CELEX: 32018M8960
Language: en
Date: 2018-10-05 00:00:00
Title: Commission Decision of 05/10/2018 declaring a concentration to be compatible with the common market (Case No COMP/M.8960 - Adient plc / The Boeing Company) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 05.10.2018
                                                                C(2018) 6643 final
  In the published version of this decision, some
  information has been omitted pursuant to                               PUBLIC VERSION
  Article 17(2) of Council Regulation (EC)
  No 139/2004 concerning non-disclosure of
  business secrets and other confidential
  information. The omissions are shown thus
  […]. Where possible the information omitted
  has been replaced by ranges of figures or a
  general description.
                                                                To the notifying parties
Subject:            Case M.8960 – Adient/Boeing/JV (Aircraft seats)
                    Commission decision pursuant to Article 6(1)(b) of Council
                    Regulation No 139/20041 and Article 57 of the Agreement on the
                    European Economic Area2
Dear Sir or Madam,
(1)         On 31 August 2018, the European Commission received notification of a
            proposed concentration pursuant to Article 4 of the Merger Regulation by which
            The Boeing Company (“Boeing”, United States) and Adient plc (“Adient”,
            United States) via its subsidiary Adient US LLC acquire within the meaning of
            Article 3(1)(b) and 3(4) of the Merger Regulation joint control of newly created
            joint-venture Adient Aerospace, LLC (the “Seats JV”)3 (“the Transaction”).
            (Boeing and Adient are designated hereinafter as “the Parties”.)
1    OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty on
     the Functioning of the European Union ('TFEU') has introduced certain changes, such as the
     replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology of
     the TFEU will be used throughout this decision.
2    OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
3    Publication in the Official Journal of the European Union No C 322, 12.9.2018, p. 19.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.          THE PARTIES
(2)         Boeing designs, manufactures and sells commercial jetliners and defence, space
            and security systems. Boeing also provides aftermarket services for the
            aerospace market. Its products and services include commercial and military
            aircraft, satellites, electronic and defence systems, launch systems, advanced
            information and communication systems.
(3)         Adient designs, manufactures and markets seating systems and seating
            components for passenger cars, commercial vehicles and light trucks. In
            addition, Adient supplies seating systems to the commercial trucking and
            international motorsports industry. Adient's seating activities are limited to the
            automotive sector. It does not manufacture or sell aircraft seats.
2.          THE OPERATION
(4)         The purpose of the Seats JV will be to design, develop, manufacture and sell
            [description of the JV's scope] seats for both regional and large commercial
            aircraft. The Seats JV will [description of the JV's scope]. The Seats JV will sell
            its seats primarily directly to airlines and aircraft leasing companies in both line-
            fit and retro-fit4 situations on regional and large commercial aircraft of Boeing
            and of other aircraft manufacturers.
(5)         The Contribution Agreement between the Parties was signed on
            11 January 2018 and the finalised Limited Liability Company (LLC)
            Agreement5 will be signed upon fulfilment of the conditions required for “Initial
            Closing”, as laid down by the Contribution Agreement6.
(6)         Pursuant to the Contribution Agreement, the Seats JV will be jointly owned by
            Adient and Boeing with 50.01% and 49.99% of the shares in the Seats JV
            respectively. Adient and Boeing will contribute […].
(7)         [Description of the JV's governance structure]7,8,9,10.
(8)         Thus Adient and Boeing will have joint control of the Seats JV pursuant to
            Article 3(1)(b) of the Merger Regulation.
4   The installation of aircraft seats prior to the initial delivery of a newly manufactured aircraft is called
    "line-fit". "Retrofit" refers to the replacement of aircraft seats by new seats at any time following the
    initial delivery of an aircraft.
5   Annexes 9 and 10 to the Form CO.
6   See Contribution Agreement Article VI, Annex 9 to the Form CO.
7   […].
8   […].
9   […].
10  Section 4.6 (h) to (kk) of the Form of LLC Agreement.
                                                             2
 ---pagebreak--- 3.       FULL FUNCTIONALITY OF THE JOINT VENTURE
(9)      The parties will create a full-function joint venture within the meaning of
         Article 3(4) of the Merger Regulation.
         a.   As regards the Seat JV’s resources to operate independently on the market,
              the Seat JV will have its own financial resources, management and staff
              (transferred or seconded from Adient and Boeing as well as hired by the
              Seats JV), intellectual property rights, manufacturing plants, production
              tools and office premises.
         b.   As regards the scope of the Seat JV’s activities, the Seat JV will itself
              engage in product development, manufacturing, and marketing of aircraft
              seats and sell them on the market
         c.   As regards sales and purchase relations with the Parties, the seats JV will
              not make the majority of its sales or purchases to and from the Parties
              parents. It is currently envisaged that the Seats JV will purchase […]
              components from Adient at arms’ length conditions and the Seats JV will
              design and manufacture its own aircraft seats, thus adding considerable
              value to the components purchased from Adient. The JV’s main customers
              will be airlines and commercial aircraft leasing companies rather than
              aircraft manufacturers and the Seats JV will only occasionally sell to
              Boeing.
         d.   Finally, the Seats JV will be set up for an indefinite period of time. The
              Seats JV is, therefore, intended to operate on a lasting basis.
4.       EU DIMENSION
(10)     The undertakings concerned have a combined aggregate world-wide turnover of
         more than EUR 5 000 million11 (Boeing EUR 82 670 million,
         Adient EUR 14 704 million). Each of them has an EU-wide turnover in excess
         of EUR 250 million (Boeing EUR […], Adient EUR […]), but they do not
         achieve more than two-thirds of their aggregate EU-wide turnover within one
         and the same Member State. The notified operation therefore has an EU
         dimension pursuant to Article 1(2) of the Merger Regulation.
5.       MARKET DEFINITION
(11)     The Transaction concerns the manufacture of aircraft and of seating used on
         such aircraft.
11  Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                        3
 ---pagebreak--- 5.1.      Manufacture of aircraft
5.1.1.    Product market
(12)      Boeing is active in the manufacture of different types of aircraft. Commission
          precedents have generally differentiated the following main categories of
          aircraft: commercial aircraft (which include large commercial aircraft, regional
          aircraft, and business/corporate jets), military aircraft, helicopters and general
          aviation aircraft.12
(13)      Within commercial aircraft the precedents differentiated three segments:13
          a.   Large commercial aircraft (i.e., aircraft with more than 100 seats, a range of
               greater than 2000 nautical miles and a cost in excess of USD 35 million). A
               distinction can be drawn between:
               i.   narrow-body (or single-aisle) aircraft, which have approx. 100-200
                    seats and travel medium distances (2000-4000 nautical miles); and
              ii.   wide-body (or twin-aisle) aircraft, which typically carry 200-850
                    passengers and can travel longer routes (4000 - 8000+ nautical miles).
          b.   Regional aircraft (i.e., aircraft with approx. 30-90 seats, a range of less than
               2,000 nautical miles and a cost of up to USD 30 million);
          c.   Business/Corporate jets (i.e., aircraft designed for corporate activities and
               with a cost generally in the region of USD 3 - 70 million).
(14)      Following those precedents, additional aircraft were introduced to the market
          that fall into the 90-120 seats range that may potentially blur the previous
          distinction between narrow-body large commercial aircraft and regional
          aircraft14, such as the Embraer E190 or the Airbus A220-100 and A220-300
          (formerly Bombardier CS100 and CS300). The Commission has therefore
          considered in a recent case a further split of the potential product market for
          narrow-body aircraft into (i) a segment for narrow-body aircraft with
          90-120 seats and (ii) a segment for narrow-body aircraft with 120-200 seats15. In
          any event, the sub-segmentation of the product market for commercial aircraft
          can be left open in this case as no serious doubts arise under either of the
          alternative market definitions.
12  Case M.1601, Allied Signal/Honeywell, paragraph 11.
13  Case IV/M.877, Boeing/McDonnell Douglas, paragraphs 15 and 16; Case M.1601, Allied
    Signal/Honeywell, paragraph 13; Case M.2220, General Electric / Honeywell, paragraph 10.
14  See also page 65 and Chart 14 of the Industry report 'Commercial Aerospace Primer' by Bank of
    America/Merrill Lynch, 04 May 2016.
15  M.8858, Boeing/Safran/JV (Auxiliary power units), paragraph 14.
                                                      4
 ---pagebreak--- 5.1.2.    Geographic market
(15)      All markets, with the exception of military aircraft, have been considered to be
          worldwide in geographic scope.16 The market investigation in this case has not
          provided any reasons to deviate from those precedents. The markets for the
          manufacture of aircraft relevant for this case, that is to say the markets for the
          manufacture of regional and large commercial aircraft and their potential sub-
          segments, are therefore considered to be worldwide in scope.
5.2.      Manufacture of aircraft seating
5.2.1.    Product markets
(16)      A Commission precedent17 examining aircraft seating found that aircraft seats
          constituted a separate market and considered several segmentations: First, the
          Commission found that aircraft seats could be differentiated according to the
          type of the aircraft, into seats for regional and large commercial aircraft on the
          one hand and seats for business aircraft on the other hand, due to the different
          size of the seats. Second, the Commission considered that within regional and
          large commercial aircraft, the differentiation between first, business and
          economy class can be made because of the differences in price, in market
          demand in number of seats for each class, in functionality and in comfort of
          seats. The Commission however left the ultimate market definition open.
(17)      The Parties submit that that aircraft seats constitute a separate market. They also
          believe that, given the strong supply-side substitutability between the different
          categories of aircraft seats, all aircraft seating products should be considered
          part of the same product market.18
(18)      As regards a sub-segmentation of the aircraft seating market by type of aircraft,
          responses19 by market participants were mixed. Some held that business jet
          seating was significantly different from commercial aircraft, as they have some
          specificities in their appearance and design and need to encompass a broader
          range of functionalities if needed. Others noted that overall competitive
          conditions were however similar; such as negotiation processes and many of the
          same suppliers. At the same time, regional and large commercial aircraft were
          noted to differ in their procurement process; seating for regional is more often
          procured by the aircraft manufacturer while for large commercial it is more
          often procured by the airline.
(19)      In any event, for the purposes of this decision, the question whether the product
          market for aircraft seating should be sub-segmented by type of aircraft can be
          left open, as no serious doubts arise under any alternative product market
          definition.
16  Case M.8858, Boeing/Safran/JV (Auxiliary power units), paragraph 15; M.2220, General
    Electric/Honeywell, paragraphs 10-34; Case M.1601, Allied Signal/Honeywell, paragraph 13; Case
    IV/M.877, Boeing/McDonnell Douglas, paragraphs 14-20.
17  Case M.8305, Rockwell Collins/BE Aerospace, paragraphs 14 and 16.
18  Form CO, paragraph 167.
19  See replies to question 11 of the Commission's questionnaire of 6 September 2018.
                                                        5
 ---pagebreak--- (20)      As regards a sub-segmentation of the aircraft seating market by seat class, the
          market investigation in this case provided indications that there may indeed be a
          degree of substitutability between aircraft seating for different seat classes on a
          commercial aircraft: however, it pointed to some differences at the same time.
          Price levels of economy and "premium" (that is to say business and first class)
          seats were found to be significantly different. Also the sophistication of the seats
          and the skill required to produce premium seats was reported to be significantly
          higher such that a large number of suppliers was found to be active in economy
          seats only. The production volumes and also the production processes were also
          mentioned to differ, premium class seats requiring more manual labour while
          economy seat production was more automatized. Furthermore, certification was
          reported to be more challenging and to take longer for business class seats as
          opposed to economy. No such specific differentiators were mentioned between
          aircraft seats for first class and business class, as part of the premium segment. It
          was noted in addition that the boundary between business and first class seats
          was blurring and the number of first class seats decreasing as a result of business
          class products undergoing significant development and upgrade.20 For the
          reasons above, it is conceivable that a separate product market for business class
          seating could exist.
(21)      However, for the purposes of this decision, the question whether the product
          market for aircraft seating should be sub-segmented by seat class can be left
          open in this case as no serious doubts arise under any alternative product market
          definition.
(22)      Furthermore, aircraft manufacturers such as Boeing act as resellers of aircraft
          seats in certain instances, (see also paragraph (24)). The Commission can leave
          open whether such resales fall into the same product market as the sales by
          aircraft seat manufacturer (see the assessment of a potential horizontal overlap
          assessed under section 6.1) or whether they fall into a product market
          downstream of the sale by aircraft manufacturers (see the assessment of the
          vertical links under section 6.2) as no serious doubts arise under any alternative
          product market definition.
5.2.2.    Geographic markets
(23)      The Commission has defined the markets for aircraft seating as global, finding
          that the competitive conditions for the purchase of aircraft seats do not differ
          between the EEA and the rest of the world.21 The Parties share this view22,
          which has been confirmed by the market investigation in this case as well.23 The
          geographic market for the sale of aircraft seats and its potential sub-segments
          are therefore considered to be worldwide in scope.
20  See replies to question 10 of the Commission's questionnaire of 6 September 2018.
21  Case M.8305, Rockwell Collins/BE Aerospace, paragraphs 15.
22  Form CO, paragraph 170.
23  See replies to question 12 of the Commission's questionnaire of 6 September 2018.
                                                        6
 ---pagebreak--- 6.        COMPETITIVE ASSESSMENT
(24)      The sale of aircraft seats usually occurs under the buyer furnished equipment
          (“BFE”) model where the final customers, such as airlines and aircraft leasing
          companies, purchase new seats directly from aircraft seat manufacturers to outfit
          their newly purchased aircraft or upgrade an existing aircraft. Alternatively, the
          sale may occur under the supplier furnished equipment (“SFE”) model where
          the final customers purchase the seats from the aircraft manufacturer.
(25)      Under both models, the aircraft manufacturer installs the aircraft seats on the
          newly acquired aircraft (usually not, however, on existing aircraft), but the
          contractual relations differ: Under the BFE model, which according to Boeing
          accounts for [80-90]% of the sales of seats on large commercial aircraft in line-
          fit situations,24 the final customer (i) chooses the type and number of seats;
          (ii) negotiates the price and other terms of supply directly with the seats
          manufacturer; (iii) enters into a direct supply agreement with the seat
          manufacturer; and (iv) is invoiced directly by the seat manufacturer. In line-fit
          situations, the supplier and equipment chosen must be approved by the aircraft
          manufacturer only with regard to performance requirements (quality, delivery,
          compliance, etc.). Under the SFE model, the final customer negotiates the
          supply of aircraft seats with the aircraft manufacturer and accordingly enters
          into a contract for the supply of aircraft seats with the aircraft manufacturer.
(26)      Against that background, the Transaction creates
          a.    potential horizontal overlaps in the sale of aircraft seats where Boeing is
                active to a limited extent and where the Seats JV will be active,
          b.    a vertical relationship since the Seats JV will be active in the production of
                aircraft seats which are sold directly to aircraft manufacturers such as
                Boeing if the final customers decide to purchase aircraft seats under the
                SFE model in line-fit situations, and
          c.    a conglomerate relationship since the Seats JV will be active in the
                production of aircraft seats and Boeing is active in the production of aircraft
                and both products are sold directly to the final customer around the same
                time if the final customers decide to purchase aircraft seats under the BFE
                model in line-fit situations.
(27)      In addition, the Commission has examined whether the Transaction could have
          adverse effects on the sale of aircraft seat in retro-fit situations, where the final
          customer decides to purchase new aircraft seats for an aircraft it already owns,
          since the Seats JV will be active in the production of aircraft seats for such retro-
          fit situations and Boeing has been alleged by some market participants to have
          influence over the choice of retro-fit seat suppliers.
24 Boeing estimates that [80-90]% of its seats deliveries on new aircraft were under the BFE model and
   that this figures is the same for the entire market for seats on new large commercial aircraft, Form CO,
   paragraph 147.
                                                          7
 ---pagebreak--- 6.1.       Potential horizontal overlap25
(28)       The Parties submit that Boeing merely re-sells aircraft seats that it purchases
           from third parties and does not manufacture the seats. They argue that, therefore,
           no horizontal overlap arises.26
(29)       Boeing does not manufacture aircraft seats. However, it sells aircraft seats in
           connection with the modification or upgrade of aircraft interiors through its
           subsidiary Boeing Global Services (“BGS”)27 and has a co-development
           arrangement with aircraft seat manufacturer LIFT/Encore for the design,
           manufacture and sale of seats for certain Boeing aircraft under the SFE model.
(30)       If, on a conservative basis, those resale volumes of aircraft seats are attributed to
           Boeing (rather than to the seat manufacturer), Boeing achieved a market share of
           approximately [0-5]% in 2017, BGS included.28 The Seat JV’s market share is
           currently 0%. Regarding future sales, the Parties expect (i) the Seats JV to
           achieve a market share of [5-10]% in aircraft seats by 2028 on an overall market
           for seats, with a market share of up to 10% in the sub-segments of business class
           seats and economy class seats for large commercial aircraft and (ii) Boeing to
           achieve a market share of less than 10% in the next ten years.29
(31)       The combined market shares of the Seats JV and Boeing are therefore likely to
           remain below 20% in the foreseeable future. The market is currently
           characterised by the presence of the three strong competitors Safran, Rockwell
           Collins and Recaro30 and the presence of a large number of smaller suppliers, as
           set out below in Table 1, Table 2 and Table 3. This indicates that the Parties and
           the JV are unlikely to obtain market power in aircraft seats in the foreseeable
           future.
(32)       Moreover, no concerns were raised in the market investigation as regards the
           potential overlap between the activities of Boeing and the Seats JV in selling
           aircraft seats.
(33)       Based on the assessment in paragraphs (29) to (32), the Commission concludes
           that the Transaction does not raise serious doubts as to its compatibility with the
25  An additional potential horizontal overlap in the sale of spare parts for aircraft seats does not lead to
    affected markets today or in the foreseeable future. Boeing’s subsidiary Aviall had a market share of
    less than [0-5]% in the distribution of spare parts for aircraft seats in 2017 while the Seat JV’s market
    share in the sale of spare parts is not expected to exceed its market share in aircraft seats (currently 0%
    and estimated to reach at most 10% in the segments of business class seats and economy class seats in
    the first 10 years of operation).
26  Form CO, paragraph 187.
27  BGS sells seats for retro-fit purposes only as part of a wider service, but not on a standalone basis.
    Typically, however, the seats are purchased and provided directly by the airline customer, Parties’
    response to RFI1, part 1, question 1a.
28  Form CO, paragraphs 136 and Parties’ response to RFI1, question 1a on 7 September, 2018 and to
    RFI 4bis on 4 October, 2018: If the sub-segment of seating for large commercial and regional is
    considered, this share rises to [0-5]%.
29  Parties’ response to RFI1, question 1b on 7 September, 2018.
30  See replies to question 13 of the Commission's questionnaire of 6 September 2018.
                                                           8
 ---pagebreak---            internal market with respect to the horizontal overlaps brought about by the
           Transaction.
6.2.       Vertical31,32 and conglomerate relationships
(34)       The Seats JV will create future vertical and conglomerate relationships between
           the Seat JV’s manufacturing of aircraft seats and Boeing’s manufacturing of
           commercial aircraft as set out in paragraph (26).
(35)       As a potential new entrant, the Seats JV currently has a market share of 0% and
           will be a new source of supply. None of the current aircraft manufacturers or
           final customers relies on the Seats JV for any of their aircraft seats purchases. If
           aircraft manufacturers and final customers were to purchase aircraft seats from
           the Seats JV in the future, this would mean that they would benefit from the
           existence of an additional source of aircraft seat supply, extending rather than
           limiting their choice of aircraft seat supplier. Therefore, no input foreclosure
           concerns will arise in this case.
(36)       The Commission’s investigation therefore focussed on potential customer and
           conglomerate foreclosure concerns, as well as on concerns about the disclosure
           of commercially sensitive information raised during the market investigation as
           set out in sections 6.2.1 to 6.2.3.
6.2.1.     Concerns raised during the investigation
           Foreclosure effects
(37)       Some aircraft seat producers expressed concerns during the market investigation
           of being excluded from future purchases of seats for Boeing aircraft, as Boeing
           would favour aircraft seat purchases from the Seats JV. They acknowledge that
           Boeing does not itself choose the aircraft seat supplier in the vast majority of
           cases. They submit, however, that Boeing will be able to influence the final
           customers’ choice of seats for all Boeing aircraft through different mechanisms,
31  An additional future vertical link between Adient and the Seats JV concerning components for aircraft
    seats does not lead to vertically affected markets today or in the foreseeable future. Adient does not
    currently sell components for aircraft seats with the exception of a one-time indirect supply […].
    Adient’s market share is currently marginal in the supply of components for aircraft seats and the
    market share of the Seats JV is 0% (and expected to increase to [10-20]% in certain segments of the
    aircraft seats markets by […]). The market shares are therefore likely to remain below 30% in the
    upstream and downstream markets.
32  An additional potential vertical link between Adient and the Seats JV concerning the testing of aircraft
    seats is unlikely to lead to affected markets and ultimately competition concerns. Adient owns an
    aircraft testing facility in Germany which is used for the testing of aircraft seats of […]. Adient
    acquired the testing facility in 2012 […]. The vast majority of aircraft seat manufacturers have testing
    capabilities of their own and are thus unaffected by this link. Furthermore, […] is unlikely to be
    negatively affected by this link going forward: The testing facility has sufficient capacity to be used by
    both […] and the Seats JV. Furthermore, […] could use the crash testing facilities of alternative
    providers such as TASS International and Centre d’Essais Dynamiques. Moreover, […] has announced
    investment in new facilities, including […] (see Parties’ response to RFI1), question 2 and Annex 3. In
    addition, the Parties report in their reply to RFI3 on 3 October 2018 that the total cost of the aircraft
    seat testing services that Adient provides to […] at its testing facility in Kaiserslautern is […] which,
    according to the Parties’ estimates, amounts to [0-5]% of the variable and total production costs of […]
    in the EEA.
                                                         9
 ---pagebreak---          including: Boeing could decide to limit the number of aircraft seat suppliers
         available in line-fit situations on Boeing aircraft since Boeing decides which
         suppliers’ aircraft seats are offerable on its newly purchased aircraft. Boeing
         could grant the Seats JV more favourable conditions (such as granting the
         Seats JV reduced or waived IP royalty fees to be paid to Boeing or providing the
         Seats JV better or more rapid access to information relevant for obtaining
         regulatory approvals of its seats) while worsening simultaneously the conditions
         for the competing seats suppliers. All of those and similar mechanisms would
         result in loss of turnover of competing aircraft seat suppliers in sales of seats on
         Boeing aircraft.33
(38)     Some of the complaining aircraft seat producers argue that such reduced or
         discontinued sales of aircraft seats on Boeing aircraft would have negative
         effects on the competitiveness of aircraft seat suppliers and on the markets for
         aircraft seats as a whole. Those seat producers argue principally that the reduced
         sales would lead to higher prices of aircraft seats as research and development
         costs would have to be spread across a smaller number of aircraft seats sold.
         Alternatively, the potential decrease of sales could lead to a reduction in
         innovation in order to keep costs down. They argue that the final customers and
         potentially also manufacturers of large commercial aircraft could be faced with
         higher prices and less innovation as a result of the Transaction.34
         Access to commercially sensitive information
(39)     Some aircraft seat producers raised concerns during the market investigation
         relating to the Seat JV’s potential access to competing seat suppliers’
         commercially sensitive information. They explained that Boeing requires a large
         amount of confidential information to be transmitted to Boeing to become
         offerable on Boeing aircraft.35
(40)     One of the seat producers in particular submits that the value of its confidential
         business information cannot be fully preserved through IP rights because assets
         such as know-how are not in the scope of IP rights. It further considers that non-
         disclosure agreements used in its business with Boeing are insufficient to ensure
         that its information will not be used by the Seats JV to gain market share to the
         detriment of competing suppliers. A major concern in this respect would be the
         announced transfer to the Seats JV of personnel handling Boeing's seat
         purchases until recently.36
(41)     Such access to commercially sensitive information for the Seats JV through
         Boeing would put competitors at a disadvantage, dissuading them to expand and
33 See replies to question 2 of the Commission's questionnaire of 6 September 2018 and the
   complainant's submissions on e.g. 3, 11 and 20 September, 2018.
34 See e.g. the complaint's submission on 3 September 2018.
35 See replies to questions 2 and 14 of the Commission's questionnaire of 6 September 2018 e.g. the
   complaint's submissions on 5 July and 11 September 2018.
36 See e.g. the complaint's submission on 24 July 2018.
                                                      10
 ---pagebreak---            make investments in research and development, leading to negative effects
           mainly in terms of chilling innovation efforts.37
6.2.2.     The Parties' views
(42)       On a general note, the Parties submit that the rationale behind the creation of the
           Seats JV has been the ongoing frustration of airlines with the performance of the
           leading suppliers of aircraft seats and resulting repeated delivery delays since
           already a number of years.38 Boeing argues that these issues are also well
           documented in the press39 and notes that it recorded […] occurrences of seating
           delivered late to a scheduled due date between 2012 and 2017, out of which
           were […] occurrences where seat shipments were received more than
           60 calendar days late, effectively delaying the delivery of the aircraft.40
           Foreclosure effects
(43)       The Parties note that Airbus, through its subsidiary Stelia Aerospace ("Stelia"),
           has already been vertically integrated into seats production for years. Stelia seats
           are deployed on more than 40 airlines and are mounted on both Airbus and
           Boeing aircraft. The Parties consider that the Airbus Stelia business model of
           competing against non-integrated seat suppliers in the supply of seats for use on
           both Airbus and Boeing aircraft is the same as the plan for the Seats JV.
(44)       Further, Boeing argues that it does not have the ability to foreclose competing
           seat suppliers. Boeing explains41 that it does not have the ability to drive
           customers' choice, as seats are an important competitive differentiator for
           airlines, and airlines are likely to push back against any hypothetical effort by
           Boeing to offer a single choice of seat supplier, stressing that the ultimate
           decision lies with the customer.42
(45)       Boeing submits43 that the purpose of the offerability process does not lend
           Boeing a "gatekeeper role". The purpose of the offerability process, Boeing
           explains, is to ensure that seats offered to customers for particular aircraft orders
           are technically suitable and available for that particular order. This is evaluated on
           a project-by-project basis. In Boeing's view, customers assume a significant role
37  Ibidem.
38  Form CO, paragraph 7.
39  See e.g. Air Transport News, “787 Seat Supply Delays Continue But Solution Is Close” (22 Apr
    2015), available at https://www.ainonline.com/aviation-news/air-transport/2015-04-22/787-seat-
    supply-delays-continue-solution-close; Skift, “United Is Mothballing Perfectly Good New Aircraft
    Thanks to Delayed Seats” (27 May 2017), available at https://skift.com/2017/03/27/united-is-
    mothballing-perfectly-good-new-aircraft-thanks-to-delayed-seats/; and Bloomberg, “United’s New
    777s     Struggle    With      Luxury     Seat    Delays”     (30   Mar   2017),    available   at
    https://www.bloomberg.com/news/articles/2017-03-30/united-s-new-luxury-777-cabin-stumbles-on-
    zodiac-seat-delays.
40  Form CO, paragraph 80 and Annex 1 to Boeing's reply to the Commission's request for information on
    09 August 2018 concerning internal records on delivery delays.
41  Form CO, paragraph 160 and the Parties' submission prepared by CRA, page 4, 11 September, 2018.
42  Form CO, paragraph 50.
43  See point 1.09-1.11 of the Parties' submission […] of 11 September 2018.
                                                        11
 ---pagebreak---          and can and do request seats that Boeing does not initially identify as offerable for a
         given project. Boeing needs to answer to the airlines and in the past has been
         required to justify to these airlines its decision not to make offerable a particular
         seat.
(46)     Boeing acknowledges that it plans the Seats JV to become […] supplier for
         aircraft seats that Boeing sells under the SFE model. Boeing observes, however,
         that this represents only a small percentage of all aircraft seats sold (approx.
         15% of all line-fit installations for large commercial aircraft globally while line-
         fit installations on Boeing aircraft represent around one third of all aircraft seats
         sold).44
(47)     Boeing submits45 that all Boeing demand for line-fit seats represents roughly
         only one third of the market, while Airbus line-fit is another third and retro-fit
         being the remaining third. Therefore, under all assumptions, the addressable
         market would remain sizable for competing aircraft seat suppliers.
(48)     Boeing also adds that the Seats JV's business plan does not foresee a capacity
         planning that would enable it to become the supplier of choice for all demand of
         aircraft seats on Boeing aircraft. It targets to achieve a [5-10]% market share on
         an overall market for aircraft seats in 10 years, built up gradually. Boeing states
         that […].46
(49)     Boeing reasons that it does not have the incentive to limit airlines' choice on the
         selection of seats, as this could damage its relationship with its airline customers
         who prefer to have a large number of options and use interiors as an important
         differentiator against their rivals. Favouring its own Seats JV could potentially
         reduce the attractiveness of Boeing aircraft and thus ultimately harm aircraft
         sales. Boeing argues that its potential profits due to its ~50% share in the
         Seats JV is disproportionately small by comparison with the profits it makes
         from selling aircraft, in particular since the costs of the seats on an aircraft are
         only around [0-5]% of the price of an aircraft.47
(50)     As concerns the impact of a potential reduction of demand that according to the
         concerned aircraft seat suppliers discourages innovation by incumbent suppliers
         and harms small suppliers that cannot achieve efficient scale to be competitive,
         Boeing notes that the presence of a number of small suppliers, such as Turkish
         Seat industries, Jamco, Encore or Toyota Bashoku provide evidence that new
         entry can take place successfully backed by orders from a single airline.48
44 Form CO, paragraph 135.
45 See point 1.5 (a) of Boeing's submission […] of 9 August, 2018 and Form CO paragraph 213.
46 See point 1.5 (c) of Boeing's submission […] of 9 August, 2018 and 1.13 CRA Report,
   11 September 2018.
47 See point 5.2 of Boeing's submission […] of 9 August, 2018 and 1.13 CRA Report,
   11 September 2018.
48 Ibidem, point 4.2.
                                                      12
 ---pagebreak---          Access to commercially sensitive information
(51)     Boeing argues that it has no ability or incentive to share competing seating
         suppliers’ confidential information with the Seats JV for the following reasons:
(52)     Boeing submits49 that such misappropriation of confidential information would
         violate IT and trade secret law and Boeing’s contractual obligations. Boeing
         argues that it would be exposed to actions for damages and could suffer serious
         reputational harm if it is in breach of contract or in violation of the laws
         prohibiting trade secret misappropriation.
(53)     Boeing enters into Proprietary Information Agreements (“PIAs”) with its aircraft
         seat suppliers which establish the parameters within which confidential
         information and materials relating to the design, development, certification,
         integration and installation of seating used on Boeing aircraft will be
         maintained, accessed and used. The PIAs [excerpt from PIA]. The PIAs require
         each party to [excerpt from PIA].50
(54)     In addition, Boeing describes that the specific aircraft seat information is only
         accessible to approved personnel, such as engineers. [description of information
         storage].51 Once the Seats JV is established, Boeing describes 52, it will be
         entirely distinct from its parents. It will have its own management and staff, IP
         rights, manufacturing plants, office premises and IT systems. As a result, Boeing
         considers that there is no case of true vertical integration and thus the Seats JV
         does not, nor will it have, access to confidential information of other seat
         suppliers.
(55)     Boeing affirms53 that it takes the protection of commercially sensitive
         information very seriously and has established procedural protections to prevent
         inadvertent disclosure: Boeing employs a strict internal process (“Company
         Policies”) to protect the confidential information of all third party
         manufacturers. These Company Policies are documented and made available to
         each Boeing employee who receives third party information. A current copy of
         its policies related to […].54
(56)     Boeing argues that the […] senior individuals, which are the only Boeing
         personnel who will be involved in the leadership or management of the Seats JV
         who have gained expertise in seat supply through their prior roles in Boeing's
         seat integration unit, have been firewalled off from Boeing - including the seat
         IT systems- since January 2018. Beyond this, Boeing also considers that the
         competing seat suppliers also overestimate the knowledge these individuals had
         accumulated about their business and products.
49 Form CO paragraph 216 and the Parties' submission […] of 11 September 2018.
50 Response of 24 September to the Commission’s request for information, question 9.
51 Ibidem, question 11.
52 Form CO, paragraph 219.
53 Form CO, paragraph 216.
54 See Annexes 4 and 5 to the Parties' reply to the Commission's pre-notification request for information
   on 11 July, 2018.
                                                      13
 ---pagebreak--- (57)      The Parties argue that in any event, the use of confidential information from seat
          suppliers is not a part of the JV’s business model and recalls that numerous new
          entrants, such as LIFT, Mirus, Geven, have succeeded in offering innovative
          solutions and increase competition without access to confidential information of
          competing seat suppliers. Boeing adds55 that the prototype the Parties have
          developed relied on Adient, which Boeing considers to be one of the most
          sophisticated and well-respected automotive seat manufacturers in the world,
          and the third party […].
(58)      The Parties argue further56 with respect to the alleged "quick entry" of the
          Seats JV on the basis of competing seat suppliers' confidential information, that
          the collaboration with Adient has already been ongoing for two years in order to
          develop prototype seats, leading to a total lead time of […] (with a targeted
          delivery schedule of […]). No JV seats have been certified or pre-certified by
          Boeing, and no JV seats were or currently are offerable by Boeing. Moreover, the
          Parties reiterate that their plan is to achieve only [5-10]% market share in
          10 years' time.
(59)      In any event, Boeing argues that it does not have the economic incentive to use
          confidential information of a third party in order to foreclose competitors or
          reduce competition. Boeing’s incentives both pre- and post- Transaction are to
          ensure that the seat supply market is as competitive, innovative and effective as
          possible in order to enhance product quality and delivery schedules and to
          provide the best possible customer service to airlines. In addition, the expected
          turnover from the JV’s supply of seats to airlines, well under [0-5]% of Boeing's
          total turnover, is not sufficient to risk damaging its relationships with customers
          and suppliers by engaging in prohibited use of seat supplier’s confidential
          information.
6.2.3.    The Commission's assessment
          Concentration levels
(60)      The market for aircraft seats for regional and large commercial aircraft57 is
          characterised by the presence of the three large suppliers Safran, Rockwell
          Collins and Recaro, together achieving a market share of around [80-90]% and a
          large number of small seat manufacturers, as reflected in Table 1.
55  Form CO, paragraph 216.
56  See point 1.6 (b) of the Parties' submission […] of 11 September 2018.
57  The Commission will not present market shares or an assessment for markets defined more broadly, as
    for instance the market for all aircraft seats. Any effects of the Transaction on the overall aircraft
    seating market will be more limited than the effects assessed in this decision while the more
    pronounced links already do not lead to serious doubts for the reasons set out in this decision.
                                                         14
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (64)     As regards the manufacture of large commercial aircraft above 90 seats,
         Airbus and Boeing held market shares of [40-50]% and [50-60]%, respectively
         in terms of number of aircraft deliveries in 2017.70 Embraer's market share
         amounted to [0-5]% while no other participants had a material market presence
         in this segment.
(65)     If regional aircraft with less than 90 seats are included in the market definition,
         Boeing’s market share amounts to [40-50]%, in terms of number of aircraft
         deliveries in 2017 with Airbus, Embraer and Bombardier accounting for
         [40-50]%, [5-10]% and [0-5]% respectively.71
(66)     In the segment of large commercial aircraft of more than 120 seats, Boeing's
         market share amounts to [50-60]%, with Airbus accounting for the remaining
         [40-50]% in terms of number of aircraft deliveries in 2017. Finally, in the sub-
         segment of wide-body commercial aircraft of 200 seats or more, Boeing held a
         market share of [50-60]% in terms of number of aircraft deliveries in 2017, with
         Airbus accounting for [40-50]%72.
         Customer and conglomerate foreclosure
(67)     The Seats JV will create future vertical and conglomerate relationships between
         the Seat JV’s manufacturing of aircraft seats and Boeing’s manufacturing of
         commercial aircraft as set out in paragraph (26). The vertical relationship could
         lead to potential customer foreclosure concerns if the merged entity had the
         ability and incentives to foreclose access to a sufficient customer base from its
         rivals and if that had an overall negative impact on effective competition. The
         conglomerate relationship could lead to potential foreclosure concerns if the
         merged entity had the ability and incentives to foreclose its rivals by leveraging
         a strong market position from one market to another through means of tying or
         bundling or other exclusionary practices and if that had an overall negative
         impact on effective competition.
(68)     The Commission will assess foreclosure concerns stemming from the vertical
         (linked to sales under the SFE model) and conglomerate (linked to sales under
         the BFE model) links together since they are intrinsically linked. Such
         assessment allows the Commission also to assess all potential foreclosure effects
         taken together.
(69)     The Commission observes the following on Boeing's ability to foreclose competing
         aircraft seat manufacturers:
(70)     First, Boeing has a market share of [50-60]% in the sale of large commercial
         aircraft above 90 seats and of [50-60]% in the sale of large commercial aircraft
         above 120 seats in terms of number of aircraft deliveries in 2017 and a market
         share of [0-5]% in the sale of regional aircraft, leaving around [50-60]% of
         demand for aircraft seats for large commercial aircraft and all of the demand for
70 Response of the Parties of 7 September to the Commission’s request for information, Annex 2.
71 Ibid. The market share presented by Boeing does not account for 26 regional aircraft deliveries by
   COMAC and United Aircraft Corporation (Sukhoi) in 2017.
72 Ibid.
                                                    17
 ---pagebreak---          aircraft seats for regional aircraft unaffected by the Transaction.73 Third party
         suppliers will thus continue to be able to sell their aircraft seats to a significant
         part of the market, including in the business and economy seat classes where the
         JV will be active.
(71)     Second, the market investigation indicated that aircraft manufacturers' influence
         on the choice of aircraft seat supplier in the retro-fit market is minimal.74
         Furthermore, several respondents confirmed the Parties' estimates that retro-fit
         orders constituted ca. 30%-33% of the seats demand across seat classes.
         Therefore, in addition to demand for aircraft seats to be installed on Airbus
         aircraft, demand for retro-fit sales on Boeing aircraft is likely to remain
         available, leaving an overall addressable market of around 65% for competing
         aircraft seat suppliers.
(72)     Third, […].
(73)     Fourth, it is unlikely or at least uncertain that the Seats JV will be able to serve
         all or most of demand for aircraft seats on Boeing aircraft going forward,
         leaving also at least part of demand for aircraft seats on Boeing aircraft
         unaffected by the Transaction.
(74)     In the first place, the market investigation confirmed that the airlines are in the
         driving seat when selecting the seat suppliers for their fleet under the BFE
         model. They choose the seats from the aircraft manufacturers'' “offerability list”,
         which contains a number of suppliers to choose from. If a certain supplier is not
         on the offerability list, the airlines reported being able to make a request to the
         aircraft manufacturer and negotiate the additional supplier’s inclusion.75
         Furthermore, market participants confirmed that the BFE model is prevalent for
         most large commercial aircraft and that the share of aircraft seats sold under the
         SFE model is minimal.76
(75)     In the second place, the Seats JV has no sales of aircraft seats yet and is
         expected to develop its presence gradually. […]. Therefore, it is doubtful
         whether the Seats JV will have the ability to foreclose its rivals by winning
         significant market share at their expense in the foreseeable future. The future
         market share projections from its business plan are accordingly modest: [5-10]%
         after the first 10 years including line-fit and retro-fit, reaching at most [10-20]%
         in […] for large commercial aircraft.77
73 Boeing has announced its intention to acquire aircraft manufacturer Embraer which manufactures
   mainly regional aircraft: http://boeing mediaroom.com/2018-07-05-Boeing-and-Embraer-to-Establish-
   Strategic-Aerospace-Partnership-to-Accelerate-Global-Aerospace-Growth.        Since     no     binding
   acquisition agreement has been signed and the regulatory approvals have not been received, the
   Commission will treat Boeing and Embraer as separate entities for the purposes of this decision.
74 See replies to question 5 of the Commission's questionnaire of 6 September, 2018.
75 See replies to question 5 of the Commission's questionnaire of 6 September, 2018
76 See replies to question 5 of the Commission's questionnaire of 6 September, 2018.
77 Parties’ response to RFI1, question 1b on 7 September, 2018. According to the business plan of the JV,
   the Seats JV will reach sales of USD […] in 2026, of which USD […] is expected to be generated
   from retro-fit and USD […] from production of new seats, while spare parts account for USD […].
                                                       18
 ---pagebreak--- (76)     In the third place, Rockwell Collins and Recaro are strong aircraft seat suppliers
         with established relationships with final customers. They may offer superior
         technology or quality and may have a price advantage over the products of the
         Seats JV. It is therefore uncertain whether final customers would be interested in
         foregoing purchases from those suppliers and whether Boeing would be able to
         prevent its customers from buying from these established competitors.
(77)     Fifth, the market for aircraft has been growing rapidly in the past ten years and
         the growth is expected to continue78. The Parties estimate79 that this growth will
         translate into an increase from a USD […] aircraft seats market in 2017 to a
         USD […] aircraft seats market in 2026. Any reduction of the addressable
         merchant market could therefore be counterbalanced by general market growth.
(78)     Sixth, the limited market presence of Airbus’s wholly-owned subsidiary Stelia
         argues against the ability for aircraft manufacturers to engage in foreclosure
         through vertical integration. Stelia designs and produces business and first class
         passenger seats among other products. Stelia's market share is well below the
         share of Airbus aircraft ([20-30]% in first class seats and less than [10-20]% in
         business class seats on large commercial aircraft80). Although Stelia is an Airbus
         subsidiary, [50-60]% of Stelia’s sales volumes for seats are made on Boeing
         aircraft.81 No market participant has raised concerns about Airbus’ ability to
         foreclose other aircraft seat supplier to the benefit of Stelia in first class or
         business class seats.
(79)     As concerns Boeing's incentive to foreclose alternative aircraft seat suppliers,
         the Commission finds the following:
(80)     First, the market investigation confirmed that airlines value choice in aircraft
         seats supply.82 Seat products are differentiated and allow the airlines to
         differentiate themselves from their competitors, thus airlines may have specific
         preferences for certain seat models/suppliers. The alternative seat suppliers are
         well-established and have long-standing relationships with the airlines who are
         the final customers. Limiting the choice of available aircraft seat suppliers is
         likely to result in customer dissatisfaction harming Boeing’s business
         relationship with its customers. Boeing has little incentive to upset its customers
         by limiting their choice and offering them a worse product than before the
         Transaction.
(81)     Second, the strategies adopted by Airbus in the past argue against incentives for
         aircraft manufacturers to engage in foreclosure through vertical integration.
78 See e.g. page 89 and Chart 28 of the Industry report 'Commercial Aerospace Primer' by Bank of
   America/Merrill Lynch, 04 May 2016, see also Form CO and see also forecasts of Airbus and Boeing,
   at Global Market Forecast 2018- https://www.airbus.com/aircraft/market/global-market-forecast.html
   and also transcript of a speak of Boeing CEO at Morgan Stanley Laguna Conference on 12 September,
   2018, page 2.
79 Form CO, paragraph 84.
80 Response of the Parties of 7 September to the Commission’s request for information, Annex 1.
81 See […] reply to question 1 of the Commission's questionnaire of 6 September, 2018.
82 See replies to questions 2 and 3 of the Commission's questionnaire of 6 September, 2018.
                                                      19
 ---pagebreak---          Airbus' wholly-owned subsidiary Stelia’s market share is well below the share
         of Airbus aircraft as set out in paragraph (78). No market participant has raised
         any concerns about Airbus trying to foreclose other aircraft seat suppliers to the
         benefit of Stelia in first class or business class seats.
(82)     Third, the revenue base on which Boeing could, though a foreclosure strategy,
         achieve higher prices and thus higher profits in the seat supply is
         disproportionately small compared to the profits it can achieve through the sale
         of aircraft. The benefit is even smaller considering Boeing's ~50% share in the
         Seats JV. Therefore, it is Boeing's interest to drive the sales of its aircraft rather
         than try to increase prices on the aircraft seat markets. Should Boeing endeavour
         to capture the entire market share of the seat JV's competitors on Boeing
         aircraft, the size of that market would not exceed [0-5]% of its annual turnover.
(83)     Fourth, a further past example supporting the lack of incentives for Boeing to
         limit customer’s choice of aircraft seat is its collaboration with Lift/Encore.
         With that collaboration, Boeing introduced an additional economy seat choice
         under the SFE model for 737 aircraft without limiting the choice for alternative
         seats.83
(84)     Fifth, as regards concerns about the unequal treatment of the Seats JV and
         competing aircraft seats suppliers in terms of royalty fees to be paid to Boeing84,
         Boeing confirmed85 that the Seats JV will […]. […].
(85)     As concerns the impact of Boeing's potential foreclosure of alternative aircraft
         seat suppliers, the Commission finds the following:
(86)     First, the creation of the Seats JV will result in adding a new seats supplier to the
         market. Final customers’ choice of seats suppliers available in the market will be
         enlarged, both on Boeing and on Airbus aircraft.
(87)     Second, the Seats JV will develop its own R&D capabilities and is developing a
         new seats offer from scratch, which is likely to have positive effects on
         innovation in the market.
(88)     Third, shifting purchases from a third party supplier to an in-house source does
         not in itself and automatically amount to foreclosure. Such shifts would only be
         anticompetitive if the move to the in-house source harms the ability or
         incentives of rivals to compete. Internal documents of Boeing corroborate its
         argument according to which the creation of the Seats JV is a response to
         customer dissatisfaction and an attempt to improve the situation.86 A seat
         supplier replying to the Commission’s market investigation confirmed that
         timely deliveries and the quality of the products have been a concern in the
         past.87
83 Parties’ response to RFI1, question 12 on 7 September, 2018.
84 Boeing introduced a proposed IP licence in early 2015, along with a […].
85 Email of the Parties on 25 September 2018.
86 Form CO, paragraph 80; and internal presentation entitled […], submitted on 13 March 2018.
87 See a seat vendor's reply to question 3 of the Commission's questionnaire of 6 September, 2018.
                                                      20
 ---pagebreak--- (89)     Fourth, aircraft seat customers (airlines and leasing companies) replying to the
         market investigation see the impact of the Transaction to be positive or neutral
         as long as Boeing does not impose the Seats JV products on them as sole choice
         on certain aircraft platforms. An aircraft manufacturer confirmed that it saw the
         impact of the Transaction as neutral or positive stating that "The proposed
         transaction is likely to lead to the entrant [sic] of a new market player and
         therefore to more choice and capacity in the market"88 Most of the aircraft seat
         suppliers also acknowledge that while the impact of the Transaction on their
         business may be negative, primarily due to the potential loss of turnover, the
         impact on the market and final customers is expected to be positive as the
         creation of the Seats JV will increase choice and decrease price levels on the
         market for aircraft seats.89
(90)     Fifth, there are a number of smaller competitors – including recent entrants –
         active in the seats markets, indicating that also competitors with smaller scale
         operations are viable and competitive.
(91)     Sixth, Airbus’ integration into aircraft seats supply through its subsidiary Stelia
         has not led to negative effects on competition. None of the market participants
         raised concerns about foreclosure effects of Airbus’ integration into aircraft
         seats, in particular in first and business class seats. Furthermore, Airbus is a
         strong competitor in the downstream market for the sale of large commercial
         aircraft. Should a potential foreclosure strategy by Boeing negatively affect
         Airbus, it cannot be excluded that Airbus could decide to support third party
         aircraft seat suppliers in their business development or to rely to a larger extent
         on its own aircraft seats subsidiary Stelia.
(92)     Seventh, aircraft seats represent a relatively small portion of the costs of the
         finished aircraft for the final customer, representing approximately [0-5]% of the
         list price of Boeing’s aircraft.90 Therefore, it is doubtful whether foreclosure
         from the seats market could have appreciable effects on the downstream markets
         for the sale of aircraft.
(93)     For the reasons set out in paragraphs (69)(67) to (92), the Commission considers
         that the Transaction does not raise customer or conglomerate foreclosure
         concerns.
         Access to commercially sensitive information
(94)     Paragraph 78 of the Commission’s Non-Horizontal Merger Guidelines notes the
         possibility that, by vertically integrating, the merged entity may gain access to
         commercially sensitive information on the upstream or downstream activities of
         non-integrated rivals. As a result, competitors may be put at a competitive
         disadvantage thereby dissuading them to enter or expand in the market.
88 See an aircraft manufacturer's reply to question 2 of the Commission's questionnaire of 6 September,
   2018. […].
89 See replies to question 2 of the Commission's questionnaire of 6 September, 2018.
90 Response of the Parties of 10 September to the Commission’s request for information, question 7.
                                                       21
 ---pagebreak--- (95)     As regards the application of those principles to the present case, the
         Commission notes, first, that several of the arguments discussed in
         paragraphs (69)(67) to (92) also argue against significant adverse effects on the
         relevant markets of the sharing of confidential information. For instance,
         (i) significant demand for aircraft seats in a growing market is likely to remain
         available for third party seat manufacturers even if they reduce their sales of
         aircraft seats on Boeing aircraft due to the risk of disclosing confidential
         information to the Seats JV; (ii) Boeing is expecting to continue installing third
         party aircraft seats on its aircraft for years to come, driven among other reasons
         by the final customers’ preferences for the seats of certain suppliers, giving
         Boeing incentives to find mutually satisfactory agreements with the seat
         manufacturers regarding their confidential information; (iii) the Seats JV
         represents a new entrant, offering more choice and potentially boosting
         innovation also from incumbent seat manufacturers; and (iv) Airbus is likely to
         have means to react if adverse effects materialise or risk materialising on the
         seat markets.
(96)     Second, business confidential information that is critical for the design,
         development and manufacture of aircraft seats can be protected under IP rights
         legislation. IP rights protection is enforceable in court and it confers a protection
         against any potential misappropriation of sensitive information. Third party
         aircraft seat suppliers can therefore have recourse to IP law to safeguard their IP
         rights and protect sensitive information.
(97)     Third, the exchange of confidential information related to the certification and
         installation of aircraft seats by Boeing is covered by Proprietary Information
         Agreements as set out in paragraph (53).91 Those agreements will prohibit the
         sharing of confidential information of competing aircraft seats suppliers with the
         Seats JV and can be enforced through litigation. Boeing has safeguards in place
         to limit the circulation of the confidential information and to implement the
         provisions of the non-disclosure agreements as outlined in paragraphs (54)
         and (55).
(98)     Fourth, aircraft seat suppliers do not seem to be concerned about selling aircraft
         seats on Airbus aircraft although Airbus’ subsidiary Stelia manufactures and
         sells aircraft seats and there is the potential risk that Airbus may pass on
         confidential information to Stelia despite IP and contractual protections. This
         indicates that Airbus does not have the ability and incentives to pass on
         confidential information to Stelia, including that the market participants have
         been able to negotiate satisfactory solutions for the protection of commercially
         sensitive information with the large aircraft manufacturer Airbus.
(99)     Fifth, insofar as one of the complaining aircraft seat suppliers refers to recent
         Commission precedents addressing concerns about the misappropriation of
         confidential information92, the Commission notes that the Seats JV is a new
         market entrant and that the market is growing rapidly. Furthermore, Boeing will
91 One aircraft seat supplier complained about the asymmetry in sanction mechanism in the agreements.
   However, such asymmetry appears to relate only to […] and does not appear to relate to […].
92 Case M.8314, Broadcom/Brocade,           paragraphs   104-112,  case   M.7724,     ASL/Arianespace,
   paragraphs 197-230.
                                                      22
 ---pagebreak---           have to rely on third party aircraft seat suppliers going forward so that Boeing is
          unlikely to be in a position to negotiate confidentiality clauses in agreements
          with seats suppliers to their advantage in a disproportionate manner. This is the
          more so the case, as the Parties […]. By contrast, other aircraft seats suppliers
          offer approximately a dozen products that are either currently available or in
          development.
(100)     Sixth, the Seat JV’s business model does not rely on the misappropriation of
          confidential information as alleged by one competing aircraft seat supplier. In
          particular, contrary to allegations raised during the market investigation, Adient
          has licensed in technology from a third party for the development of its seating
          product "Ascent"93. In addition, the cooperation between Boeing and Adient94
          started as an R&D effort into seat development, which resulted in the creation of
          jointly owned intellectual property95 that is going to be transferred to the
          Seats JV.
6.2.4.    Conclusion regarding vertical and conglomerate relationships
(101)     Based on the assessment in paragraphs (60) to (100), the Commission concludes
          that the Transaction does not raise serious doubts as to its compatibility with the
          internal market with respect to the vertical and conglomerate relationships
          brought about by the Transaction.
7.        CONCLUSION
(102)     For the above reasons, the European Commission has decided not to oppose the
          notified operation and to declare it compatible with the internal market and with
          the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of
          the Merger Regulation and Article 57 of the EEA Agreement.
                                                                For the Commission
                                                                (Signed)
                                                                Margrethe VESTAGER
                                                                Member of the Commission
93  […], see the Parties' reply to question 5 of RFI 4 on 3 October, 2018.
94  As per the Collaboration Agreement dated 7 July, 2016.
95  Form CO, paragraphs 64-66 and 262.
                                                         23