2001/417/EC: Commission Decision of 1 December 1999 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.1601 — AlliedSignal/Honeywell) Council Regulation (EEC) No 4064/89 (Text with EEA relevance) (notified under document number C(1999) 4057)
Date: 1999-12-01
Institutions: European Commission
Subjects: aerospace industry, economic concentration, electronic equipment, merger control, security services, vehicle parts

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 1 December 1999

declaring a concentration compatible with the common market and the functioning of the EEA
Agreement

(Case COMP/M.1601 (cid:151) AlliedSignal/Honeywell)

Council Regulation (EEC) No 4064/89

(notified under document number C(1999) 4057)

(Only the English text is authentic)

(Text with EEA relevance)

(2001/417/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the opinion of the Advisory Committee on
Concentrations (4),

Having regard to the Treaty establishing the European
Community,

Whereas:

Having regard to the European Economic Area
Agreement, and in particular Article 57(2)(a) thereof,

(EEA)

Having regard to Council Regulation (EEC) No 4064/89 of 21
December 1989 on the control of concentrations between
undertakings (1), as
last amended by Regulation (EC) No
1310/97 (2), and in particular Article 8(2) thereof,

Having regard to the Agreement between the European
Communities and the Government of
the United States of
America regarding the application of their competition law (3),
and in particular Articles II and VI thereof,

(1)

(2)

(3)

Having regard to the Commission Decision of 30 August 1999
to initiate proceedings in this case,

(4)

the Commission received a
On 15 July 1999,
notification of a proposed concentration pursuant
to
Article 4 of Regulation (EEC) No 4064/89 (hereinafter
referred to as
(cid:145)the Merger Regulation(cid:146)) by which
AlliedSignal (US) Inc. (Allied Signal) and Honeywell (US)
Inc. (Honeywell) proposed to enter into a full merger
within the meaning of Article 3(1)(a) of
the Merger
Regulation.

On 30 August 1999 the Commission decided in
accordance with Article 6(1)(c) of the Merger Regulation
to initiate proceedings in this case.

proposed

The
for
cooperation with the EFTA Surveillance Authority under
the EEA Agreement.

operation

qualify

does

not

I. THE PARTIES

(US)

AlliedSignal
is a manufacturing company with
operations in the businesses of aerospace, automotive
products and engineered materials (polymers, specialised
chemicals and electronic materials).

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

21.9.1990, p. 13.

(2) OJ L 180, 9.7.1997, p. 1.
(3) OJ L 95, 27.4.1995, p. 47.

(4) OJ C 164, 7.6.2001.

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(5)

(6)

(US)
develops

Honeywell
is an international controls company
technology
supplies
that
and
products, systems and services to homes and buildings,
industry, aviation and space.

advanced

II. THE OPERATION

Pursuant to an agreement entered into on 4 June 1999,
Honeywell and AlliedSignal will merge into AlliedSignal,
but the latter’s name will be changed into Honeywell
International
Inc. Each share of Honeywell common
stock will be exchanged for 1,875 shares of AlliedSignal
common stock. The Board of Directors of the combined
company will comprise nine members from the current
AlliedSignal board and six members from the current
Honeywell board.

III. CONCENTRATION

(7)

The operation whereby AlliedSignal and Honeywell
merge into AlliedSignal
is a full merger within the
meaning of Article 3(1)(a) of the Merger Regulation.

the EEA are of a limited nature. It appears that effective
competition within the EEA would not be significantly
impeded as a result of the operation on any of the
potential markets for avionics for military or space
applications. Therefore, the effects of the operation are
assessed only in relation to avionics having commercial
applications.

A. PRODUCT MARKET

(10) Avionics products consist of a range of equipment, the
controls of which are installed in the cockpit, and which
are used for the control of the aircraft, for navigation
and communication, and also for the assessment of
flying conditions. AlliedSignal also manufactures other
aerospace equipment (that is to say, non-avionics) such
as auxiliary power units (APU), environmental control
systems (ECS) aircraft lighting, landing systems (wheels
and brakes) and engines for small business aircraft. (A
full glossary of the technical terms and abbreviations
used is given at Annex II).

IV. COMMUNITY DIMENSION

1. General market characteristics

(8)

(9)

than

turnover

The undertakings concerned have a combined aggregate
worldwide
EUR 5 000
of more
million (5). (AlliedSignal EUR 14 100 million, Honeywell
EUR 7 500 million). AlliedSignal and Honeywell each
have a Community-wide turnover in excess of EUR 250
million (AlliedSignal EUR [(cid:133)] (*), million, Honeywell
EUR [(cid:133)], million), but they do not achieve more than
two thirds of their aggregate Community-wide turnover
within one and the same Member State. The notified
operation therefore has a Community dimension.

V. COMPATIBILITY WITH THE COMMON MARKET

This operation creates a company that will be active in
the following sectors: aerospace, automotive products,
engineered materials and home and industrial controls.
The parties’ activities overlap in the area of avionics.
Even though the parties have important sales in the
military and space avionics markets, these latter sales in

(5) Turnover calculated in accordance with Article 5(1) of the Merger
Regulation and the Commission notice on the calculation of
turnover
(OJ C 66, 2.3.1998, p. 25). Where figures include
turnover for the period before 1 January 1999, they are calculated
on the basis of average ecu exchange rates and converted into euro
on a one-for-one basis.

(*) Parts of

this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

1.1. Different segments

(11)

(12)

The avionics sector is generally divided into six demand
that are defined by types of aircraft: air
segments
transport, regional transport, business aviation, general
aviation, helicopters and military/space applications. The
reason for this division lies in the non-homogeneous
structure of supply and demand across these segments
(integrated versus federated cockpit), in dissimilarities of
technical interchangeability and prices of the products,
and in the nature of the customers (airlines, original
equipment manufacturers (OEMs) or individual owners)
as well as in differentiation for the applicable regulatory
safety requirements.

The Commission’s market investigation has confirmed
that there are different segments defined by the types of
aircraft, that the avionics products/(or sub-)systems for
each segment are different according to their price, their
size and their capabilities, and that the players in each
there is no clear
segment are different. However,
segmentation between the regional
transport and the
business aviation segments with regard to the avionics
products/(sub-)systems that are offered, since the latter
are the same in terms of price, size and capabilities.

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Therefore, no further distinction will be drawn between
the regional transport and business aviation segments
(regional/business segment).

such as AlliedSignal.

products/(sub-)systems,
(Some
surveillance products, such as ACAS processors, which
are currently not part of the core avionics suite, are
purchased by the aircraft owners, mainly as retro-fit.) As
regards
(such as
avionics
AlliedSignal, Universal Avionics, and BF Goodrich)
provide stand-alone avionics products/(sub-)systems to
their customers, the aircraft owners.

suppliers

retro-fit,

the

(13) Air transport includes large commercial planes (greater
than 100 passengers) which cost between USD 35
million and USD 140 million, regional transport covers
medium commercial planes that are worth between
USD 5 million and USD 25 million, whereas business
aviation includes small jets costing in general between
USD 3 million and USD 35 million. General aviation is
composed of light planes ranging in cost between USD
150 000 and USD 500 000. The cost of avionics sold
patterns.
for
Helicopters consist of civil airborne vehicles with rotary
wings. Military and space applications include every
airborne military application as well
satellites,
as
international space stations and space shuttles.

follows

aircraft

similar

these

cost

(14)

(15)

are

suppliers

the customers of

the
In the air transport segment,
avionics
two OEMs, namely Airbus
Industry (Airbus) and Boeing, and the airlines. The
products/(sub-)systems supplied in this segment are in
general
are
stand-alone products/(sub-)systems
federated into an avionics cockpit suite by the OEMs (as
forward-fit products) or
installed on existing
aeroplanes by service (cid:145)shops(cid:146) or the OEMs as retro-fit
items (that is, as replacement parts or entirely novel
products). The same avionics suppliers supply the same
products/(sub-)systems used for
in new
aeroplanes and for retro-fit of existing aeroplanes.

forward-fit

that

are

is noted that

(even though this would not

cockpit. With respect
the avionics

In the regional and business segments, a somewhat
clearer distinction can be drawn between forward-fit and
justify their
retro-fit
designation as (cid:145)separate product markets(cid:146)), because of
that more products are sold as part of an
the fact
integrated (forward-fitted)
to
suppliers
it
forward-fit,
provide integrated avionics suites to the OEMs (such as
Aerospatiale Matra ATR, Bombardier, Embraer, Dassault,
Raytheon, Gulfstream, British Aerospace,
Fairchild
integrate the avionics
Dornier). The latter do not
rely on the
products/(sub-)systems
(cid:145)system integration(cid:146) capabilities of the avionics suppliers
(such as Honeywell, Rockwell Collins and Sextant
Avionique (Sextant)). If such a system integrator does
not dispose of an avionics product, he will purchase the
missing product from a supplier of stand-alone avionics

themselves, but

(16)

In the general aviation segment, the cockpit is federated
and the customers are OEMs and distributors. The
avionics products/(sub-)systems used for forward-fit and
for retro-fit are supplied by the same avionics suppliers.

1.2. Buyer furnished equipment (BFE)/supplier furnished

equipment (SFE)

(17) A further distinction often referred to in the industry is
(BFE) and
referring
the

that between (cid:145)buyer furnished equipment(cid:146)
(cid:145)supplier
(SFE),
respectively to the buyer and the supplier of
airframe.

equipment(cid:146)

furnished

(18)

(19)

for

two

obtain

in
In the case of BFE, an airframe manufacturer will,
general,
three
certification
substitutable avionics products/(sub-)systems between
which the airline can choose. The commercial terms are
then set between the airline and the avionics supplier.
The only role of the airframe manufacturer with regard
to
that
the
product/(sub-)system.

certification

relates

BFE

or

to

of

two)

SFE can either be

Furthermore,
SFE-standard or
SFE-option. In the latter case, an airframe manufacturer
will obtain certification for more than one (and in
general
avionics
substitutable
type and will
products/(sub-)systems for that aircraft
to
to the buyer of
leave it
the airline,
that aircraft,
The
other
or
one
choose
difference with
(and
is
BFE
SFE-standard) is purchased by the OEM and not by the
airlines. SFE-option is found on Airbus aircraft. On
Boeing
and
competition between the SFE-avionics suppliers only

product/(sub-)system.
SFE-option

SFE-option

aircraft,

exist

does

that

not

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takes place at the design phase of an aircraft.
If an
avionics product/(sub-)system is SFE-standard, meaning
that the airframe manufacturer has only certified one
has
product/(sub-)system,
no
opportunity
avionics
choose
product/(sub-)system from another supplier.

substitutable

airline

then

the

to

a

(20)

The market investigation has pointed out that there is a
trend towards SFE replacing BFE.

(21)

investigation has also shown that

The market
for
retro-fit SFE, the airlines will negotiate directly with the
avionics supplier, such as Honeywell.

(22) Given the fact that the qualification of a product as BFE
or SFE may differ depending on the client and may vary
over time, distinct markets for BFE and SFE are not
warranted.

1.3. Certification

(23)

Each avionics product/(sub-)system to be installed on an
aircraft has to be certified separately for each aircraft
type on which it will be installed. Certificates
for
avionics equipment are granted in the USA by the FAA
(Federal Aviation Administration) and in Europe via the
JAA (Joint Aviation Authorities) by the national civil
aviation authorities. The
is
normally granted on an aircraft-level basis, whereby all
the aircraft are certified
components and parts of
For
(cid:145)type
together,
modifications on existing aircraft, a supplemental type
certification (STC) will be granted. Both TC and STC are
forms of design approval. OEMs apply for TC and
occasionally
Production
apply
certifications to the supplier are granted only after the
issuance of the TC/STC.

certification procedure

certification(cid:146)

known as

suppliers

(TC).

STC.

for

(25)

(26)

1.4. Standardisation

In the air transport segment,
there is a considerable
degree of standardisation in avionics products, at least
for BFE sold to airlines. The airline operators depend on
standardised avionics
to create interchangeability of
avionics in order to promote competition and freedom
of choice.

(AEEC).

Committee

Engineering

The standardisation is carried out by the Airlines
Electronic
This
organisation adopts standards that are formulated by the
organisation ARINC (aeronautical radio incorporated) on
behalf of the AEEC. The AEEC comprises representatives
from,
the
European Airlines Electronics Committee (EAEC), and
the Oriental Airlines Association. The major avionics
suppliers and OEMs usually also take part in discussions
on standardisation.

the major US airlines,

among others,

(27) ARINC standards define the form, fit and function of
the avionics products to be inserted in the aeroplane.
They cover a range of component characteristics,
bus
(analogue
including
architecture), minimal
interoperability,
functionality,
size, weight, voltage, cooling and even colour.

interfaces

digital

and

(28) ARINC standards apply foremost

to BFE in the air
transport segment. ARINC standardisation is carried out
on a voluntary basis and is not a legal requirement;
although it may help to obtain the necessary (FAA)
certification, adherence to an ARINC standard is not
required for certification purposes. ARINC standards
currently exist for most of the avionics (BFE) equipment
in air
exception for
EGPWS/TAWS (enhanced ground proximity warning
system/terrain avoidance warning system) (see below).

transport, with the notable

(29)

other
does

aviation
not

sold
in
generally

segments,
For
products
standardisation
The
organisation GAMMA (General Aviation Manufacturers
Association) has a modest standardisation role in the
segments.
regional/business
However,
its standards cover a mere four-digital bus
specification.

aviation

general

apply.

and

(24)

The certification procedure is lengthy (from one to three
years for the avionics and other systems in a new
aircraft and from one to six months in case of a
supplemental certification where only a few components
are being changed) and costly (between 5 % and 20 % of
the development costs of
for a new
platform, that is, up to USD 10 million and between
USD 0,1 and USD 1 million in case of a supplemental
certification involving a change of a few components).

the avionics

2. Affected product markets

(30)

The market investigation has shown that products that
perform the functions necessary to operate an aircraft
are constantly evolving as a result of product innovation
and integration. Especially in the air transport segment,

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such an integrated product:

there is a trend towards product integration, whereby
functions which were, for instance, carried out by two
stand-alone avionics products are now being integrated
into a single subsystem. The ADIRS/ADIRU (air data
inertial reference system/air data inertial reference unit)
it
is an example of
the IRS (inertial reference
combines the functions of
system)
the
data
regional/business segment, the integration process has
already led to fully integrated avionics suites, where all
avionics functions are integrated into a system. In the
general aviation segment the cockpit is federated, which
means
avionics
products/(sub-)systems are wired together.

stand-alone

computer.

different

that

and

the

air

In

(31)

collision

(airborne

The parties have identified five product markets, which,
due to the overlapping products of AlliedSignal and
Honeywell, would be affected by the merger. In the air
transport segment, the affected markets are the market
for ACAS
system)
processors and mode S transponders and the market for
CMU (communication management units) and ACARS
(aircraft
reporting
systems). In the regional/business segment, the affected
markets are also the market for ACAS processors and
mode S transponders and the weather radar market. In
the segment for civil helicopters, the market for weather
radar is affected by this operation.

communication

addressing

avoidance

and

aircraft
segments. An ACAS processor is generally BFE.

in the air

transport

and regional/business

(33)

(34)

and

speed

altitude

information. Mode

The mode S transponder sends and receives signals to
and from other aircraft, including unique identification
and
S
transponders function together with ACAS processors
for the identification of other planes and their bearing,
as well as determining the appropriate response to a
threat of collision. However, a mode S transponder also
has
than working with the ACAS
processor, such as communication with the air traffic
(ATC) system and for usage in the new FMS
control
(flight management system). The anti-collision avoidance
system further consists of antennae, control heads and a
display.

functions other

The parties further submit that ACAS processors and
mode S transponders are generally bought
together
from the same avionics supplier. This has not been
confirmed by the market investigation. It has become
S
apparent
transponders
although
different
the only suppliers of
operating together. Moreover,
mode S transponders in this segment are the suppliers
of ACAS processors.

that ACAS
have

and mode

processors

functions,

2.1. ACAS processor and mode S transponder

(35) On the basis of the above, it could be concluded that
ACAS processors and mode S transponders belong to
different product markets. However, given that
the
assessment of the case would not be different if ACAS
processors and mode S transponders were considered as
belonging to one market, the definition of the relevant
product market can be left open.

A i r t r a n s p o r t

R e g i o n a l / b u s i n e s s a v i a t i o n

(32) An ACAS processor is considered to be the brain of the
collision avoidance system.
It provides pilots with
information on surrounding traffic and provides alerts
when nearby traffic is (or has the potential to become) a
hazard. An ACAS processor is mandatory in Europe and
in the USA for certain types of aircraft (6), mainly, all

(36)

segment, ACAS processors

and mode S
In this
transponders do not only have different functions; they
are generally not sold together. The mode S transponder
is in general integrated in the avionics suite, whereas the
ACAS processor is supplied on a stand-alone basis.

(6) Europe: an ACAS is mandatory by 1 January 2000 for all aircraft
with more than 30 seats or weighing more than 15 000 kg cargo
and by 1 January 2005 for all aircraft with more than 19 seats or
carrying more than 5 700 kg.
USA: an ACAS (called TCAS II), which provides audible resolution
guidance, has been mandatory for all passenger aircraft in excess of
30 seats since 1993. A TCAS I
(i.e. an ACAS without audible
resolution guidance) has been mandatory since 1995 for passenger
aircraft with more than 10 seats.

(37) On the basis of the above, it could be concluded that
ACAS processors and mode S transponders belong to
different product markets. However, given that
the
assessment of the case would not be different if ACAS
processors and mode S transponders were considered as
belonging to one market, the definition of the relevant
product market can be left open.

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2.2. CMU and ACARS

other aviation segments. Weather radar in the general
and lower
aviation segment offers
performance.

features

fewer

(38)

and

text

receives

CMU provide the two-way communication link between
an aircraft and the ground control centres. The system
transmits
data messages.
According to the information provided by the parties,
ACARS provide the same functionality as CMU, but a
CMU has additional functions that allow for routing and
prioritisation of incoming information. The parties have
submitted that prices of both products, at least of those
provided by AlliedSignal, are identical.

and

(39)

The results of the market investigation have indicated
that CMU are largely viewed as an evolution of ACARS,
since the former have a higher level of functionality.
According to others, the current version of ACARS now
implements the CMU protocols and the costs of both
systems would be similar.

(40) One of the major airframe manufacturers (Airbus)

by Aerospatiale Matra

is
installing the ATSU (air traffic services unit) system
supplied
includes
CMU/ACARS functions) on new aircraft. The parties
claim that this product competes directly with their own
CMU/ACARS products, which has been confirmed by
the investigation.

(which

(44) On the basis of the above, it can therefore be concluded
that weather radar in the regional/business segment
constitutes a different product market
from weather
radar in the other aviation segments.

C i v i l h e l i c o p t e r s

operations

(45) Weather radar for civil helicopters includes specialised
search and surveillance features (used in search and
rescue
destinations,
particularly off-shore oil platforms). These products have
historically been installed principally in helicopters. The
weather detection capability plays only a secondary role.
Weather radar used in other aviation segments does not
have these search and rescue characteristics.

identify

and

to

(46) On the basis of the above, it can therefore be concluded
that weather radar for civil helicopters constitutes a
distinct product market.

(41) On the basis of the above, it can therefore be concluded
that CMU and ACARS belong to the same product
market.

3. Other avionics and non-avionics products for

commercial aviation

2.3. Weather radar

R e g i o n a l / b u s i n e s s a v i a t i o n

(42) Weather

radar provides pilots with detailed visual
information on the weather surrounding and ahead of
the aircraft, permitting the pilot
to avoid dangerous
weather conditions. It displays rainfall, turbulence and,
in certain models, windshear.
In the regional/business
segment most weather radar is supplied as part of an
integrated cockpit.

(43)

The market investigation has shown that weather radar
in the different aviation segments clearly constitutes a
different product in terms of size, functions and price.
Weather
is supplied as BFE,
transport
generally includes predictive windshear and has a much
larger, heavier and more expensive antenna than in the

in air

radar

(47) Within the avionics sector, a number of other product
markets can be identified which, according to the
parties and the market investigation, would constitute
separate product markets, but on which the parties have
no directly overlapping activities (see also the table
preceding recital 62). Some of the products listed below
further
are
in fact
the
distinguished
decision whether
they constitute different product
markets or not can be left open (with the exception of
TAWS), since the assessment would not be different if
such a further distinction were made.

(sub-)systems
that
into single products. However,

could be

(48)

(49)

their

avionics
functionality,
Based
on
into four
can be
products/(sub-)systems
categories: equipment for surveillance, communication,
navigation and a last category containing all other
remaining avionics.

grouped

these

These avionics products/(sub-)systems are supplied in
the air
in the regional/business
segment and some also in the general aviation segment.
However, as mentioned in recital 12, the products and

transport

segment,

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systems belonging
constitute different product markets.

to different

aviation segments

3.1. Surveillance products

(50)

TAWS (terrain avoidance warning system) is a system
that provides the flight crew with a map-like display of
nearby terrain and sounds an audible alert about a
minute’s flight
time or more away from the terrain
(such as the ground, a mountain, etc.). AlliedSignal is
the only supplier of a certified TAWS, with its EGPWS
(enhanced ground proximity warning system). TAWS is
SFE. However, as there will be a mandate for TAWS,
retro-fit. The
many airlines are buying TAWS as
the GPWS
predecessor of AlliedSignal’s EGPWS is
(ground proximity warning system).

(51) On the basis of the above,
there is a market for TAWS.

it can be concluded that

(52) Other surveillance products are ACAS processors and
weather radar, respectively at recitals 32 to 37 and 42
to 46.

inertial reference system/air data inertial reference unit)
which combine the air data computer with the IRS,
fly-by-wire, flight controls (automatic pilots) and flight
management system (FMS). The latter consists of a
and
central processor,
is
display
sensors. Based on data
connected to the aircraft’s
received from those sensors and the pilot,
the FMS
calculates the most fuel-efficient route, controls speed
and thrust
for optimum fuel economy, automatically
complies with speed and altitude restrictions, advises the
landing speed and makes other
pilot of proper
calculations for a safe and efficient flight.

keyboard

and

3.4. Other avionics products

(55)

These are,
inter alia, display, head-up displays, cockpit
voice recorders (CVR) and flight data recorders (FDR).
CVR and FDR are the (cid:145)black boxes(cid:146) which safety
investigators look for to determine the cause of an
aircraft accident. Furthermore, there are still some other
products, which the parties do not deal with (mainly
controls).

3.2. Communication equipment

3.5. Other non-avionics aerospace products

(53)

Communication systems are a combination of avionics
products that allow the flight crew to communicate
with ground and air
resources and to identify the
aircraft to air traffic control systems and other aircraft.
They include many products such as radios, satellite
CMU/ACARS,
communication
provides
multimode
precision
and
guidance
non-precision approach guidance using its built-in GPS,
meaning global positioning system) and others.

(SatCom),
(MMR, which
to

systems
radio/receiver

approach

airports

(56)

These include in-flight entertainment products, APUs
and wheels and brakes.

4. New integrated products in surveillance avionics

I H A S ( i n t e g r a t e d h a z a r d a w a r e n e s s s y s t e m )

3.3. Navigation equipment

(54)

This equipment navigates the aircraft to the appropriate
destination and includes many products such as global
positioning systems (GPS), the air data computer, which
computes aircraft airspeed, altitude and vertical speed,
IRS (inertial reference systems) which are the primary
airframe motion sensors and navigation sensors used by
a multitude of avionics systems, ADIRS/ADIRU (air data

(57)

that

further product

integration in avionics

The market investigation has pointed out that the trend
towards
is
the area of hazard surveillance is
general, but
particularly suited to further product integration. The
product integration could be limited to ensuring a better
interoperability of the stand-alone hazard surveillance
(Examples of such improved interoperability
products.
is currently possible to show
already exist since it

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weather radar and EGPWS information on a single
display; also, with the assistance of Boeing, AlliedSignal
has developed a system that prioritises alerts in the
cockpit). The integration of hazard surveillance products
is actually expected to go much further, as far as the
development of a new integrated black box which
integrates the functionalities of
the ACAS processor,
weather radar and TAWS. AlliedSignal has announced
its commitment
to developing a complete integrated
hazard awareness system (IHAS) which they would like
to have as standard equipment on the new Airbus 3XX.
It has
IHAS
set up a business unit especially for
development.

(58) Market investigation has shown that there would be a
clear demand for such a product, as it would lead to
increased flight safety. Therefore,
it can be concluded
that a future market for an integrated hazard awareness
system exists.

B. GEOGRAPHIC MARKET DEFINITION

(59)

The relevant geographic market for avionics products is,
according to the parties, worldwide. This has been
recognised by the Commission in prior decisions
relating to the equipment for civil aircraft (7) and has
been confirmed by the investigation.

C. COMPETITIVE ASSESSMENT

1. General

(60)

(61)

This operation will lead to the combination of the first-
and third-largest worldwide suppliers of commercial
avionics, namely Honeywell
and AlliedSignal. The
parties’ main competitors are Rockwell Collins and
Sextant, but there are also smaller players such as Litton
and Smiths Industries, who do not produce a range of
avionics products. The parties’ turnover in commercial
avionics would account for 40 % to 50 % of the overall
turnover
in commercial avionics, whereas Rockwell
Collins and Sextant would have a share of 20 % to 30 %
and 10 % to 20 % respectively.

transport,

The new entity will be present in all aviation segments:
air
regional/business aviation and general
aviation. The air transport segment represents [between
50 % and 60 %]* of all sales of commercial avionics,
whereas the regional/business segment and the general
aviation segment represent [between 30 % and 40 %]*
and [less than 10 %]* respectively.

1.1. Air transport

Table 1: Presence in the air transport segment

Product

AlliedSignal

Honeywell

Rockwell
Collins

Sextant

Others

Surveillance

Weather radar (BFE)

ACAS processor/mode S
transponder (BFE)

TAWS (SFE)

Communication

Com/Nav (BFE)

X

X

X

X

SatCom (BFE)

(cid:151) (1)

MMR (BFE)

CMU/ACARS (BFE)

X

X

(cid:151)

X

(cid:151)

(cid:151)

X

(cid:151)

(cid:151)

X

X

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

X

X

X

X

X

(cid:151)

(cid:151)

(cid:151)

X

(cid:151)

(cid:151)

Teledyne/
Aerospatiale Matra

(7) For

example Case

IV/M. 697 (cid:151) Lockheed Martin/Loral
Corporation, Commission Decision of 27 March 1996 (OJ C 314,
24.10.1996,
IV/M.290 (cid:151) Sextant/BGT-VDO,
Commission Decision of 21 December 1992 OJ C 9, 14.1.1993, p.
3).

9); Case

p.

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Product

AlliedSignal

Honeywell

Rockwell
Collins

Sextant

Others

Navigation

GPS (stand-alone) (BFE)

IRS and ADIRS/ADIRU
(SFE-option on Airbus)

Air data computer (SFE)

FMS (SFE-option on Airbus)

Flight controls (SFE)

Other avionics

Head-up displays (SFE)

Displays (SFE)

Recorders (BFE)

Controls, monitoring,
measurement and warning systems

Non-avionics

In-flight entertainment

APUs

Wheels and brakes

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

X

(cid:151)

(cid:151)

X

X

X

X

X

X

X

(cid:151)

X

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

X

X

X

(cid:151)

X

X

(cid:151)

(cid:151)

(cid:151)

Litton

X (2)

Litton

(cid:151)

Smiths

X (3)

Smiths

X

X

X

(cid:151)

X

X

(cid:151)

(cid:151)

GEC

(cid:151)

(cid:151)

L3Communications,
Universal, SFIM

BECO, Smiths, Eldec

Sony, Matsushita

UTC

ABS, BF Goodrich,
Dunlop, Snecma/
Messier-Bugatti

(1) Although AlliedSignal has been a distributor of an antenna (made by Dassault), this agreement has now come to an end and AlliedSignal is no longer active

with regard to SatCom.

(2) Sextant is developing an ADIRU with Litton. This is a SFE-option on Airbus aircraft. Sextant/Litton have obtained half of the orders on new Airbus aircraft.
(3) Sextant is developing an FMS with Smiths. This is a SFE-option on Airbus aircraft. Sextant/Smiths have obtained two thirds of the orders on new Airbus

aircraft.

(62)

The merged entity will be able to provide a broader
range of avionics products to the airlines (BFE) and to
the two OEMs, Boeing and Airbus (SFE-avionics). As can
already be seen from this Table (and as will be
explained further), in comparison with its competitors,
the parties will be particularly strong in safety avionics,
namely products used for surveillance (ACAS processor,
TAWS and weather radar). AlliedSignal and Honeywell
are both strong suppliers of ACAS processors and mode
S transponders. AlliedSignal is one of the two suppliers
of weather radar and is the only company with TAWS.
On Airbus aircraft AlliedSignal’s former product range
offered to the airlines is extended with SatCom (BFE)
and with
SFE-option).
and ADIRS
Honeywell’s SFE product range is enlarged with TAWS
(SFE). However, even after the merger there will be no

(both

FMS

company that can supply aeroplanes to the airlines and
to the OEMs all the avionics necessary to operate an air
transport service.

1.2. Regional and business aviation

(63) As has already been mentioned,

in this segment a
further segmentation between forward-fit and retro-fit
can be made. The system integrators supplying the
forward-fit sub-segment, do not provide stand-alone
products, whereas the suppliers of stand-alone products
do not supply integrated avionics suites. The parties

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system integrators: Honeywell

therefore submit that there is no competitive overlap
between them. As regards forward-fit, there are only
and Rockwell
three
share of sales, with
Collins, each having a similar
Sextant as an emerging player. AlliedSignal
is an
important provider of stand-alone products to airlines
for retro-fit, but also to system integrators.

2.2. ACAS processors and mode S transponders

A i r t r a n s p o r t

1.3. General aviation

(64) Only AlliedSignal

is present in this aviation segment

and is an important supplier for many products.

2. Effects of the operation on the affected markets

2.1. General

(65)

since

sales,

actual

future

The market data referred to below are generally based
on the market investigation and on the parties’ best
estimates, acquired through their own market research.
The parties have had to rely on such estimates owing to
the absence of publicly available market research data.
The parties have principally based their evaluation of
the market on deliveries made of the product referred
to, rather than on orders placed. The notifying parties
submit that data based on orders are not reliable in
determining
customers
frequently reduce or eliminate (or sometimes expand)
orders after they have been placed. For the products of
the affected product markets there is only a short time
lag between the purchase order and the delivery, and
therefore the parties are of the opinion that data based
on
differ
orders would
to properly
significantly from deliveries.
evaluate the market strength of the competitors in the
market, the Commission considers it appropriate to look
these would better
also at orders placed, given that
the
current
indicate
producers. However, the market investigation did not
allow an adequate picture to be drawn on the basis of
orders, one of
apparent
discrepancies in what market operators consider (cid:145)orders(cid:146)
(only fixed orders or those inclusive of options). For the
above reasons (and especially because there is only a
short time lag between purchase orders and deliveries)
the data used in the assessment are based on deliveries.
Nevertheless, the assessment (recitals 66 et seq.) is also
based on orders where appropriate.

competitive potential of

reasons being

In order

purchase

probably

not

the

the

the

(66)

(67)

(68)

for

expanded,

these products,

The total worldwide market for ACAS processors and
following a
mode S transponders has
European mandate
from USD
[between 50 and 60]* million in 1996 to USD [between
130 and 140]* million in 1998. On this market the
notifying parties would have a combined market share
of [between 65 % and 75 %]* (AlliedSignal [between
30 % and 40 %]*; Honeywell
[between 30 % and
40 %]*). The only competitor is Rockwell Collins, with
[between 30 % and
an estimated market
share of
40 %]*. Since 1996 AlliedSignal’s market
share has
remained stable, whereas the market share of Honeywell
has risen from [between 15 % and 25 %]* to [between
30 % and 40 %]*,
leading to a decline of Rockwell
Collins’ share from [between 40 % and 50 %]* in 1996
to [between 25 % and 35 %]* in 1998.

The parties submit that Sextant has announced that it
in conjunction with Dassault and Thomson-CSF,
has,
Sextant’s parent company, the technology to produce
ACAS. According to the parties, BF Goodrich, which
already has a TCAS I product, and GEC Marconi are
also likely potential entrants. However,
third parties
have indicated that it is not clear whether these projects
mentioned by the parties will materialise, especially if
the present merger were to be completed.

The parties argue that the large combined market share
will not give them the chance to behave to any
significant degree independently from competitors and
customers, for the following reasons: (a) the shares of
demand for ACAS fluctuate substantially between the
world’s regions and are not an indicator of market
power; (b) the ACAS market volume is decreasing; (c)
customers exercise great buyer-power; (d) the barriers to
entry are low and (e) ACAS is susceptible to technology
leap-frogging.

(69) With regard to the parties’ first argument, it has to be
noted that the geographic scope of the market to be
taken into account
regional.
Furthermore,
transaction the market
structure in each region will be very similar: the parties
will have a market share of [more than two thirds]*.

is worldwide and not

following the

(70)

The parties submit as a second argument that the ACAS
market volume is decreasing, since almost all passenger
aircraft in the USA are equipped with ACAS and that
approximately 90 % of the potential retro-fitting orders
for air transport in Europe have already been placed.
Since there is no aftermarket for ACAS, as the system
has an extremely long lifecycle, the future market for

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ACAS for air transport will accordingly be limited to
new aircraft estimated to be 600 to 800 air transport
aircraft per year worldwide. The parties submit
that
with decreasing demand,
competition between the
remaining suppliers is expected to become even more
ferocious.

(71) With regard to this argument it has to be noted that,
given the decreasing volume, the likelihood that new
suppliers will enter this market diminishes, since they
will not be able to spread their development costs over
a sufficient product volume.

Furthermore, the market investigation has shown that
are
ACAS processors
sophisticated high-technology products
that have to
match the environment in which they operate.

transponders

and mode

S

(75) Moreover, in order to enter the market and acquire a
position on the market, the new entrant could offer the
products at lower prices. However, this requires the new
entrant to be able to sell at least large quantities of the
products in order to amortise R & D costs. Given the
presence of the combined entity, the new entrant may,
however, be precluded from benefiting from the
required economies of scale.

(72) With regard to buying power,

the parties have
submitted that
there is a high degree of purchasing
power in the market. The parties submit that should
they seek to exercise any market power, customers are
strong enough to retaliate. In fact, the parties submit
that
them more
vulnerable to such retaliation than smaller suppliers,
since the effects of retaliation would have much greater
consequences, by affecting the sale of all products in
their range.

large product

range makes

their

(73)

The Commission has considered whether the purchasing
power is such that no competition concerns would
arise, in spite of the high market share resulting from
the merger. Demand in the air
transport avionics
market is indeed concentrated, as far as the OEMs are
strong buying
concerned. They undoubtedly have
power. However, at the level of airlines this is much less
the case, the group of customers being much larger and
including many smaller (national) airlines. On the other
is highly
side,
further
concentrated. That
the
increase
the merger. Consequently,
following
Commission has come to the conclusion that
the
purchasing power of
the customers with regard to
ACAS, which is bought by the airlines, would not
outweigh the position of the new entity.

supply in avionics
level of concentration will

the structure of

(74) As

regards barriers

these are in general
to entry,
considered to be very high in the field of avionics,
owing to the complex technical nature of the products.
The market investigation has pointed out that market
entry is not to be expected. With particular regard to
ACAS processors and mode S transponders, the parties
themselves submit
takes some two years and
around USD 10 million to develop an ACAS processor.

that

it

to

be
it has

susceptible
to be noted that

(76) With regard to the parties’ argument that the ACAS
technological
processor will
leap-frogging,
the market
investigation has shown that it will take some 10 years
dependent
before
surveillance-broadcast),
situational
include
be
awareness
collision-avoidance functions and be certified by the
civil aviation authorities. Therefore, this last argument
cannot be accepted.

satellite-based
extended

(automatic

ADS-B

could

tool,

to

a

(77)

Furthermore, it has to be noted that the parties’ strong
position on the market for ACAS processors also has an
effect on the future market for IHAS, since the ACAS
processor is one of the key elements of this system (see
recitals 93 et seq.).

the compatibility of

(78) On the basis of the above, there are serious doubts
about
the operation with the
common market and the EEA Agreement, on the
grounds that the operation would lead to the creation of
a dominant position with regard to ACAS processors
and mode S transponders in the air transport segment.
However,
the remedies described (see recitals 125 et
seq.) address this specific issue.

R e g i o n a l / b u s i n e s s a v i a t i o n

(79)

The total worldwide market for ACAS processors and
mode S transponders in this segment has expanded,
following the European mandate, from USD [45 to 55]*
million in 1996 to USD [95 to 105]* million in 1998.
On this market the notifying parties have a combined
market share of [70 % to 80 %]* (AlliedSignal [25 % to
35 %]*
The
competitors are Rockwell Collins with a market share of
[20 % to 30 %]* and BF Goodrich with a [0 % to 5 %]*
market
latter however, has no ACAS
conforming to the European mandate, but only has a

and Honeywell

share. The

[40 % to

50 %]*).

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I

(see

67).

recital

product

TCAS
1996
AlliedSignal’s and Honeywell’s market share has been
increasing from [10 % to 20 %]* and [10 % to 20 %]*
respectively, to [25 % to 35 %]* and [40 % to 50 %]*,
leading to a decline in Rockwell Collins’ share from
[60 % to 70 %]* in 1996 to [20 % to 30 %]* in 1998.

Since

(80)

the execution of

the
that after
The parties submit
European mandate the market volume for ACAS in
regional and business aviation will decrease and will
consist only of 150 to 250 new aircraft annually
worldwide. The parties submit
that with decreasing
demand, competition between the remaining suppliers is
expected to become even more ferocious.

(81) With regard to this argument, it has to be noted that,
given the decreasing volume, the likelihood that new
suppliers will enter this market diminishes, since they
will not be able to spread their development costs over
a sufficient product volume.

(82)

Further reference must also be made to the section on
ACAS processors and mode S transponders
in air
transport, since the same reasons as regards barriers to
entry and buying power apply to this aviation segment.

the compatibility of

(83) On the basis of the above, there are serious doubts
about
the operation with the
common market and the EEA Agreement, on the
grounds that the operation would lead to the creation of
a dominant position with regard to ACAS and mode S
transponders in the regional/business segment. However,
the remedies described below (at recital 125 et seq.)
address this specific issue.

(85) Aerospatiale Matra is offering the ATSU on Airbus
aircraft. The parties expect that by the beginning of
2000 over 95 % of the Airbus aircraft with datalink will
have the ATSU system and will
therefore no longer
need a CMU or ACARS.

(86)

(87)

be

reinforced,

position will

that
The proposed operation will have the effect
AlliedSignal’s
since
Honeywell has already been able to secure orders for its
stand-alone CMU. However, given the fact that Rockwell
Collins and Teledyne are now also offering a stand-alone
CMU and that Aerospatiale Matra has launched the
ATSU, the operation will not lead to the creation or
strengthening of a dominant position with regard to
CMU and ACARS.

2.4. Weather radar

R e g i o n a l / b u s i n e s s a v i a t i o n

radar

for weather

The total worldwide market
for
regional/business aviation has grown from USD [25 to
35]* million in 1996 to USD [35 to 45]* million in
1998. On this market,
the notifying parties have a
combined market share of [35 % to 45 %]* (AlliedSignal
[0 % to 10 %]*, Honeywell [30 % to 40 %]*). The only
is Rockwell Collins, with an estimated
competitor
market share of [55 % to 65 %]* in 1998.

(88) Given that the increment in market share is very small,
that AlliedSignal is mainly a supplier of weather radar
for retro-fit whereas Honeywell is a supplier of weather
radar
the parties’ only
competitor has a market share of more than 50 %, it
can be concluded that no dominant position will be
created or strengthened on the market for weather radar
for regional/business aviation.

forward-fit,

and that

for

2.3. CMU/ACARS

(84)

CMU is generally BFE. In 1998 the market was worth
USD [15 to 25]* million. According to the information
provided by the parties, AlliedSignal had a share of sales
of [45 % to 55 %]* worldwide in 1998. Honeywell has
not yet started to supply its stand-alone CMU, but has
already been able to secure orders for it. Rockwell
Collins has a [30 % to 40 %]* and Teledyne a [5 % to
15 %]* estimated market share. This information has
been largely confirmed by the market
investigation,
although the share of the new entity is even smaller.

C i v i l h e l i c o p t e r s

(89)

The total worldwide market for weather radar for civil
helicopters amounts to USD [5 to 15]* million in 1998.
On this market, the notifying parties have a combined
market share of 100 % (AlliedSignal [75 % to 85 %]*;
is
Honeywell [15 % to 25 %]*), whereby AlliedSignal
supplying a stand-alone weather radar for retro-fit and
federated cockpits and Honeywell focuses on forward-fit
integrated cockpits.

(90)

The parties submit
that Fiar is competing for new
programs and that Rockwell Collins has a weather radar
product designed for military aviation that could be
certified for use in civil helicopters.

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(91)

submit

further

that as

The parties
the beaconing
capabilities of weather radar will no longer be needed
on account of the elimination of beacon technology and
its
in civil
helicopters can be replaced by weather radar for general
aviation or by higher-end avionics suites.

replacement by GPS, weather

radar

(92) However, given the fact that there are no other actual
suppliers of weather radar for civil helicopters, there are
serious doubts about the compatibility of the operation
with the common market and the EEA Agreement, on
the grounds
the operation would lead to a
strengthening of a dominant position on the market for
the
weather
remedies described below (at recital 125 et seq.) address
this specific issue.

civil helicopters. However,

radar

that

for

3. Effects of the operation on other markets

TAWS and IHAS

(93)

raises

about

doubts

The merger
the
serious
compatibility of the operation with the common market
that a
and the EEA Agreement, on the grounds
dominant position would be
strengthened on the
market for TAWS and would be created on the future
market for integrated hazard awareness systems (IHAS),
for the reasons set out below. Although, as explained in
the section on product market definition, one may
distinguish the TAWS market according to the aviation
segment in which it is sold, the analysis below covers all
aviation segments where AlliedSignal is currently active.

The new entity currently has a dominant position on the
market for TAWS

(94) With its enhanced ground proximity warning system
(EGPWS), AlliedSignal currently has a 100 % market
share.

(97)

(98)

The parties have submitted, however, that some five
companies have TAWS products in development. These
are
BF Goodrich,
EuroTelematik GmbH (ETG) and British Aerospace.

Sextant, Universal Avionics,

(95)

(96)

product on the market. Certification procedures are
underway for Sextant’s and Universal Avionics’ TAWS
products (8). BF Goodrich is developing a product that
will be suited to a smaller number of business aircraft.
ETG has a TAWS product available, although it is only
aviation segment. British
suited
Aerospace’s TAWS only has applications on military
aircraft, so it
is questionable how far their product
would be suited for commercial applications.

general

the

for

The above shows that although currently AlliedSignal
has a dominant position in TAWS, and any market
entry will not be immediate, several companies may
attempt to enter the market in the coming years and
challenge the position of the new entity as the sole
supplier. The expected growth in the market for TAWS
(see below) makes
attractive.
However, as explained below, the merger will have the
effect of
increasing barriers to entry for such new
entrants.

such market

entry

The anticipated growth in the market for TAWS leaves
significant scope for market entry

in

for

Europe

the USA and

Considerable market growth is anticipated for TAWS.
That growth will be supported by the fact that mandates
for TAWS will come into place. The earlier generation
ground-proximity warning systems (GPWS) are currently
mandated
all
turbine-powered commercial aircraft and for turbine
powered aircraft for 10 passengers or more. For TAWS
(EGPWS), currently no mandate exists but there is a
proposed FAA mandate which will make TAWS
mandatory in 2002/2003 for new aircraft and by 2005
for existing aircraft respectively (for aircraft with a
In anticipation of those
minimum of six passengers).
mandates, and because of the safety improvement which
the product confers, the number of orders is expected to
increase strongly. Currently, AlliedSignal has already
taken orders for some 8 000 EGPWS. The parties have
submitted that the current market for TAWS may cover
as many as [10 000 to 20 000]* aircraft. The size of the
market may be expected to attract new entrants. A
further driver for market entry is that AlliedSignal has
been until now the only supplier of TAWS, and market
(including the parties) are expecting new
operators

The market investigation has pointed out that, although
these companies have competing TAWS products in
development and are anticipating their market entry,
them has an established TAWS
currently none of

(8) The parties have provided information that Universal has in fact
already sold its TAWS to an Indonesian (regional) airline company.
However, type certification still has to be obtained.

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TAWS suppliers to push market prices downwards, to
the benefit of customers. However, in spite of (future)
demand, new entrants, which already have to face
certain hurdles in entering the market, are confronted
with additional barriers to entry created by the merger.

As a result of the merger market entry barriers for
competing TAWS are increased

(99) As described in recitals 97 and 98, a number of
potential entrants exist on the market for TAWS. Even
without the merger, these potential competitors would
have a number of hurdles to overcome in order to enter
the market. For instance, new entrants face the problem
that they do not have a reputation with an established
TAWS product. Moreover, not all of
the potential
suppliers mentioned above have an established position
both in air
transport and in the regional/business
aviation segment. For example, Universal Avionics is
in the air
historically not a supplier of avionics
transport
in contrast with
In addition,
AlliedSignal, newcomers do not have an installed base
of an earlier-generation product (i.e. the GPWS), which,
it provides, can be
apart
for retro-fit sales with existing customers.
beneficial
Finally, a new supplier would face (initially at
least)
disadvantages relating to economies of scale.

from the reputation that

segment.

(100) From the fact that the abovementioned suppliers are
indeed working towards market entry,
it may be
concluded that although certain obstacles already existed
prior
considered
insurmountable. However, the investigation has pointed
out that as a result of the merger, further obstacles are
created, to the detriment of new entrants.

to the merger,

are not

these

equipment, it would have to have access to the technical
interface information of that other equipment, so as to
be able to make its TAWS interoperable. The new entity
could
such essential
information (to the advantage of its own EGPWS), and
thereby significantly limit the scope for market entry,
both for retro-fit and for for-wardfit TAWS.

any newcomer

deprive

of

(102) The requisite interface information not only involves
hardware specifications (for example, as regards the size
of
the
the LRU (line replaceable unit) and form of
such as data on the
connections), but also data,
electrical
specifications.
software
the
signals
Although a piece of the interface data may be defined in
a public format, a large part of the interface information
may be of a proprietary nature. It is noted that in the
regional/business segments ARINC standards that would
ensure an open infrastructure do not apply and that the
interface data are completely of a proprietary nature (9).

and

be

see (at

detrimental

integration),

recital 112 et
area of

(103) Therefore, whereas, in general, the technical bundling of
to
avionics products would not
competition (owing to the role of the OEMs and ARINC
seq.) under
standardisation:
technical
surveillance
in the
products, and notably as regards TAWS, such negative
effects could indeed occur. However, the undertakings
submitted
adequate
safeguards
they will ensure that
Honeywell products
and systems will have open
standards so that future TAWS providers will not be
further hampered in their attempts to enter the market.
These undertakings are further described (at recital 125
et seq.).

by
in the sense that

the parties will provide

(101) The new entity will be able technically to link its
EGPWS to other avionics equipment, so as to reduce
Indeed,
(potential) competition on the TAWS market.
Honeywell has a considerable market share for products
with which a TAWS must interoperate (on the input as
well as on the output side), both in air transport and in
the regional/business
segment. Those products are,
the GPS, FMC (flight management
among others,
computer),
the
segment, Honeywell has delivered
regional/business
around half of the integrated cockpits,
into which a
TAWS is to be retro-fitted. If a new TAWS competitor
were to wish to connect its product to such Honeywell

displays.

controls

flight

and

In

integration of

(EFIS-display), AlliedSignal

(9) In this regard, an example provided by the parties may serve as an
illustration: the parties have submitted a contract which shows that
the EGPWS with a Honeywell
for previous
a
had
display-product
considerable amount of money to Honeywell
to obtain the
it could make the
technical specification of
EGPWS compatible. Now,
to the
detriment of competitors of EGPWS, which either would not
obtain the specifications or would have to pay large amounts of
money for them.

the EFIS, so that
these costs would fall away,

pay

to

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In the absence of alternative TAWS suppliers, the merged
entity will be in a position to foreclose competition on
the future market for IHAS (integrated hazard awareness
surveillance system)

it

(104) As was described in recitals 97 and 98, a number of
companies are expected to try to enter the market with
is not
a competing TAWS technology. However,
certain that their entry will be successful. It may be, for
example, that their technology proves to be inferior to
the EGPWS. For the time being, there is no alternative
TAWS available. In the investigation, market operators
have stated that they feel that market entry may still
take several years. They have expressed the view that if
EGPWS technology remains the only established TAWS
technology available, the new entity would, as a result
the merger, be able to foreclose competition for
of
IHAS.

(105) Although AlliedSignal already had available in-house the
three products necessary for an integrated hazard
surveillance system, Honeywell’s engineering know-how
the new entity to develop an IHAS
will permit
successfully for the following reasons. According to its
statements, AlliedSignal
is primarily a provider of
stand-alone products. Until now, AlliedSignal, although
it has already announced the IHAS development, has
had to rely on third parties (Boeing and Airbus) for
further product
in the
integration. The
negotiations with Rockwell Collins for the supply of the
EGPWS, AlliedSignal has insisted on a development in
cooperative form and has
insisted on obtaining a
grant-back licence for newly developed integration
the more limited
technology,
is an illustration of
engineering capacity of AlliedSignal. Honeywell
is a
company that has
in integrating
products and even supplying fully integrated cockpits.
That experience is regarded as essential in designing an
IHAS [reference to internal document]*.

long experience

that

fact

hazard

integrated

surveillance

(106) As has been stated, a systems integration potential
(engineering know-how) is required to further develop
That
an
integration capability, in the general sense, is available
with at least two other suppliers on the market, Sextant
and Rockwell Collins, and, to a considerable degree, also
with the air
transport OEMs. Rockwell Collins has
shown its interest in obtaining the EGPWS functionality
for
product
further
development.

integration

product

system.

and

(107) At present, the EGPWS of AlliedSignal

is an essential
element of an IHAS. Therefore the new entity will be
able to control the future IHAS market. The parties have

submitted that there are already a number of alternative
suppliers of TAWS technology on the market. However,
as explained in recital 96, there is, as yet, no established
alternative for the EGPWS, and any third party wishing
to rely on
to develop an IHAS
currently has
technology is
AlliedSignal’s EGPWS technology. That
protected by several hundreds of patents, some of which
are considered (cid:145)key patents(cid:146),
further
product development.

especially for

(see

(108) Before the merger, AlliedSignal has shown a willingness
to provide the EGPWS to third parties with a system
as
integration
the
above
capacity
regards
Memorandum of Understanding
negotiated with
Rockwell Collins), which would allow such product
development. After the merger, the new entity will have
input to its
no incentive to supply such an essential
IHAS in a
competitors. The product development of
more
be
restricted, and as a result the new entity would have the
capacity and capability to become dominant on the
future market for IHAS.

environment will

competitive

therefore

Conclusion for the TAWS market and the future market
for IHAS

(109) For the above reasons, the Commission considers that
there are serious doubts as to the compatibility of the
operation with the common market and the EEA
Agreement, on the grounds that the merger will lead to
the strengthening of a dominant position for TAWS and
to the creation of a dominant position on the future
market for IHAS. However, the undertakings provided
by the parties discussed below (at recital 125 et seq.)
will provide an adequate remedy.

4. Range-effects

(110) Third parties, and in particular competitors, have
complained that the merger would harm competition
because of foreclosure effects that would occur. Such
effects would be due to the fact that the new entity
would be in a position to offer a broader product range
(of avionics as well as non-avionics products) than any
other competitor. That broader product range would
give the new entity an increased ability to technically
integrate products and to offer packages of avionics

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7.6.2001

products (multi-product bids). According to those third
parties, the consequence would be that competitors who
offer (stand-alone) products in competition with the
new entity, but who cannot benefit
from a similar
product range, would be put at such a competitive
disadvantage that clients would no longer consider
buying products from them. In the end, this would lead
to a loss of competitors, which, in an industry which is
already highly
concentrated, would work to the
detriment of customers of avionics.

would supply, (with the exception of TAWS; see recital
114), so that there is scope for customers to retaliate in
the event of any unwanted technical bundling. Lastly,
for the regional/business segment the technical bundling
issue would not manifest itself to the same extent, since
competition already takes place for complete integrated
cockpits, and in the general aviation segment, cockpits
are no
are
indications that
to the
merger.

(non-integrated)
this will change subsequent

federated

there

and

(111) Given

the

these

allegations,

has
investigated how far the merger would offer the new
entity such competitive advantages and if these would
result in the creation or strengthening of a dominant
position.

Commission

and mode S transponders. The

(114) A notable exception to the above, however, is the area
of TAWS and surveillance equipment, where the new
entity would be the only supplier with a TAWS. Also it
will be in a strong position for weather radar and ACAS
processors
above
description of TAWS and IHAS makes clear that, in the
absence of the undertakings discussed below, foreclosure
effects might occur as a result of technical bundling
practices,
the
regional/business
remedies described
below (at recital 125 et seq.) will serve to prevent such
a situation from occurring.

the
segments. The

transport

both

and

air

in

4.1. Technical integration

(112) The market investigation has shown that, in general, it
is considered an advantage that a company is able to
supply a larger
range of products. A supplier can
thereby ensure a certain common core in its product
range and ensure an enhanced interoperability of such
products, especially where these products are within the
same category of avionics products (communication,
navigation, and surveillance). From internal documents
supplied by the parties it appears that they themselves
see
respective
avionics products as a particular opportunity resulting
from the merger. As long as such technical integration
does not lead to foreclosure effects, improved technical
interoperability may generally be considered to be in the
interest of
in the air
transport segment in many instance prefer to carry out
technical
integration themselves and therefore do not
necessarily see this as a benefit).

(although OEMs

between their

customers

improved

interfaces

a

(113) The investigation has shown it to be unlikely that the
potential of the new post-merger entity to technically
bundle products will significantly impede competition.
First, this is because, in the air transport segment, the
OEMs have
capability
themselves and would only allow the technical bundling
to their own
of avionics
advantage.
is
widespread in air transport, so that the potential to link
products through proprietary interface technology is
very limited. Thirdly,
there are third-party suppliers
the products which the new entity
available for all

to take place if
Secondly,

standardisation

considerable

engineering

ARINC

it was

4.2. Commercial aspects

Range-effect in relation to the OEMs in air transport

(115) The market

indicated that

investigation has

any
range-effect relating to multi-product bids is not likely
to arise in relation to the OEMs, who are the customers
for SFE and SFE-option. In developing a new aircraft,
the OEMs request separate bids for non-avionics and
avionics products, which take place at different stages in
the development phase of an aircraft, as well as separate
bids for the individual avionics products.

R a n g e - e f f e c t i n r e l a t i o n t o t h e a i r l i n e s

(116) As was mentioned in recitals 17 to 21, airlines buy BFE
avionics and choose SFE-option avionics, which are in
fact purchased by the OEMs. Following the merger, the
product range that the new entity will have on offer to
airlines will not be significantly extended. The focus of
Honeywell’s activities has been on the OEMs (SFE sales),
with the exception of ACAS/mode S transponders and

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below,

SatCom. Following implementation of the undertakings
S
Honeywell’s
described
transponders will be divested, while SatCom represents a
relatively modest value, the overall worldwide market
representing a value of some USD [30 to 40]* million.

ACAS/mode

and matching is facilitated by the fact
that ARINC
standards make products interchangeable. The parties
have provided data, which show that only [20 % to
30 %]* of AlliedSignal’s multi-product bids (representing
[less than 10 %]* of the total bid value) are not broken
(cid:151) that is, where airlines have decided to buy the whole
package from the same supplier.

(117) The new entity will have a larger product range than its
competitors. However, Rockwell Collins has an almost
equivalent product range to be sold to airlines, and in
the value of all BFE avionics sold by Rockwell
fact
Collins is higher. Sextant also has a product range that
is sold to airlines and it has a growing presence for
SFE-option avionics (FMS and IRS/ADIRS/ADIRU (10)).

(118)

In addition, there is scope for competitors to extend
their product range, either via internal development of
products or by (cid:145)teaming(cid:146) with other
competitors.
Although competitors have pointed out that teaming is
not an alternative, on account of the extra cost and
organisation involved, it is considered that teaming can
still be a realistic alternative. This is for instance the case
for technical teaming, if an OEM asks avionics suppliers
to cooperate in order to develop a new product (for
example: Airbus has requested Sextant and Smiths to
develop a new FMS and Sextant and Litton to make an
ADIRU). With regard to commercial teaming it is true
that disadvantages exist, but there are several examples
where commercial teaming has been successful.

(119)

In relation to the airline customers, the investigation has
shown that
the practice of negotiating packages of
avionics products is relatively common in the industry,
although data obtained from the parties show that such
bids occur only in a minority of cases. Where such
packaging has occurred, it has mostly taken place for
forward-fit on new aircraft.

(120) Moreover, the investigation has shown that customers
can and do break the packages by (cid:145)mixing and
matching(cid:146) products from various suppliers. That mixing

(121) As to the option the new entity will have,

are

The

in-flight

annual market

there is no natural

entertainment, which

just as
AlliedSignal does at present, of offering packages of
it must be noted that
avionics and non-avionics,
although packages of non-avionics and avionics have
existed, they nevertheless are rare. In this respect the
merger does not change the situation to any great
degree. Moreover,
link between
avionics and non-avionics. The airlines are sophisticated
buyers who seek to purchase the best products from the
various suppliers.
likely that their
It is therefore not
choice of avionics products will be determined by the
non-avionics products. In addition, Rockwell Collins and
Sextant are both engaged in the rapidly growing market
of
high-value
products, whereas the new entity is not active in this
respect.
in-flight
entertainment is estimated to be USD [1 000 to 2 000]*
million, whereas the annual market value of APUs and
wheels and brakes is estimated to be USD [150 to 250]*
million and USD [800 to 1 300]* million respectively.
In terms of
and
non-avionics, these competitors would therefore be able
to offer significant competition to the new entity. In any
event,
the parties have
they will not bundle avionics and
undertaken that
non-avionics products
to any
aerospace customer unless (i) the customer to whom the
proposal
(ii) a
competitor has offered a similar bundle of products and
the offer is intended to meet competition. If a customer
requests alternative sources for any avionics product
included in the bundle of products the parties will
include alternative sources
in its
offering.

the Commission notes that

ability to supply avionics

in a single proposal

requested this or

submitted has

that product

value

the

for

of

is

(122)

In addition, the packages sold to airlines are likely to
decrease in importance, given the increasing trend for
supplies to be made on an SFE-basis rather than on a
BFE-basis. This trend, which has been widely confirmed
by the investigation, will have the effect that the OEMs,
which already enjoy buying power, will be able to
ensure the availability of choice.

(10) The ADIRU developed jointly by Sextant and Litton has obtained
half of the orders on new Airbus aircraft. On FMS, Sextant is
developing, together with Smiths, a new FMS for Airbus aircraft
and they have secured two thirds of the orders for new aircraft.

(123) As regards the airlines, therefore,

it can be concluded
that the proposed operation will not give the new entity
the scope to create or strengthen a dominant position.

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R e g i o n a l / B u s i n e s s A v i a t i o n

for which AlliedSignal

Consequently, Honeywell will

(124) The market investigation also made it clear that in this
segment Honeywell’s product range is extended with
is currently the only
TAWS,
a
supplier.
commercial
and
Sextant, the only two competitors supplying integrated
the latter are dependent on
avionics suites.
supplies of AlliedSignal/Honeywell in order to be able to
supply an avionics
suite, which includes TAWS.
However,
the remedies described below address this
specific issue.

advantage over Rockwell Collins

Indeed,

have

VI. UNDERTAKINGS SUBMITTED BY THE PARTIES

(125)

the Merger Regulation. This proposal

In order to remove the serious doubts raised by the
operation, on 15 October 1999, AlliedSignal and
Honeywell submitted a proposal for modification of the
operation in accordance with the terms of Article 8(2)
involved
of
undertakings
for
ACAS processors and mode S transponders (for air
transport and regional/business aviation) weather radar
for
aviation
and
civil
segments) (11).

related to the worldwide markets

helicopters

TAWS

(all

1. Description of the undertakings

(including mode S transponders)

(126) As regards ACAS processors and mode S transponders,
the parties have undertaken to divest Honeywell’s entire
TCAS business
in
favour of a viable and independent third party, within
the Commission’s decision. Once
six months of
implemented, this will remove the overlap between the
parties’ activities
in ACAS processors and mode S
transponders. An independent trustee will be appointed
the
to report
hold-separate obligation, the suitability of the purchaser,
the conduct of
the
agreements with the purchaser properly provide for the
divestiture of the relevant assets and business.

the negotiations and whether

to the Commission, on,

inter alia,

(127) With respect to weather radar, the parties undertake to
radar business which

divest AlliedSignal’s weather

(11) The parties have also submitted undertakings to the United States
Department of Justice (DoJ). These commitments are the same as
the ones submitted to the Commission, with two exceptions: the
undertakings on TAWS are not included, but a divestiture of the
parties’ overlapping activities as regards their space and military
activities is foreseen. In particular the parties have undertaken to
divest AlliedSignal’s Teterboro Space and Navigation business
its Cheshire
(gyroscopes and navigation and pointing systems),
Operations
its MicroSCIRAS
Technology.

gyroscopes),

(IMU and

and

a

radar,

viable
in favour of
third party within six months of

consists of the RDR-1400 and RDR-1500 series search
and
and weather
independent
this
Decision. Once executed, this will remove the overlap
between the parties’ activities with regard to weather
radar for civil helicopters. As for ACAS processors and
mode S transponders, an independent trustee will be
appointed to report to the Commission on the issues
mentioned above.

(128)

In respect of TAWS, the parties undertake to provide
any supplier of TAWS seeking to make its TAWS
product interface with any of the parties’ other avionics
products with all
licences and interface specification
data necessary to enable the TAWS product to interface
with the parties’ avionics products. These undertakings
will be of unlimited duration. The parties also undertake
to supply EGPWS boxes, EGPWS modules (that is, a
circuit card assembly module with a standard or a
customised interface) and future products with TAWS
functionality on a non-discriminatory basis to other
(potential) avionics suppliers and aircraft manufacturers.
The parties will also provide them with all licences and
interface specification data necessary to enable them to
interface their products with the EGPWS boxes, EGPWS
modules and future products with TAWS functionality
supplied by the parties. This undertaking will remain in
effect for a period of eight years from the date of the
Commission’s decision. However, supplies of EGPWS
boxes, EGPWS modules or other implementations of
to the undertakings, as
TAWS functionality pursuant
well as interface data, will be provided as long as an
is
aircraft and/or platform in which that product
installed or designed to be
in
installed remains
production. To ensure compliance with the undertaking
relating to TAWS, an independent expert will be
nominated and an arbitration procedure will be
established.

(129) The Commission conducted a market test to verify that
the proposed undertakings were sufficient to remove the
competitive concerns raised by this operation. In view
of the market test certain modifications to the proposed
undertakings were submitted on 27 October 1999. The
final divestment proposal is set out in more detail in the
text of the modification as accepted, which is annexed
hereto and forms an integral part of this Decision.

2. Assessment of the undertakingsg

(130) The undertakings have the effect of eliminating the
overlap created by the merger for ACAS processors and

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S

air

in the

transport

transponders

helicopters. With

mode
and
regional/business segments and for weather radar for
civil
the
undertakings have the effect of removing the barriers to
entry created by the merger and will ensure that further
product integration and future product development by
third parties remains possible.

TAWS,

respect

to

(131)

the

first

phase,

parties

submitted
also
In
the
to ACAS processors and
undertakings with respect
for civil
radar
mode S transponders and weather
helicopters. However,
these undertakings were not
considered to be sufficient to remove serious doubts, for
to ACAS
the following reasons. First, with respect
processors
the parties
and mode S transponders,
undertook to divest AlliedSignal’s business. According to
investigation, AlliedSignal’s products were
the market
the
the parties’ ACAS
processors and mode S transponders. Secondly, as
regards weather radar for civil helicopters, the parties
line, which,
undertook to divest only one product
according to the market investigation, did not constitute
a viable business.

less-advanced products of

(132) The proposed divestment,

submitted in the second
phase, of Honeywell’s TCAS business, including ACAS
processors
and mode S transponders, which are
according to the market investigation the state-of-the-art
products, corresponds to a market share of [30 % to
40 %]* in the air transport segment and of [40 % to
50 %]* in the regional/business segment and removes all
overlap between the parties on these markets. Moreover,
the TCAS divestment, together with the undertakings
concerning TAWS, will influence the parties’ position in
the area of surveillance avionics. This divestment will
also allow the purchaser of this business to extend its
scope for offering packages of avionics products.

(133) With

to

the

proposed

divestment

of
respect
civil
for
AlliedSignal’s weather
this divestment
helicopters,
represents a market share of
[75 % to 85 %]* and
eliminates all overlap between the parties on this
market.

it has to be noted that

business

radar

the merger. The new entrant will be able to hold, free of
charge and for an unlimited period, all the information
needed to make its TAWS product interoperate with the
merged entity’s products.

(135) With respect

and aircraft manufacturers

to the parties’ commitment

to supply
EGPWS boxes, EGPWS modules and future products
with TAWS functionality to other (potential) avionics
suppliers
(including all
licences and interface specification data necessary for
interface purposes), this undertaking has the effect that
(potential) avionics suppliers and aircraft manufacturers
desiring to integrate the merged entity’s TAWS products
into their
into a new
integrated surveillance system can do so on equal terms.
Further product
integrated
systems, including IHAS, will therefore remain possible,
both technically and commercially.

development of more

integrated avionics

suite or

VII. CONCLUSION

(136) Consequently, the Commission concludes that, subject
to full compliance by AlliedSignal and Honeywell, their
including the new
subsidiaries, successors and assigns,
company created by the merger, namely Honeywell
International Inc., with the conditions and obligations
laid down in Annex I, the proposed concentration will
not create or strengthen a dominant position as a result
of which effective competition would be significantly
impeded in the common market, or in a substantial part
of it, or in the EEA,

HAS ADOPTED THIS DECISION:

Article 1

(134) As regards TAWS, the parties’ commitment to provide
any supplier of TAWS with all
licences and interface
specification data necessary to enable its TAWS product
to interface with the parties’ avionics products, will have
the effect of removing the barriers to entry created by

Subject to full compliance by AlliedSignal and Honeywell, their
subsidiaries, successors and assigns including the new company
created by the merger, Honeywell International Inc., with the
conditions and obligations contained in the commitments laid
down in Annex I, the concentration by which AlliedSignal and
Honeywell propose to enter into a full merger is declared
compatible with the common market and the functioning of
the EEA Agreement.

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Article 2

This Decision is addressed to:

AlliedSignal Inc.
101 Columbia Road
PO Box 1087
Morristown
New Jersey 07962-1087
USA

and

Honeywell Inc.
Honeywell Plaza
PO Box 524
Minneapolis
Minnesota 55440-0524
USA

Done at Brussels, 1 December 1999.

For the Commission

Mario MONTI

Member of the Commission

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The full English text of the commitments referred to in Article 1 may be consulted on the following Commission
website:

ANNEX I

http://europa.eu.int/comm/competition/index_en.html

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ANNEX II

GLOSSARY

Product

Description

ACARS

aircraft communication addressing and reporting system

ACAS processor

airborne collision avoidance system: helps prevent collisions by identifying and
displaying the location of surrounding aircraft providing audible warnings and in
advanced versions manoeuvering instructions

ADIRS/ADIRU

air data inertial reference system/unit: device that combines the functions air data
computer and inertial reference system

AEEC

Airlines Electronic Engineering Committee

Air data computer

the air data computer computes aircraft (cid:145)true (cid:146) airspeed, altitude and vertical speed

APU

ARINC

ATC

BFE

CMU

Com/Nav

CVR

Displays

EAEC

ECS

auxiliary power unit: generates the electrical power on the aircraft

aeronautical radio incorporated

air traffic control

buyer furnished equipment: refers to the buyer of the aircraft

communication management
two-way
communication link between an aircraft and ground control centres

unit: manages

the

text

and

data

pilot
communication/navigation:
communications to/from ground or airborne operation centres

transmits

receives

and

voice

and

other

cockpit voice recorder

electronic instrument systems that display information from avionics subsystems

European Airlines Electronics Committee

environmental control systems: air-conditioning systems, blend air control systems,
cabin-pressure systems and smoke-detection systems

EGPWS/GPWS

(enhanced) ground proximity warning system: displays nearby terrain and warns of
potential impact

FAA

FDR

Federal Aviation Administration (USA)

flight data recorder

Flight controls

autopilot systems

FMC

flight management computer

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FMS

GPS

IHAS

IRS

JAA

LRU

MMR

Product

Description

flight management system: helps flight crews compute the most efficient flight profile
and automatically navigates the aircraft

global positioning system (satellite based)

integrated hazard awareness (or avoidance) system

inertial reference system: are airframe motion sensors and navigation sensors that are
used by other navigation systems (autopilot/flight director, attitude/heading display,
flight management system weather radar antenna stabilisation and SatCom antenna
pointing)

Joint Aviation Authorities (Europe)

line replaceable unit: standardised equipment (cid:145)black box(cid:146)

multimode radio/receiver: provides precision approach guidance to airports that have
traditional ground-based instrument
and satellite-based
non-precision approach guidance using a built-in global positioning system (GPS)

landing systems

(ILS)

Mode S transponder

functions together with ACAS processors for the identification of other planes and
their bearing, as well as determining the appropriate response to a threat of collision

OEM

Recorders

SatCom

SFE

STC

TAWS

TC

TCAS

original equipment manufacturer: the aircraft manufacturer in this industry

record flight data information and cockpit voice

(satellite communications): sends and receives data and voice telephony to the ground
via satellite

supplier furnished equipment: refers to the seller of the aircraft

supplementary type certification

terrain avoidance warning system

type certification

traffic alert and collision avoidance system: the American term for ACAS

Weather radar

displays rainfall, turbulence and, in certain models, wind shear