CELEX: 32018M8858
Language: en
Date: 2018-09-27 00:00:00
Title: Commission Decision of 27/09/2018 declaring a concentration to be compatible with the common market (Case No COMP/M.8858 - The Boeing Company / Safran S.A.) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 27.9.2018
                                                                C(2018) 6397 final
                                                                               PUBLIC VERSION
                                                                  In the published version of this decision,
                                                                  some information has been omitted
                                                                  pursuant to 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                                                                  information omitted has been replaced by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.8858 – Boeing/Safran/JV (Auxiliary power units)
                    Commission decision pursuant to Article 6(1)(b) of Council
                    Regulation No 139/2004 1 and Article 57 of the Agreement on the
                    European Economic Area2
Dear Sir or Madam,
(1)         On 23 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 Safran S.A. (“Safran”,
            France) acquire within the meaning of Article 3(1)(b) and 3(4) of the Merger
            Regulation joint control of newly created joint-venture JV LLC (the ”APU
            JV”) 3 (“the Transaction”). (Boeing and Safran 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 303, 29.8.2018, p. 22.
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--- (2) The Transaction was initially notified to the Commission on 5 June 2018 under
    the simplified procedure and subsequently withdrawn on 26 June 2018. The
    Transaction was re-notified on 23 August 2018 under the normal procedure.
1.  THE PARTIES
(3) 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.
(4) Safran designs, manufactures and sells aerospace systems, aircraft and defence
    equipment. Its products include aircraft and space engines, electrical and wiring
    systems, landing systems and on-board systems for commercial, regional and
    business aircraft. Safran also provides aftermarket services for its equipment.
2.  THE OPERATION
(5) Pursuant to a Form Contribution Agreement and a Limited Liability
    Company (LLC) Agreement signed on [date], Boeing and Safran will establish a
    new company, the APU JV, under the laws of the State of Delaware, United
    States. Boeing and Safran will each contribute [initial investment amount] and
    grant non-exclusive licences of certain intellectual property to the APU JV.
(6) The APU JV will design, develop, manufacture and sell auxiliary power units
    (“APUs”) and their components as original equipment. [Intended JV scope]. The
    APU JV will also provide maintenance, repair and overhaul (“MRO”) services
    and spare parts in respect to its APUs.
(7) Each of Boeing and Safran will indirectly hold 50% of the securities in the
    APU JV and will have equal board representation and governance rights. The
    APU JV’s business plan which will serve as both a budget and a business plan
    requires unanimous approval of the Board. The Parties will thus jointly control
    the APU JV pursuant to Article 3(1)(b) of the Merger Regulation.
3.  FULL FUNCTIONALITY OF THE JOINT VENTURE
(8) [Description of the timeline of the market entry of the JV and of the platforms
    targeted].
(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 APU JV’s resources to operate independently on the market,
         the APU JV will have its own financial resources, management and staff,
         intellectual property rights, manufacturing plants and office premises.
    b.   As regards the scope of the APU JV’s activities, the APU JV will itself
         engage in product development, manufacturing, and marketing of APUs and
         sell them on the market.
                                            2
 ---pagebreak---           c.   As regards sales and purchase relations with the Parties, [intentions
               regarding sourcing of subcomponents]. Over the initial ten years of the
               APU JV following the supply of the first APU to Boeing, the APU JV’s
               sales to third parties are expected to constitute […]% of all revenues (with
               sales of APUs to Boeing and spare part sales to Boeing's subsidiary Aviall
               accounting for […]% and […]% of the revenues respectively). Over the
               projected life of the APU JV, its sales of MRO services and spare parts to
               third parties are projected to make up for […]% of all revenues (with sales
               to Boeing and Aviall accounting for […]% each).
          d.   Finally, pursuant to the LLC agreement the JV is established for an
               indefinite period of time and the projected life of the JV goes up to 2060.
               The 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 million4 (Boeing EUR 82 670 million, Safran EUR 21
          648 million). Each of them has an EU-wide turnover in excess of EUR 250
          million (Boeing […], Safran […]), 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 APUs used on such
          aircraft as well as the provision of MRO services and the supply of spare parts
          for APUs.
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. 5
(13)      Within commercial aircraft the precedents differentiated three segments: 6
          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:
4      Turnover calculated in accordance with Article 5 of the Merger Regulation.
5      Case M.1601, Allied Signal/Honeywell, paragraph 11.
6      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.
                                                        3
 ---pagebreak---                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
          aircraft 7, such as the Embraer E190 or the Airbus A220-100 and A220-300
          (formerly Bombardier CS100 and CS300). The Commission has therefore
          considered in this 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 seats. 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.
5.1.2.    Geographic market
(15)      All markets, with the exception of military aircraft, have been considered to be
          worldwide in geographic scope. 8 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 APUs
5.2.1.    Product market
(16)      An APU is a generator that provides electrical power to the aircraft’s systems
          and devices while the engines are shut down, mainly when the aircraft is on the
          ground. During flight, APU generators are not normally operated continuously
          but can be available in emergency situations in case of engine failure, to provide
          back-up electrical power and help restarting the main engine. 9
7      See also page 65 and Chart 14 of the Industry report 'Commercial Aerospace Primer' by Bank of
       America/Merrill Lynch, 04 May 2016.
8      Case 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.
9      Case M.8425, Safran/Zodiac, paragraph 33.
                                                      4
 ---pagebreak--- (17)       According to previous Commission cases, APUs constitute their own separate
           market. 10 The precedents have however left open whether segmentations
           between the APU’s shaft power and size or by type of aircraft are required. 11
(18)       The market investigation in this case provided indications that there may be a
           degree of supply side substitutability between APUs for various types of
           commercial aircraft because their functionality is essentially similar while their
           shaft power and size may differ significantly. 12 However, according to a market
           participant, the design and size of APUs for large commercial aircraft are
           different from the design and size of other types of aircraft: "It is not so easy to
           start designing and manufacturing a very different kind of APU, because of the
           impact on design of power requirements for different size of APUs." 13 Further,
           there appears to be limited demand-side substitutability between APUs designed
           for different types of aircraft because of the diverging technical requirements
           and consequently diverging price levels.
(19)       In any event, the question whether the product market for APUs should be sub-
           segmented by type of aircraft can be left open in this case as no serious doubts
           arise under any alternative product market definition.
5.2.2.     Geographic market
(20)       In terms of geographic market, the Commission has defined the markets for
           APUs as global as is the case for the other markets for civil aerospace systems
           and components. 14 The market investigation in this case has not provided any
           reasons to deviate from those precedents. The market for the manufacture of
           APUs and its potential sub-segments are therefore considered to be worldwide
           in scope.
5.3.       APU MRO and spare parts
5.3.1.     Product market
(21)       The Commission’s decisional practice has differentiated four main categories of
           aviation MRO services based on the part of the aircraft to be serviced and the
           level of service required: line maintenance, heavy maintenance, engine
           maintenance and component maintenance:
           a.   Line maintenance: line maintenance refers to the aircraft maintenance
                checks that are carried out to ensure that the aircraft is fit for flight but that
                do not remove the aircraft from service. Line maintenance is generally
10     Case M.6410, UTC/Goodrich, paragraph 57, Case M.8425, Safran/Zodiac, paragraphs 40.
11     Case M.8425, Safran /Zodiac, paragraphs 54 and 129-134. The further distinction between AC and
       DC technology is not relevant for this case as no competition concerns arise even considering this
       narrower product market definition. The reasoning as regards the overall market for APUs of
       different technologies applies equally for APUs of AC technology and APUs of DC technology
       considered separately.
12     See replies to question 5 of "Questions to market participants of 5 June 2018".
13     See reply of an airframer to question 4 of the Commission's enquiry of 24 September, 2018.
14     Case M.6410, UTC/Goodrich, paragraph 57, Case M.8425, Safran/Zodiac, paragraph 298.
                                                         5
 ---pagebreak---                 performed at the different airports on the airline's route and consists of
                transit checks, pre-departure checks, night stops and the rectification of
                certain technical problems.
          b.    Heavy maintenance: heavy maintenance refers to regularly scheduled
                detailed inspection, maintenance, preventive maintenance and alteration of
                the entire aircraft and its installed components that will place the aircraft out
                of service for a pre-determined period of time.
          c.    Engine maintenance: engine maintenance is carried out either while
                mounted on the aircraft wing (on-wing services) or at an approved
                maintenance facility (off-wing).
          d.    Component maintenance: component maintenance comprises inspection,
                test and alteration of specific equipment and components installed on an
                aircraft, which can be repaired and are of a significant value (component
                maintenance is hereinafter referred to as “component MRO”).
(22)      The APU JV will only be active in component MRO, more specifically in
          providing MRO and spare parts for its APUs.
(23)      Further, the Commission has left open the question whether a separate market
          exists for spare parts from that of MRO. 15
(24)      Spare parts can be sold by OEMs either as stand-alone products or as part of an
          MRO service. According to the Parties, it is not straightforward to single out the
          provision of APU spare parts from the provision of APU MRO services, as the
          latter necessarily involve the replacement of faulty pieces as part of the MRO
          services provided to the client, which are invoiced together with the provision of
          MRO services. 16
5.3.2.    Geographic market
(25)      As regards the geographic market, in its previous practice, the Commission
          considered that the potential market for component MRO is worldwide because,
          the location of the facility is of secondary importance and component MRO
          does not need to be performed at airports. The Commission found that most
          component MRO providers are active globally and both the service providers
          and customers considered that the markets for component MRO are worldwide
          in scope. 17
(26)      As regards spare parts, the Commission has previously found 18 that distribution
          of aerospace components took place on a worldwide level and customers were
          located worldwide while prices did not differ globally. 19
15     Case M.4241, Boeing/Aviall, paragraph 10, Case M.6410, UTC/Goodrich, paragraphs 182-191.
16     Form CO, paragraph 125.
17     See e.g. case M.6410, UTC/Goodrich, paragraph 198.
18     See e.g. case M.4241, Boeing/Aviall, paragraph 11.
19     See e.g. case M.6410, UTC/Goodrich, paragraph 199.
                                                       6
 ---pagebreak--- (27)       The market investigation in this case has not provided any reasons to deviate
           from those precedents. The Commission has therefore analysed the impact of
           the Transaction on the potential worldwide markets for component MRO for
           APUs and for the supply of spare parts for APUs while this distinction can be
           left open as the competitive assessment remains the same under any alternative
           market definition.
6.         COMPETITIVE ASSESSMENT
(28)       The Transaction creates limited horizontal overlaps in (i) the production of
           APUs where both Safran is and the APU JV will be active and (ii) the provision
           of component MRO services and the sale of spare parts as Safran and Boeing
           are already active in MRO services for various components (for Safran
           including on APUs), as well as in the sale of spare parts, and the APU JV will
           also provide MRO services and spare parts for APUs.
(29)       Vertically affected markets arise since the APU JV will be active in the
           upstream production of APUs which are used in the downstream production of
           aircraft where Boeing is active.
6.1.       Horizontal overlaps
6.1.1.     APUs
(30)       If APUs are segmented by type of aircraft, the Transaction will not give rise to a
           horizontal overlap between the APU JV and the Parties. Boeing does not
           manufacture nor supply any APUs and Safran's APUs are not destined for
           [intended JV scope] where the APU JV will be active. Safran supplies APUs for
           military aircraft and helicopters, and is currently developing APUs for business
           jets. Safran's APUs have less power (< 550 shaft horse power, shp) than the
           APU JV's (future) APUs ([…]).
(31)       If APUs for all types of aircraft are considered to constitute a single market,
           Safran's volume based market share was [0-5]% 20 in 2017, while the APU JV's
           is currently 0%. According to its Business Plan, the APU JV projects to achieve
           a […]% market share by 2030 21, once it has established its presence, on an APU
           market encompassing all types of aircraft. Based on its internal projections,
           Safran expects its market share to rise to […]% by 2030. 22 The Parties’ current
           combined share is accordingly far below 20%. Considering the future
           development of the APU JV’s and Safran’s activities, the combined market
           share would only slightly exceeds the level of 20% by 2030 on an overall
           market of all types of APUs considered.
(32)       Furthermore, Safran and the APU JV will not be close competitors, each
           focussing on producing APUs for different kinds of aircraft.
20     In the supply of APUs for military aircraft, Safran's market share was around [5-10]% and for
       helicopters around [5-10]% in 2016.
21     See the Parties' reply to the Commission's request for information of 24 September 2018.
22     See the Parties' reply to the Commission's request for information of 24 September 2018.
                                                         7
 ---pagebreak--- (33)       Moreover, no concerns were raised in the market investigation as regards the
           overlap between the activities of Safran and the APU JV in the manufacture of
           APUs.
(34)       Therefore, the overlap between Safran and the APU JV is unlikely to result in
           competition concerns.
6.1.2.     MRO services and spare parts
(35)       As regards component MRO and spare parts generally, the Transaction leads to
           a horizontal overlap since Boeing (and its subsidiary Aviall) and also Safran are
           active in the provision of component MRO and spare parts 23 for various
           different components. However, this overlap does not lead to affected markets.
           Boeing estimates its current market share at […]% while Safran estimates its
           share at […]%. 24 The APU JV currently has a market share of 0%.
(36)       The APU JV will start offering component MRO for its own APUs in the future.
           According to the APU JV's Business Plan 25, the first revenues are to be
           achieved as of [estimated dates of first JV MRO and OEM revenues]. However,
           any increment caused by the APU JV’s activities is not likely to increase the
           Parties' combined market share above 20% on the overall market for component
           MRO and spare parts in the foreseeable future. The Parties estimate that, in
           2030, Boeing would have a […]% market share, Safran between […]% and the
           APU JV's share would be marginal, ca. […]% on an overall market for
           component MRO. Therefore the Parties’ combined market share would remain
           below 20% by 2030.
(37)       Furthermore, Boeing, Safran and the APU JV will not be close competitors,
           mainly focussing on providing MRO services and spare parts for different kinds
           of components or for the same components but installed on different kinds of
           aircraft.
(38)       As concerns a narrower market by specific component, i.e. APUs, Safran
           provides component MRO and spare parts for its APUs, which creates an
           overlap with the future activities of the APU JV, which will also service its
           APUs once brought on the market. Boeing does not provide component MRO
           and spare parts for APUs. The Parties project 26 the APU JV to achieve a market
           share of […]% and Safran of […]% in 2030 on a market for component MRO
           and spare parts for all types of APU. Therefore, the Parties’ combined market
           share would remain well below 20% by 2030.
(39)       Moreover, both Safran and the APU JV are, or will be, active in the provision of
           MRO services and the distribution of spare parts with regard to the APU
23     The Parties submit that none of the Parties is able to separate the provision of maintenance services
       and the sale of spare parts for the purposes of defining their market shares, as these two are provided
       together, therefore, market shares provided include both provision of component MRO and
       distribution of spare parts, see Form CO, paragraphs 162 and 163.
24     Form CO, paragraph 164.
25     See Business Plan, Annex 5 to the Form CO.
26     See the Parties' reply to the Commission's request for information of 24 September 2018.
                                                           8
 ---pagebreak---           systems supplied by Safran and the APU JV respectively and not with regard to
          APU systems supplied by third parties. Safran adds 27 that it is not active in the
          provision of maintenance services for APUs on large commercial aircraft
          [Safran’s capabilities and plans] 28. Therefore, even if Safran's and the APU JV's
          activities overlap, they are not closely competing in the provision of component
          MRO services.
(40)      Considering a further segmentation of component MRO and sale of spare parts
          for APUs by type of aircraft, no overlap would arise, given that Boeing does not
          provide component MRO for any APUs and Safran only provides these services
          for APUs on helicopters and military aircraft while the APU JV will provide
          such services for APUs on […] platforms of [intended JV scope].
(41)      In summary, the overlap between Boeing, Safran and the APU JV in component
          MRO and spare parts, including when considering separate segments for APU
          maintenance and APU spare parts, is unlikely to result in competition concerns
          for the following reasons. First, their combined market shares are low and
          therefore do not enable them to obtain market power. Second, the Parties will
          not compete closely given that they provide MRO services for different
          components (Boeing vs Safran and the APU JV), or for APUs installed on
          different types of aircraft (Safran vs the APU JV). Third, the market
          investigation did not raise any concern regarding the overlap between the Parties
          in component MRO.
6.1.3.    Conclusion regarding horizontal overlaps
(42)      Based on the assessment in paragraphs (30) to 0, the Commission concludes that
          the Transaction does not raise serious doubts as to its compatibility with the
          internal market with respect to the horizontal overlaps brought about by the
          Transaction.
6.2.      Vertical relationships
(43)      The APU JV will create a future vertical relationship between the APU JV's
          manufacturing of APUs and Boeing's manufacturing of commercial aircraft.
(44)      As a potential new entrant, the APU JV currently has a market share of 0% and
          will be a new source of supply. None of the current aircraft manufacturers relies
          on the APU JV for any of its APU purchases. If aircraft manufacturers other
          than Boeing were to purchase APUs from the APU JV in the future, this would
          mean that they would benefit from the existence of an additional source of APU
          supply, extending rather than limiting their choice of APU supplier. Therefore,
          no input foreclosure concerns will arise in this case.
(45)      The Commission’s investigation therefore focussed on potential customer
          foreclosure concerns and other concerns raised during the market investigation
          as set out in sections 6.2.1 to 6.2.3.
27     Form CO, footnote 66.
28     Form CO, paragraph 148.
                                                  9
 ---pagebreak--- 6.2.1. Concerns raised during the market investigation
       Customer foreclosure
(46)   A market participant raised concerns during the market investigation claiming
       that Boeing could significantly reduce its APU purchases from the merchant
       market as it would have an incentive to rely on its own JV for APU supplies in
       the future. This could mean the reduction by up to 50% of the addressable
       market in APU sales for large commercial aircraft for third party APU suppliers.
(47)   The complaint sets forth that such reduced customer base for third party APU
       suppliers is likely to lead to higher prices of APUs as research and development
       costs would have to be spread across a smaller number of APU units sold.
       Furthermore, the adaptation of an existing APU from one platform to another,
       i.e. creating derivatives, is less costly than the development of a new APU.
       Therefore, moving from one platform to the next enables the APU manufacturer
       to keep costs down and potentially offer better prices to the customer. With the
       reduction of the customer base, this advantage could be lost.
(48)   Alternatively, the potential decrease of sales could also lead to a reduction in
       innovation in order to keep costs down.
(49)   For the reasons set out in paragraphs (46) to (48), the market participant is
       concerned that this potential customer foreclosure could present a significant
       risk of harm to the competitiveness of third party APU manufacturers and
       ultimately also to manufacturers of large commercial aircraft who could be
       faced with higher prices and less innovation.
       Access to commercially sensitive information
(50)   A market participant raised concerns during the market investigation relating to
       the APU JV’s potential access to competing APU suppliers' commercially
       sensitive information. According to the complainant, large amounts of third
       party APU manufacturers’ commercially sensitive information need to be shared
       with the aircraft manufacturers, including with Boeing, during the bidding,
       design, manufacturing and testing process of APUs and for certification. The
       complainant fears that the APU JV could obtain access from Boeing to such
       commercially sensitive information of third party APU suppliers that has been
       transmitted to Boeing during decades of previous collaboration. The information
       could allow the APU JV to replicate the APUs of third party APU
       manufacturers, putting these at a significant competitive disadvantage,
       dissuading further entry and expansion and harming innovation.
       Foreclosure of independent MRO providers
(51)   Concerns were raised as to whether independent MRO providers would be able
       to service the APU JV’s products. In order for such independent MRO providers
       to perform such maintenance, they require a licence to the intellectual property
       (“IP”) owned by the APU manufacturer (in addition to a qualification by the
       relevant aviation authority). Third party MROs thus need to obtain the APU
       manufacturer’s approval to perform the maintenance and the manufacturer is
       thus able to choose whether and which MRO to licence its component
       maintenance to.
                                               10
 ---pagebreak--- (52)       In this context, a limited number of market participants further expressed
           concerns during the market investigation regarding foreclosure effects on the
           market for APU component MRO. 29 According to those market participants,
           Boeing plays a role in the relationship between the customers of APU
           component MRO, i.e., the airlines, and the suppliers of APU component MRO,
           i.e., the APU manufacturers, by negotiating MRO conditions with the existing
           APU producers in the interest of the airlines. These market participants are
           concerned that, after the vertical integration, Boeing would no longer assume
           this role in favour of the airlines as it will have a direct interest in the APU
           MRO market itself. Boeing would thus negotiate worse MRO provisions for
           APU component MRO in the future, mainly by restricting the possibility to
           licence-in the required intellectual property owned by the APU manufacturer 30
           and to obtain access to spare parts.
6.2.2.     The Parties' views
           Customer foreclosure
(53)       On a general note, Boeing submits that introducing a third supplier for APUs
           into a market characterised by a duopoly creates a positive effect on
           competition. 31 In fact, the Parties submit that the rationale for the creation of the
           APU JV has been the current lack of competition, stating: [Conclusion of
           Boeing internal document supporting the APU JV rationale]. 32
(54)       [Boeing internal information on current APU market conditions in terms of
           prices and MRO services] 33, 34.
(55)       As concerns Boeing's incentive to favour the JV's APUs over those of other
           manufacturers, i.e. Honeywell or UTC, Boeing explains that its 50% interest in
           the APU JV is not what drives its procurement decisions, but rather the best
           offer available on the market: [Boeing's general APU procurement decision
           criteria] 35.
(56)       As concerns effects of its potential in-sourcing on the APU markets, Boeing
           believes that even if it had an exclusivity agreement with the APU JV for the
           supply of APUs, the reduction of the addressable market for APU manufacturers
           is overestimated by the complainant. Although Boeing's share in large
29     Written submission of 23 July, 2018, minutes of a call of 27 June, 2018.
30     In order for a third party MRO service provider to be able to perform maintenance on any APU it
       needs to obtain, beyond qualification by the relevant aviation safety authority (EASA – European
       Aviation Safety Authority or FAA – Federal Aviation Administration), a licence to the intellectual
       property owned by the APU manufacturer on the technical attributes. Generally, third party MROs
       need to obtain the manufacturer’s approval to perform the maintenance. Therefore, the OEM selects
       whether and which MRO to licence its component MRO to.
31     Form CO, paragraphs 211-220.
32     Form CO, footnote 4.
33     See [internal document], Form CO – Annex 14.
34     Ibid, slide 5.
35     Form CO, paragraph 216.
                                                       11
 ---pagebreak---         commercial aircraft is large, it is only around [50-60]% of the market. [Boeing’s
        expectations with respect to future large commercial aircraft market shares and
        competition], as new entrants, such as COMAC and Irkut, expand production.
        Furthermore, Boeing submits that creating more competition will increase
        manufacturers' incentives to innovate and invest in R&D. Conversely, Boeing
        holds that it is the current concentrated market structure that does not incentivise
        innovation.
        Access to commercially sensitive information
(57)    Boeing acknowledges that intellectual property (“IP”) protection is one of the
        central issues in its supplier relations and confirms that it has a series of
        contractual and procedural provisions in place to protect the confidential
        information of third parties. [Details of Boeing’s internal policies]. 36
(58)    Boeing submits that it has stringent safeguards in place to protect the
        confidential information of APU suppliers during the different stages of their
        collaboration. 37 [Description of Boeing’s internal safeguards during the APU
        bidding and development process].
(59)    [Description of Boeing’s internal trainings on use of supplier data].
(60)    Boeing sets forth that third-party proprietary information is also protected
        through contractual terms in each agreement and [contractual clauses of Boeing
        for the protection of confidential information]. 38 […], 39 Boeing confirms that it
        does not share this third-party proprietary information with prospective APU
        providers for future aircraft and will maintain this policy with respect to the
        APU JV.
(61)    [Description of Boeing's information sharing and storing policy, including with
        respect to the APU JV].
(62)    Boeing adds that it is against Boeing's business interest to misuse or appropriate
        suppliers' intellectual property or any other confidential information as it could
        lead to a loss of trust. A deterioration of cooperation between Boeing and its
        suppliers would interfere with Boeing’s efforts to develop the new aircraft that
        are key to its continuing commercial success. Any gains that Boeing might
        theoretically realise via its 50% ownership interest in the APU JV from
        obtaining access to the IP of third-party APU manufacturers are very unlikely to
        exceed the long-run costs that Boeing would incur if it developed a reputation
        for being an unreliable partner of component suppliers in the development of
        new aircraft.
(63)    Finally, Boeing argues that the information shared by the APU manufacturers
        with Boeing does not include the IP rights required to develop a competing
36   [Details of Boeing’s internal practices and policies].
37   Form CO, paragraphs 200- 203.
38   Boeing also submits examples of its contracts in Annexes 38 to 44 of the Form CO.
39   The text reads: [quoted excerpt from a standard agreement with an APU provider].
                                                        12
 ---pagebreak---           APU. The information provided by the APU manufacturer to Boeing is a
          component maintenance manual (“CMM”) which, in essence, is a large diagram
          of the APU so that, in the event of an APU malfunction or customer query,
          Boeing is able to identify the potential problem component or area. The CMM,
          however, does not provide the details necessary to actually repair (or explain
          how to repair) or develop the malfunctioning part, let alone an entire APU. Such
          information is closely held by the APU supplier. [Details of Boeing APU design
          requirements].
          Foreclosure of independent MRO providers
(64)      The Parties submit that the Transaction will not have any negative effects on the
          market for APU MRO services. [Boeing's rationale for the proposed JV].
(65)      [Information on the APU JV's strategy in the provision of MRO services]. 40
(66)      [Information on the APU JV's strategy in the provision of MRO services]. 41
6.2.3. The Commission's assessment
          Concentration levels
(67)      The market for APUs for large commercial aircraft where the APU JV will be
          active 42 is characterised by high concentration levels: Market leader Honeywell
          holds a very high market share, indicating that it holds significant market power,
          with an estimated [70-80]% of all installed APUs as of 2017, while UTC
          follows with [20-30]%. In this respect, Boeing notes 43 [Boeing understanding of
          APU supplier activities]. The market for APUs for large commercial aircraft is
          therefore characterised by a duopoly of suppliers, one of which – Honeywell –
          may be holding a dominant position.
40    Form CO, footnote 23.
41    Response to the Commission’s Pre-Notification RFI RFI 5, question 13.
42    The activities of the APU JV will be limited to selling APUs for [intended JV scope] while Boeing’
      activities are limited to selling large commercial aircraft. Since there is, therefore, only a vertical
      with respect to the sale of APUs for large commercial aircraft (upstream) and the sale of large
      commercial aircraft (downstream), the Commission’s assessment will focus on this link. Any effects
      of the Transaction on other and/or broader markets 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.
43    Form CO, paragraph 172.
                                                       13
 ---pagebreak---                  Market shares in terms of number of APU units, 2017 44
                                                                                                                                All segments
                                            Large
                                                                   Regional                             Helicopters
                                            Commercial                             Business
                                            Aircraft                               Jets
           HONEYWELL                     [70-80]%        [40-50]%             [90-100]%       [5-10]%                 [60-70]%
             UTC/P&W                     [20-30]%        [50-60]%              [0-5]%         [40-50]%                [20-30]%
           MOTOR SICH                     [0-5]%          [0-5]%               [0-5]%         [40-50]%                [5-10]%
       SAFRAN POWER UNITS                 [0-5]%          [0-5]%               [0-5]%         [5-10]%                  [0-5]%
PRNVI BRNENSKA STROJIRNA                  [0-5]%          [0-5]%               [0-5]%          [0-5]%                  [0-5]%
             AEROSILA                     [0-5]%          [0-5]%               [0-5]%          [0-5]%                  [0-5]%
              KLIMOV                      [0-5]%          [0-5]%               [0-5]%          [0-5]%                  [0-5]%
              OTHER                       [0-5]%          [0-5]%               [0-5]%          [0-5]%                  [0-5]%
(68)      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. 45 Embraer's market share amounted
          to [0-5]% while no other participants had a material market presence in this
          segment.
(69)      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. 46
(70)      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]% 47.
          Customer foreclosure
(71)      As concerns customer foreclosure, the Commission observes the following on
          Boeing's ability to foreclose competing APU manufacturers:
44     Form CO, paragraph 142.
45     Response by Parties of 29 August 2018 to RFI 1.
46     Response by Parties to RFI 2 of 5 September 2018, question 1. The market share presented by
       Boeing does not account for 26 regional aircraft deliveries by COMAC and United Aircraft
       Corporation (Sukhoi) in 2017.
47     Response by Parties of 29 August 2018 to RFI 1.
                                                         14
 ---pagebreak--- (72)     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 APUs for large commercial aircraft and all of the demand for APUs
         for regional aircraft unaffected by the Transaction. 48 Third party APU suppliers
         will thus continue to be able to sell their APUs to a significant part of the
         market.
(73)     Second, it is unlikely or at least highly uncertain that the APU JV will be able to
         serve all or most of Boeing’s demand for APUs going forward, leaving also at
         least part of Boeing’s demand for APUs unaffected by the Transaction.
(74)     In the first place, the APU JV has no sales of APUs yet and is expected to
         develop its presence only gradually over a period of [timing estimates] years.
         The first APU sales are expected to generate turnover in [timing estimates] only.
         Therefore, any potential foreclosure effects could be expected to materialise
         only in the medium term and only gradually, adding significant uncertainty to
         any assessment of foreclosure effects. This also provides third party APU
         manufacturers with time to adjust to the new competitive environment and
         improve their offering.
(75)     In the second place, according to Boeing's Business Plan 49 the APU JV targets
         the development of APUs for [specific JV-targeted platforms], platforms 50.
         Boeing estimates 51 that by maturity, in 2030, the APU JV will achieve a market
         share of […]% of all anticipated APUs for large commercial aircraft in
         operation. Furthermore, according to Boeing's calculations, the targeted
         platforms represent only […] of at least twelve large commercial platforms,
         including five Boeing platforms, with existing orders 52. Therefore, a large
         portion of the addressable market, including on Boeing aircraft, would remain
         available for third party APU suppliers.
(76)     In the third place, Boeing has not entered any exclusivity arrangements with the
         APU JV and, in principle, remains open to purchase APUs from third party APU
         suppliers, in particular if their offers are superior to the offers from the APU JV.
(77)     In the fourth place, market participants indicated that the development of an
         APU is a difficult technological development, which will take years to complete.
         The development is associated with uncertainties and execution risks. It is
48   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.
49   See Business Plan, Annex 5 to the Form CO.
50   Form CO, paragraph 17.
51   Form CO, paragraph 173.
52   Form CO, footnote 72.
                                                    15
 ---pagebreak---          therefore unclear whether the APU JV will ultimately be successful in the future
         and thus whether Boeing will be able to rely to a large extent on the APU JV. 53
(78)     Third, the production of large commercial aircraft has increased significantly
         over the past 10 years and is expected to continue growing rapidly during the
         decade to come. 54 Therefore, any reduction of the addressable merchant market
         could be counterbalanced by general market growth.
(79)     Fourth, present APU suppliers have long term contracts 55 on existing aircraft
         platforms. Large commercial aircraft platforms have a lifetime of potentially
         several decades, 25-30 years, so that OEM sales of third party suppliers are
         likely to continue for a number of years. In addition, existing third party APU
         suppliers will be able to continue making MRO sales on the aftermarkets – with
         MRO sales on the aftermarkets representing the bulk of the APU revenues – for
         some decades after the sale of the platforms is discontinued.
(80)     As concerns Boeing's incentive to foreclose alternative APU suppliers, the
         Commission finds the following:
(81)     First, although the prime objective of the APU JV is to supply […] Boeing
         platforms with APUs – resulting in incentives for Boeing to purchase APUs
         from the APU JV at least for those […] platforms – Honeywell and UTC are
         long standing APU suppliers. Honeywell and UTC – and Honeywell in
         particular in the large commercial aircraft segment – are very strong APU
         suppliers and may offer superior technology or quality and have a price
         advantage over the products of the APU JV. It is therefore uncertain whether
         Boeing would have incentives to forego buying from the two established players
         in the market altogether.
(82)     Second, according to Boeing 56, the decision concerning the choice of the APU
         for future platforms will [Boeing's general APU procurement decision criteria].
         Boeing has incentives to make cost efficient choices. Following the logic
         whereby creating derivatives of an existing APU for a next platform is
         significantly more cost effective than developing a new APU from scratch, 57
         incumbent APU suppliers are expected to enjoy a significant cost and thus
         competitive advantage over the APU JV.
53   See     minutes    with    an     airline   on 27      June,   2018    and    also    the   press
     https://www.flightglobal.com/news/articles/analysis-how-will-boeing-safran-venture-shake-up-ap-
     449234/.
54   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.
55   E.g. Honeywell's supply contract for the [platform] runs until [timing details]. See Form CO,
     Footnote 7.
56   Form CO, paragraph 216.
57   See an APU manufacturers' reply to question 6 of "Questions to market participants of
     5 June 2018".
                                                      16
 ---pagebreak--- (83)    Third, the price of APU per aircraft represents less than [0-5]% on the list price
        of the respective aircraft in the case of the most sold Boeing aircraft. 58 The
        potential profits for Boeing generated via the JV are also proportionally small.
        Therefore, Boeing will primarily have incentives to optimise the
        competitiveness of its aircraft by selecting the best available APU, rather than
        opt for the APUs of the APU JV, at all cost. This more so the case, because the
        profits of the APU JV are shared with Safran and would only partially flow to
        Boeing, whereas any foregone profits from revenues lost in the sale of aircraft
        would be fully absorbed by Boeing.
(84)    As concerns the impact of Boeing's potential foreclosure of alternative APU
        suppliers, the Commission finds the following:
(85)    First, the APU JV represents a new entrant on a very concentrated, two player
        APU market: Boeing’s stated objective is not only the self-supply of APUs but
        also the introduction an alternative commercial offer on the merchant market for
        third party aircraft manufacturers. 59
(86)    Second, the APU JV is developing a new APU from scratch, meaning that an
        alternative technology could become available in a market with currently few
        alternatives, with a potential to boosting innovation. 60 In fact, contrary to a
        situation of backwards integration, the Transaction brings about the creation of a
        new entrant in the upstream market.
(87)    Third, shifting purchases from a third party supplier to in-house sourcing does
        not in itself and automatically amount to customer foreclosure. Such shifts
        would only be anticompetitive if the move to in-house production harms the
        competitive viability of an upstream rival. [Conclusion of Boeing internal
        document supporting the APU JV rationale] 61, 62.
(88)    Fourth, several market participants responding to the market investigation
        highlighted the lack of competition on the APU market and market participants
        welcome the perspective that an additional APU supplier may appear,
        potentially offering more choice. 63 They noted, however, that due to risks and
        the long time horizon, their ability to make predictions at this stage was
        limited. 64 Furthermore, responding market participants do not predict price
        increases or reduction of innovation as a result of the Transaction. 65
58   The Parties' reply to the Commission's RFI Nr.2, question 5, on 12 September 2018.
59   Form CO, paragraph 17.
60   See replies to questions 2 and 3 of the Commission enquiry of 24 August 2018, minutes of a call
     with an aircraft manufacturer on 29 June, 2018.
61   See also [internal document], Form CO – Annex 14.
62   See [internal document], Form CO, Annex 12. [Internal document].
63   See replies to question 3 of the Commission enquiry of 24 August 2018.
64   See e.g. minutes of a call with an airline on 27 June, 2018.
65   See replies to question 3 of the Commission enquiry of 24 August 2018.
                                                        17
 ---pagebreak--- (89)     Fifth, APUs represent a relatively small input to the production of large
         commercial aircraft. In terms of cost, APUs represent less than [0-5]% of the
         cost of the final aircraft.
(90)     Sixth, Airbus is a strong competitor in the downstream market for the sale of
         large commercial aircraft and in the purchasing of APUs. Should a potential
         customer foreclosure strategy negatively affect Airbus, it cannot be excluded
         that Airbus could decide to support third party APU suppliers in their business
         development or may ultimately decide to insource the manufacture of APUs
         itself.
(91)     Seventh, as concerns the potential reduction in innovation, APUs seem to be one
         of the less R&D intensive products where development is currently rather slow
         and gradual. A market participant explained during the market investigation that
         APUs were "not a particularly innovative area", with "IP developed
         continuously and an adaptation of the technology", 66 indicating that
         improvements occur gradually, in an incremental manner. This appears to be
         confirmed by an innovation activity log submitted to the Commission, 67
         displaying four major technical advances between 1998 and 2017. Industry
         reports share this view: 68 "It [APU] is not as much of a differentiating factor as
         an avionics suite and so, it has not benefited from much product improvement
         effort by manufacturers. APUs are not at the center of the race for ever-greater
         aircraft efficiency."
(92)     For the reasons set out in paragraphs (71) to (91), the Commission considers that
         the Transaction does not raise customer foreclosure concerns.
         Access to commercially sensitive information
(93)     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.
(94)     As regards the application of those principles to the present case, the
         Commission notes, first, that several of the arguments discussed in
         paragraphs (71) to (91) also argue against significant adverse effects on the
         relevant markets of the sharing of confidential information. For instance,
         (i) significant demand for APUs in a growing market is likely to remain
         available for third party APU manufacturers even if they reduce their sales to
         Boeing due to the risk of disclosing confidential information to the APU JV;
         (ii) Boeing is expecting to continue to rely on third party manufacturers in the
         purchasing of APU for years to come giving it incentives to find mutually
         satisfactory agreements with the APU manufacturers regarding their confidential
         information; (iii) the APU JV represents a new entrant on a concentrated market,
         offering more choice and potentially boosting innovation also from incumbent
66   See minutes of a call with an aircraft manufacturer on 29 June 2018.
67   See submission on 31 August 2018.
68   https://www.mro-network.com/engineering-design/apus-getting-more-attention-mro-providers.
                                                      18
 ---pagebreak---          APU manufacturers; and (iv) Airbus is likely to have means to react if adverse
         effects materialise or risk materialising on the APU markets.
(95)     Second, business confidential information that is critical for the design,
         development and manufacture of an APU 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
         APU suppliers can therefore have recourse to IP law to safeguard their IP rights
         and protect sensitive information.
(96)     Third, the exchange of confidential information related to the purchasing of
         APUs by Boeing is covered by NDAs as set out in paragraph (60), which will
         prohibit the sharing of confidential information of competing APU
         manufacturers with the APU JV and which can be enforced through litigation.
         Boeing has safeguards in place to limit the circulation of the confidential
         information and to implement the NDA provisions as outlined in
         paragraphs (58) to (61).
(97)     Fourth, other market participants did not express a similar concern regarding the
         disclosure of commercially sensitive information to the APU JV.
(98)     Fifth, the market investigation confirmed Boeing's statement that the
         information obtained from the APU suppliers during bidding, design and
         certification would be insufficient to empower an aircraft manufacturer to start
         manufacturing APUs. This view is shared by another aircraft manufacturer who
         also adds "the APU OEM itself restricts access to the most necessary
         information that is required for the assessment of the compliance with […]
         specifications, quality requirements and how the equipment interfaces with the
         other equipment on the aircraft." 69
(99)     Sixth, Boeing's internal documents also reflect that Boeing was looking for a JV
         partner with some experience in APUs, indicating that it would not have been
         able to manufacture an APU on its own even though third party APU
         manufacturers had provided it with certain information in the past.
(100)    Seventh, insofar as the complainant refers to recent Commission precedents, 70
         addressing concerns about the misappropriation of confidential information, the
         Commission notes that the market in APUs is highly concentrated and that the
         APU JV is a new market entrant. Furthermore, the relative negotiation power of
         the APU suppliers vis-à-vis Boeing concerning provisions protecting sensitive
         information is unlikely to be unbalanced in favour of Boeing. In fact one market
         participant considers that one of the APU producers has as "of today, […] a
         dominant position and the JV LLC would be positive unless Boeing makes of the
         JV LLC their only supplier". Boeing will have to rely on third party APU
         suppliers going forward, and at least until the APU JV would be able to produce
         APUs, provided that the APU JV is successful, Boeing is unlikely to be in a
69    Minutes of a call with an aircraft manufacturer on 29 June 2018.
70    Case M.8314, Broadcom/Brocade, paragraphs 104-112., case M.7724, ASL/Arianespace,
      paragraphs 197-230.
                                                        19
 ---pagebreak---           position to negotiate confidentiality clauses in agreements with APU suppliers
          to their advantage in a disproportionate manner.
(101)     For the reasons set out in paragraphs (93) to (100), the Commission considers
          that the Transaction does not raise concerns due to Boeing’s access to
          confidential information of third party APU manufacturers.
          Foreclosure of third party MRO providers
(102)     As regards the potential foreclosure of third party MRO providers from APU
          component MRO and spare parts markets, the concern fundamentally relates to
          APU suppliers’ alleged practice of limiting third party MRO providers from
          servicing their APUs. Around [Boeing’s internal estimate of MRO services
          revenues]% 71 of revenues of APU suppliers are achieved through component
          MRO on the aftermarket. 72 APUs are usually sold to aircraft manufacturers at
          lower margins in order to recoup investments on the aftermarket. Such
          recouping is achieved partly through licencing requirements.
(103)     The Commission finds the following in this regard:
(104)     First, as set out above, the APU JV will start from an APU market share of 0%,
          gradually increasing its presence over the years, making it unlikely or at least
          highly uncertain that the Transaction will have significant foreclosure effects in
          the provision of component MRO in APUs in the foreseeable future.
(105)     Second, whereas some market participants took note of the allegedly foreclosing
          practices of existing APU suppliers, a number of third party MRO providers
          replying to the market investigation did not express foreclosure concerns related
          to the creation of the APU JV. To the contrary, some MRO providers expect the
          Transaction to have a positive impact. As one respondent 73 put it "Conditions
          will not worsen, however they could improve if JV LLC grant licenses to third
          party MROs to repair their APUs".
(106)     Third, whereas the practice of foreclosing MRO services are generally a concern
          for market participants, the Commission notes that to date, only one third of the
          APU MRO market is served by the APU manufacturers. 74
(107)     Fourth, as reflected in its internal documents 75, Boeing's primary objective in
          setting up the APU JV is to support the competitiveness of its aircraft via a
          better APU offer, including MRO provisions that are attractive to airlines. For
          example, Boeing identifies as one of the value drivers of the APU JV [Boeing
71    As for the APU JV, over its lifetime until 2060, around [Parties’ estimates]% of revenues are
      expected to derive from MRO services and spare parts.
72    MRO revenues represents [Parties’ estimates]% of the total revenues for APUs for large commercial
      aircraft, according to Safran internal estimates.
73    Respondent representing several airlines, reply to question 1 of the Commission's follow up enquiry
      on 5 September.
74    Form CO paragraphs 158 and 159 based on third party independent industry analysis.
75    Response by Parties dated 17 August 2018 to Commission's questions of 6 August 2018,
      question 18.
                                                        20
 ---pagebreak---            value drivers] and [Boeing value drivers]. 76 Accordingly, Boeing’s internal
           documents indicate that the Parties are planning to [Parties’ plans with respect to
           the JV]. Generally, the Commission considers that Boeing’s 50% share of the
           potential profits from the APU JV’s MRO services will not affect its basic
           incentive, which is to increase sales of its aircraft. Boeing thus has every
           incentive to provide competitive terms for its own APU MRO services.
(108)      Finally, in relation to the concern expressed by certain market participants that
           Boeing would, post-Transaction, no longer have an incentive to negotiate
           competitive terms with other APU manufacturers on behalf of airlines, the
           Commission notes the following. Such negotiations do not appear to have been
           very effective in the past. [Information from Boeing internal documents about
           current APU market conditions] 77 This is also reflected in Boeing’s goal, as
           stated in an internal document, […] 78. In any event, in view of maintaining its
           competitive position versus Airbus which also negotiates MRO terms with APU
           suppliers, Boeing appears unlikely to stop trying to negotiate competitive terms
           with other APU manufacturers as a result of the Transaction.
(109)      Therefore, competition concerns are ultimately unlikely to arise given the lack
           of concrete evidence of a deterioration of current MRO market dynamics.
(110)      For the reasons set out in paragraphs (104) to (109), the Commission considers
           that the Transaction does not raise concerns related to any foreclosure from
           APU MRO markets.
6.2.4.     Conclusion regarding vertical relationships
(111)      Based on the assessment in paragraphs (67) to (110), the Commission concludes
           that the Transaction does not raise serious doubts as to its compatibility with the
           internal market with respect to the vertical relationships brought about by the
           Transaction.
7.         CONCLUSION
(112)      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
76     Ibid, question 3.
77     Ibid, question 18.
78     Ibid.
                                                  21