modified to provide additional charac-
teristics to be fitted on aircraft other than those for
which they were originally intended. The three manufac-
turers have in the past developed ‘families’ of engines
powering a range of different aircraft. Such development
is often encouraged by airlines and airframe manufac-
turers who are looking for new and better-performing
engines for new aircraft models and ask the engine
manufacturers to develop derivatives of existing engines.
The indicated thrust range of the new engine is finally
sufficiently wide to make such developments possible.

instead of

(86) Assuming that the new engine, with its unique combina-
tion of features, is a success, the parties would have an
incentive to adapt it for use on existing commercial
wide-body aircraft
individually developing
derivatives of their engines. The parties would have an
incentive to develop such derivatives in order to recover
their investments for the new engine. This would have
the effect of reducing competition between the parties
on the market for jet engines for commercial wide-body
aircraft where the parties currently compete and have
very high combined market shares (see recitals 42 to
45). It would also reduce the choice of the customers.
The market for jet engines for existing commercial wide-
body aircraft is characterised by very high barriers to
entry and a very high concentration with only three
manufacturers. It also represents a high financial value.

(87)

In the light of the above, the Commission considers it
necessary to impose a condition that the cooperation is
strictly limited to a specific engine exclusively intended
for the envisaged A3XX aircraft and possible Stretch
versions of the B747-400 aircraft. In order to monitor
that the cooperation does not extend beyond this, it is
also necessary to impose a number of obligations on the
parties.

4. No elimination of competition

(88)

Competitive pressure in relation to the new engine will
exist, since Rolls-Royce will offer its Trent 900 engine
for the envisaged A3XX aircraft. A Memorandum of
Understanding has already been signed between Airbus
and Rolls-Royce to that effect. Rolls-Royce is also a
potential competitor for an engine for possible Stretch
the B747-400 aircraft. The cooperation
versions of

between the parties will
competition for the supply of the new engine.

therefore not

eliminate

(89)

(90)

(91)

(92)

C. CONDITION TO BE ATTACHED TO THE DECISION

to Article 8 of Regulation No 17 and to
Pursuant
Protocol 21 to the EEA Agreement, the Commission
may attach conditions to a Decision pursuant to Article
81(3) of the EC Treaty and Article 53(3) of the EEA
Agreement. For the reasons explained in recitals 85, 86
and 87, the Decision must be subject to a condition
whereby the Engine Alliance is strictly devoted to a new
engine for the envisaged A3XX aircraft and for possible
future Stretch versions of the B747-400 aircraft. It must
also be ensured that the parent companies independently
develop the technology necessary to develop the compo-
nents for which they are responsible.

The scope of the Engine Alliance is described by refer-
ence to the specific future aircraft applications of the
new engine. Another possibility would have been to
define the scope by reference to the thrust of the new
engine. However, such definition is difficult to make in
the present case, since neither Airbus nor Boeing has, at
this stage, taken a final decision as to the engine thrust
required for their envisaged aircraft. Moreover, the thrust
range of an engine is often increased at the request of
the airframe manufacturer. The Engine Alliance must
therefore enjoy sufficient flexibility to adapt the thrust
range in accordance with the manufacturers' require-
ments.

In order to ensure that the new engine will only be
offered for very large, future commercial aircraft, it is
also necessary to determine the possible applications for
the new engine with reference to the number of passen-
gers. The Commission therefore finds it appropriate to
limit the application of the new engine to the A3XX
aircraft and any possible Stretch versions of the Boeing
B747-400 aircraft which are designed, in their standard
configuration, for more than 450 passengers (10).

D. OBLIGATIONS TO BE ATTACHED TO THE DECISION

In order to enable the Commission to monitor the
parties' compliance with the above condition,
the
Decision must also be made subject to a number of
obligations pursuant to Article 8 of Regulation No 17
and to Protocol 21 to the EEA Agreement. To allow the
Commission to verify that the scope of the cooperation
is not extended without its knowledge, the parties must
notify the Commission of any proposed change of the
scope of the Engine Alliance as soon as possible and in
any event before implementing any such change.

(10) Boeing's latest estimate for the B747-400X Stretch is approximately

485 passengers.

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(93)

In order to verify that the scope of the Engine Alliance
remains limited to what is notified, the Engine Alliance
should be a separate legal entity trading in its own right
and at arm's length with its parents in the supply of
aircraft engines. It shall also have separate accounts. The
LLC Agreement provides that the Engine Alliance will be
audited annually by independent auditors. In addition to
this,
the Engine Alliance should also be obliged to
submit the audit reports to the Commission. On request
of the Commission, the same obligation should also
apply to the accounting records.

(94) As concerns the parent companies' ability to give finan-
cial support to the Engine Alliance, the Commission
does not consider it economically realistic to require that
the Engine Alliance receive no direct or indirect subsidy
or support from its parent companies. In view of the
characteristics of the market, that would not be possible,
due to the very high development costs and long devel-
opment periods.

(95)

(96)

The Engine Alliance must sell and market only the new
engine. If the joint venture were allowed to sell and
market also the parties' own engine programmes, this
could have the effect of reducing competition between
the parties with regard to their
existing engine
programmes. The notified LLC Agreement provides that
the sale of the new engine is to be the responsibility of
the Engine Alliance and that the Engine Alliance will not
market any of the parties' other engine programmes. It
is, in addition, necessary to specify the role of the sales
and marketing personnel of P & W and GEAE. The
parent companies may thus not market the new engine
or be given access to the responses given to potential
clients of
if a customer
requests a bid for multiple engines, including on the one
hand, the new engine and, on the other hand, any of the
parties' own engines, the discounts, rebates or other
terms of sale of the new engine must be kept separately.
The parent companies may not disclose to the Engine
Alliance or each other the terms of
their separate
offerings.

the new engine. Moreover,

In order to maintain competition between the parties
outside the Engine Alliance, it is further necessary that
the exchange of confidential information be limited to
what is necessary to ensure the proper functioning of
the joint venture. According to the LLC Agreement, the
Engine Alliance and the parties are to establish a number
of safeguards to prevent the exchange of competitively
sensitive information. This includes an obligation for all
proprietary information not required to be disclosed for
the purposes of the new engine to be kept separately in
each party's facilities and for each party to train its staff
confidentiality guarantees
to ensure
are
it is necessary to specify that
respected.
tech-
proprietary information,
prices,
nology, marketing

the
In addition,

including confidential

quantities,

strategies,

that

discounts, rebates or other terms of sales may not be
exchanged between GEAE, P & W and the Engine Alli-
ance with respect to GEAE and P & W's respective sepa-
rate engine offerings. It is also necessary to impose an
obligation on the Engine Alliance personnel to sign a
confidentiality agreement to ensure the respect of those
principles.

E. DURATION OF THE EXEMPTION

(97)

(98)

In accordance with Article 8 of Regulation No 17 and
Protocol 21 to the EEA Agreement, a decision in
application of Article 81(3) of the Treaty must be issued
for a specified period. Pursuant to Article 6 of Regula-
tion No 17, the date from which such a decision takes
effect may not be earlier than the date of notification.

This Decision concerns a sector with long development
periods in which investments are typically not recovered
before a period of at least 15 years. In view of this and
in accordance with Article 6 of Regulation No 17, this
Decision should take effect from the date of notification,
and for a period of 15 years. The exemption is granted
until 26 September 2011.

(99)

This Decision is without prejudice to the application of
Article 82 (ex Article 86) of the EC Treaty and Article
54 of the EEA Agreement,

HAS ADOPTED THIS DECISION:

Article 1

In accordance with Article 81(3) of the EC Treaty and Article
53(3) of the EEA Agreement, the provisions of Article 81(1) of
the EC Treaty and Article 53(1) of the EEA Agreement are
hereby declared inapplicable to: (i) the Memorandum of Under-
standing of 27 May 1998 between the GE-P & W Engine Alli-
ance LLC and Airbus Industrie, (ii) the Transaction Agreement
of 28 August 1996, and (iii) the Limited Liability Company
Agreement of 28 August 1996.

Article 2

This Decision shall be subject to the following condition:

the scope of the Engine Alliance will be limited to the design,
development, marketing, sales, support and service of the noti-
fied new aircraft engine and its derivatives. The applications of
this engine and its derivatives will be limited to the envisaged
Airbus A3XX aircraft and any of its passenger or freighter
derivatives and to any future four-engine aircraft of Boeing,
which is, in its standard configuration, designed for more than
450 passengers. The joint development will be limited to devel-
opment necessary for module integration and the application
of the engine to the airframe. In particular, GEAE and P & W
the major
will

independently develop the technology for

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modules for which each is responsible, specifically, the high
the high pressure turbine, and the
pressure compressor,
combustor of GEAE and the fan module,
low pressure
compressor, low pressure turbine, and turbine exhaust casing
for P & W.

Article 3

This Decision will be subject to the following obligations:

1. the parties will notify the Commission of any proposed
change in the scope of the Engine Alliance as soon as
possible and in any case before implementation thereof;

2. the Engine Alliance will be a separate legal entity trading in
its own right which will contract directly with its customers
and at arm's length with its parents in the supply of aircraft
engines. The Engine Alliance's accounting records and
auditing records will be maintained in a separate accounting
system from P & W and from GEAE. The auditing reports
will be submitted to the Commission. The Engine Alliance
will, on request, also make available its accounting records
to the Commission.
Information regarding actual P & W
costs will not be shared with GEAE, and information
regarding actual GEAE costs will not be shared with P & W;

3. the role of P & W and GEAE sales and marketing personnel
will be limited to acting as client contacts and as a conduit
for requests for and supply of general product and technical
information relating to the new engine. P & W and GEAE
personnel will not have access to the responses given to
clients by the Engine Alliance;

4.

if a customer requests a bid for multiple engines, including,
on the one hand, engines manufactured by P & W and/or
International Aero-Engines, or engines manufactured by
GEAE and/or CFMI and, on the other hand, the new engine,
the discounts, rebates or other terms of sale of the new
engine will be stated separately and neither GEAE nor
P & W will disclose to the Engine Alliance or to each other

the nature of the terms that either of them elect to offer on
their respective separate engine offerings;

5. with respect

to GEAE and P & W's respective separate
engine offerings, the Engine Alliance, P & W and GEAE will
establish safeguards to prevent the exchange of competi-
tively sensitive, non-public information including confiden-
tial technology, marketing strategies, quantities, prices or
the matters mentioned in point 4 (‘proprietary information’)
between them including a requirement that the Engine Alli-
ance personnel sign a confidentiality agreement to ensure
respect for these principles.

Article 4

This Decision shall apply from the date of notification of the
agreements referred to in Article 1 until 26 September 2011.

This Decision is addressed to the following undertakings:

Article 5

1. General Electric Company

1299 Pennsylvania Avenue, N.W.
Suite 1100W
Washington, D.C. 20004
USA

2. United Technologies Corporation
United Technologies Building
Hartford, Connecticut 06101
USA

Done at Brussels, 14 September 1999.

For the Commission

Karel VAN MIERT

Member of the Commission