CELEX: 32018M8658
Language: en
Date: 2018-05-04 00:00:00
Title: Commission Decision of 04/05/2018 declaring a concentration to be compatible with the common market (Case No COMP/M.8658 - UTC / ROCKWELL COLLINS) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 4.5.2018
                                                                C(2018) 2879 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                                                                  possible the information omitted has been
                                                                  replaced by ranges of figures or a general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 party
Subject:            Case M.8658 — UTC/Rockwell Collins
                    Commission decision pursuant to Article 6(1)(b) in conjunction with
                    Article 6(2) of Council Regulation No 139/20041 and Article 57 of the
                    Agreement on the European Economic Area2
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').
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 ............................................................................................................ 5
2. THE CONCENTRATION .......................................................................................... 5
3. EU DIMENSION ........................................................................................................ 5
4. PROCEDURE ............................................................................................................. 5
5. OVERVIEW OF THE AIRCRAFT MANUFACTURING INDUSTRY ................... 6
   5.1. Types of aircraft ................................................................................................ 6
   5.2. Supply chain ...................................................................................................... 7
   5.3. Procurement process .......................................................................................... 7
        5.3.1.    Large commercial aircraft ................................................................... 8
        5.3.2.    Regional aircraft/corporate jets ........................................................... 8
        5.3.3.    Military aircraft.................................................................................... 8
        5.3.4.    Helicopters ........................................................................................... 8
6. PRODUCT MARKET DEFINITION ......................................................................... 9
   6.1. Trimmable horizontal stabiliser actuator ("THSA") ....................................... 10
        6.1.1.    Introduction ....................................................................................... 10
        6.1.2.    Relevant product market .................................................................... 10
        6.1.3.    Mechanical sub-assemblies for the THSA system: the ball
                  screw .................................................................................................. 13
   6.2. Pilot Controls ................................................................................................... 14
        6.2.1.    Introduction ....................................................................................... 14
        6.2.2.    Relevant product markets .................................................................. 15
   6.3. Ice Protection ................................................................................................... 19
        6.3.1.    Introduction ....................................................................................... 19
        6.3.2.    Relevant product markets .................................................................. 19
   6.4. Oxygen systems ............................................................................................... 22
        6.4.1.    Introduction ....................................................................................... 22
        6.4.2.    Relevant product market .................................................................... 23
   6.5. Aircraft seating ................................................................................................ 24
        6.5.1.    Introduction ....................................................................................... 24
        6.5.2.    Business jets seating .......................................................................... 24
        6.5.3.    Cabin attendant seating...................................................................... 25
   6.6. Interior lighting ................................................................................................ 26
        6.6.1.    Introduction ....................................................................................... 26
        6.6.2.    Relevant product market .................................................................... 26
   6.7. Passenger Service Units .................................................................................. 27
        6.7.1.    Introduction ....................................................................................... 27
                                                          2
 ---pagebreak---          6.7.2.   Relevant product markets .................................................................. 27
   6.8. Potable water systems...................................................................................... 27
         6.8.1.   Relevant product market: potable water systems .............................. 28
         6.8.2.   Components for potable water systems ............................................. 28
   6.9. Maintenance Repair and Overhaul ('MRO') operations and spare parts ......... 29
   6.10. ARINC 31
         6.10.1. Introduction ....................................................................................... 31
         6.10.2. Relevant product market .................................................................... 34
   6.11. Inertial Measurement Units ............................................................................. 36
         6.11.1. Introduction ....................................................................................... 36
         6.11.2. Relevant product market .................................................................... 36
   6.12. Military GPS receivers .................................................................................... 36
         6.12.1. Introduction ....................................................................................... 36
         6.12.2. Relevant product market .................................................................... 37
   6.13. Air data systems .............................................................................................. 37
         6.13.1. Introduction ....................................................................................... 37
         6.13.2. Relevant product market .................................................................... 38
   6.14. Aircraft Engines............................................................................................... 39
         6.14.1. Introduction ....................................................................................... 39
         6.14.2. Relevant product markets .................................................................. 39
   6.15. Avionics ........................................................................................................... 40
         6.15.1. Introduction ....................................................................................... 40
         6.15.2. Relevant product markets .................................................................. 40
   6.16. Environmental control systems ....................................................................... 42
         6.16.1. Introduction ....................................................................................... 42
         6.16.2. Relevant product market .................................................................... 42
   6.17. Food and beverage preparation and storage equipment .................................. 42
7. GEOGRAPHIC MARKET DEFINITION ................................................................ 43
   7.1. Original aircraft equipment ............................................................................. 43
   7.2. MRO and spare parts ....................................................................................... 44
8. COMPETITIVE ASSESSMENT .............................................................................. 44
   8.1. Horizontal relationships................................................................................... 44
         8.1.1.   Analytical framework ........................................................................ 44
         8.1.2.   THSA ................................................................................................. 45
         8.1.3.   Pilot Controls ..................................................................................... 48
         8.1.4.   Ice Protection ..................................................................................... 51
                                                             3
 ---pagebreak---          8.1.5.   Aircraft seating .................................................................................. 54
         8.1.6.   Oxygen Systems ................................................................................ 55
         8.1.7.   Interior lighting .................................................................................. 57
         8.1.8.   PSUs .................................................................................................. 58
         8.1.9.   Potable water systems ........................................................................ 59
         8.1.10. MRO and spare parts ......................................................................... 60
    8.2. Vertical links ................................................................................................... 65
         8.2.1.   Analytical framework ........................................................................ 65
         8.2.2.   Mechanical sub-assemblies for the THSA system: the ball
                  screw .................................................................................................. 67
         8.2.3.   Components for potable water systems ............................................. 67
         8.2.4.   ARINC ............................................................................................... 68
         8.2.5.   IMUs and GPS ................................................................................... 79
         8.2.6.   Air data probes and Air data computers ............................................ 83
    8.3. Conglomerate links .......................................................................................... 85
         8.3.1.   Introduction ....................................................................................... 85
         8.3.2.   Analytical framework ........................................................................ 86
         8.3.3.   General considerations on conglomerate effects of the
                  Transaction ........................................................................................ 86
         8.3.4.   Aircraft engines and avionics ............................................................ 91
         8.3.5.   Environmental control systems and galley cooling ........................... 99
         8.3.6.   Pilot controls, flight controls and actuation ..................................... 100
9.  PROPOSED REMEDIES........................................................................................ 102
    9.1. Analytical Framework ................................................................................... 102
    9.2. Description of the proposed remedies ........................................................... 103
         9.2.1.   THSA and pilot controls .................................................................. 104
         9.2.2.   Ice protection systems ..................................................................... 104
         9.2.3.   Oxygen Systems .............................................................................. 105
    9.3. Assessment of the proposed remedies of 12 April 2018 ............................... 105
         9.3.1.   THSA and pilot controls .................................................................. 105
         9.3.2.   Ice protection systems ..................................................................... 108
         9.3.3.   Oxygen Systems .............................................................................. 110
         9.3.4.   Conclusion on the assessment of the proposed remedies ................ 111
10. CONCLUSION ....................................................................................................... 112
                                                           4
 ---pagebreak--- Dear Sir or Madam,
(1)      On 12 March 2018, the European Commission received notification of a
         proposed concentration pursuant to Article 4 of the Merger Regulation by which
         United Technologies Corporation (UTC) will acquire within the meaning of
         Article 3(1)(b) of the Merger Regulation control of the whole of Rockwell
         Collins Incorporated (Rockwell Collins) (the Transaction). UTC is designated
         hereinafter as ‘the Notifying Party’3. UTC and Rockwell Collins are designated
         hereinafter as ‘the Parties’.
1.       THE PARTIES
(2)      UTC provides high-technology products and services for the building systems
         and aerospace industries worldwide. The UTC group comprises the following
         business units: (i) Otis Elevator Company, (ii) UTC Climate, Controls &
         Security, (iii) Pratt & Whitney, and (iv) UTC Aerospace Systems.
(3)      Rockwell Collins is a manufacturer and supplier of aviation and integrated
         solutions for both commercial and government applications. It also
         manufactures and supplies a variety of aircraft cabin interior products.
2.       THE CONCENTRATION
(4)      Pursuant to an Agreement and Plan of Merger signed on 4 September 2017,
         UTC intends to purchase all shares in Rockwell Collins and thus acquire sole
         control over Rockwell Collins. The Transaction therefore constitutes a
         concentration pursuant to Article 3(1)(b) of the Merger Regulation.
3.       EU DIMENSION
(5)      The undertakings concerned have a combined aggregate world-wide turnover of
         more than EUR 5 000 million (UTC EUR 51,696 million, Rockwell Collins
         EUR 7,372 million). Each of them has a Union-wide turnover in excess of
         EUR 250 million (UTC EUR […] million, Rockwell Collins EUR […] million),
         but they do not achieve more than two-thirds of their aggregate Union-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.
4.       PROCEDURE
(6)      For its assessment of the Transaction, the Commission has made use of the
         available means of investigation pursuant to Article 11 of the Merger
         Regulation. In particular, the Commission sent extensive questionnaires to
         competitors (mainly aircraft component suppliers) and customers (airframers4
3
    Publication in the Official Journal of the European Union No C 105, 20.3.2018, p. 8.
4
    The company engage in the design and manufacture of the aircraft.
                                                        5
 ---pagebreak---           and airlines). The Commission also conducted numerous phone interviews with
          competitors and customers. In reaction to complaints received from some
          market participants who highlighted potential adverse effects of the Transaction
          on competition in different markets, the Commission conducted additional
          phone calls and addressed written requests for information to various market
          participants. The Commission also analysed internal documents originating from
          UTC and Rockwell Collins, including supply contracts with customers in certain
          selected products and including internal strategy documents for integration plans
          after the Transaction. The Commission also collected and assessed bidding data
          from the Parties and their main customers to assess competitive dynamics in the
          tender processes in different product markets.
5.        OVERVIEW OF THE AIRCRAFT MANUFACTURING INDUSTRY
(7)       As a matter of general introduction, this section summarises the Commission's
          understanding of the basic features of the aircraft manufacturing industry, as
          explained mainly by the Notifying Party in the Form CO and as previously
          summarized by the Commission in prior decisions, and introduces terms and
          concepts used in the remainder of the decision.5
5.1.      Types of aircraft
(8)       For the purpose of the merger control assessment of the Transaction, four types
          of aircraft are relevant: (i) commercial aircraft, (ii) military aircraft,
          (iii) helicopters and (iv) general aviation.
(9)       The commercial aircraft category includes large commercial aircraft, regional
          aircraft and business/corporate jets.
              (a)    Large commercial aircraft are generally equipped with over 100 seats,
                     can cover a range of more than 2,000 nautical miles and cost over
                     USD 35 million. A distinction can be drawn between (i) wide-body
                     aircraft equipped with 200-850 seats and carrying passengers over more
                     than 4,000 nautical miles distances, and (ii) narrow-body aircraft
                     equipped with 100-200 seats and carrying passengers over 2,000-4,000
                     nautical miles distances.
              (b)    Regional aircraft are generally equipped with 30 to 90 seats and can
                     cover a range of less than 2,000 nautical miles. Regional aircraft are
                     comprised of (i) large regional aircraft which can transport 70-90
                     passengers and (ii) small regional aircraft which can transport 30-50
                     passengers.
              (c)    Business/corporate aircraft/jets are aircraft designed for corporate
                     activities and typically cost between USD 3 million and more than
                     USD 50 million.
5
     A very similar introduction was already included in case M.8425 – Safran/Zodiac Aerospace,
     paras. 9ff.
                                                    6
 ---pagebreak--- (10)     The military aircraft category comprises aircraft designed for military activities,
         be it combat aircraft or non-combat aircraft – i.e. designed for search and rescue,
         reconnaissance, transport, observation and training.
(11)     Helicopters include normal and transport rotorcrafts propelled by turbine
         engines used for civil or military applications6.
(12)     As a fourth category, the industry generally defines aircraft used for flight
         activities not involving commercial air transportation or aerial work as "general
         aviation aircraft". General aviation aircraft typically seat 1-6 passengers and are
         generally equipped with piston-powered engines; they are used inter alia for
         personal/private travel, air tourism, recreational flying, and air sports.
5.2.     Supply chain
(13)     The supply chain in the aerospace industry mainly comprises two types of
         suppliers: Tier-1 and Tier-2 (and Tier-3 as the case may be). Tier-1 suppliers
         generally have integration capabilities and provide whole systems and
         equipment. Tier-2 suppliers tend to be active at an upstream stage, supplying
         components and sub-components which are later integrated into the
         systems/equipment by either the aircraft manufacturer or the Tier-1 supplier (or
         third-parties system integrators).
(14)     On the demand side, different types of customers purchase systems and
         equipment depending on the type of aircraft considered.
            (a)      Large commercial aircraft: depending on the system/equipment
                     considered, purchasers are either (i) aircraft manufacturers (also known
                     as "airframers") with significant integration capabilities or (ii) end-
                     users – inter alia airlines, lessors and national governments – who
                     sometimes directly purchase certain equipment and systems from the
                     Tier-1 supplier.
            (b)      Regional aircraft/corporate jets: systems and equipment are usually
                     purchased by aircraft manufacturers who then resell the whole aircraft
                     to end-users.
            (c)      Military aircraft and helicopters: systems and equipment are usually
                     purchased by aircraft and helicopter manufacturers, in some cases also
                     the Ministry of Defence depending on the equipment or system
                     considered. Helicopter/military aircraft manufacturers will in any case
                     provide the integration of main systems and equipment.
5.3.     Procurement process
(15)     In most cases, customers in the aircraft manufacturing industry source systems
         and equipment by means of competitive tender offers, often for the duration of
         the aircraft programme in question. The structure of the tender process can vary
         according to the aircraft type, customer involved or platform in question.
6
     Very small light helicopters are also equipped with piston-driven engines.
                                                         7
 ---pagebreak--- 5.3.1. Large commercial aircraft
(16)   Aircraft manufacturers of large commercial aircraft can either source products
       through build-to-print or build-to-specification ("build-to-spec") processes. The
       build-to-print process requires the supplier to manufacture equipment, systems
       and components to the exact specifications provided by the customer. The build-
       to-specification process, on the other hand, allows the supplier to use its own
       design and manufacturing skills.
(17)   Additionally, a distinction needs to be drawn between buyer-furnished
       equipment ("BFE") and supplier-furnished-equipment ("SFE"). BFE are
       purchased by end-users (e.g. airlines), whereas SFE are purchased by the aircraft
       manufacturer before the sale of the aircraft to the end-user.
(18)   With respect to SFE, suppliers for the different systems and equipment of an
       aircraft platform are selected through a competitive tender process. When
       launching a new aircraft platform, the aircraft manufacturers first issue Requests
       for Information ("RFI") to several prospective bidders in order to identify a
       preliminary list of potential suppliers for the systems/equipment/part that it will
       not manufacture in-house. The aircraft manufacturers then typically issue
       Requests for Proposals ("RFP") in order to "down-select" a limited number of
       final candidates who will submit "Best and Final Offers" on the basis of which
       final negotiations and selection will be conducted.
(19)   Tenders for BFE products typically occur at a later stage of the procurement
       process, around two years before the delivery of the aircraft.
5.3.2. Regional aircraft/corporate jets
(20)   Contrary to the procurement process for large commercial aircraft (which can be
       based either SFE or BFE), most equipment and systems for regional
       aircraft/business jets are sold on an SFE basis. The purchasers are therefore in
       most cases the aircraft manufacturers and not end-customers.
5.3.3. Military aircraft
(21)   The procurement process for equipment and systems for military aircraft follows
       a specific pattern. Due to the low volume of aircraft and to the complexity of the
       integrated systems, the procurement process requires close cooperation between
       the airframer, the system supplier and the National Procurement Authority
       acting on behalf of the end-users.
5.3.4. Helicopters
(22)   The procurement of systems and equipment for helicopters is usually organized
       by the helicopter manufacturer, though certain parts can also be sourced directly
       by Ministries of Defence for military helicopters (e.g. engines). For helicopters,
       purchases take place by means of a tender process or through a negotiated
       procedure.
                                               8
 ---pagebreak--- 6.         PRODUCT MARKET DEFINITION
(23)       UTC and Rockwell Collins are important worldwide suppliers of aircraft
           equipment and the Transaction is one of the largest in the aerospace industry to
           date. UTC and Rockwell Collins have broad but generally complementary
           product portfolios as illustrated by Figure 1. More than [90-100]% of Rockwell
           Collins’ commercial business does not lead to any horizontal overlaps with
           UTC’s activities.
              Figure 1 - Complementarity of the portfolios, UTC internal document7
(24)       This decision analyses the limited number of horizontal8 and vertical relations
           created by the transaction, including the Parties' activities on the aftermarket in
           terms of maintenance, overhaul and repair ('MRO') operations and the sale of
           spare parts. Given that a number of the Parties’ products are complementary, the
           assessment also extends to the analysis of conglomerate effects.
7
     Internal document […].
8
     In addition to the horizontal overlaps analysed in the following section, the Parties' activities also
     overlap in the supply of aircraft interface devices ("AID") and air data computers. The combined
     market shares in those products are below 20% so that no horizontally affected markets arise. It is
     relevant, however, to assess the vertical and conglomerate links of these activities with other activities
     of the Parties. For this reason, those horizontal overlaps are assessed in the datalink network services
     section (section 8.2.4) and in the air data system section (section 8.2.6), respectively.
     A further potential horizontal overlap between the Parties' activities concerns electronic engine
     controls, which are the interface between the throttle and the fuel system of an aircraft. In 2016,
     Rockwell Collins achieved USD […] turnover supplying electronic engine controls for small piston
     engines. UTC supplied electronic engine controls for gas turbine engines. Due to Rockwell Collins'
     limited activities and the Parties' focus on different engines, this horizontal overlap does not lead to
     serious doubts as to its compatibility with the internal market and is therefore not discussed further in
     this decision.
                                                           9
 ---pagebreak--- 6.1.      Trimmable horizontal stabiliser actuator ("THSA")
6.1.1.    Introduction
(25)      THSA systems are a subset of aerospace flight control actuation systems.
          Actuation systems are hydraulically, mechanically or electronically driven
          components that are controlled from the cockpit. They physically move flight
          control surfaces of a plane (such as rudders, ailerons, elevators, slats or flaps) or
          angle the rotors on a helicopter to steer the aircraft in flight or assist in take-off
          and landing. The THSA’s function is to move the horizontal stabiliser that
          controls the pitch of the aircraft.9
                                            Figure 2 - THSA
                                              Source: Form CO.
6.1.2.    Relevant product market
(26)      The Commission has not specifically assessed THSAs so far. In a previous case,
          the Commission considered a segmentation of actuation systems into primary
          flight control actuators (“PFCA”), secondary flight control actuators (“SFCA”)
          and THSA. The question whether the THSA constituted a separate market or
          was part of the PFCA or SFCA markets was ultimately left open.
(27)      In a previous case, the Commission found that the markets for actuations
          systems should not be further segmented according to the size of the aircraft.10
(28)      As regards a differentiation between civil and military applications, in previous
          decisions,11 the Commission has left open whether actuation systems for
          commercial/civil and military aircraft constitute separate product markets.
(29)      The Notifying Party agrees12 that THSAs should indeed be considered a product
          market separate from other actuation products, due to the absence of demand
          side substitutability and limited supply side substitutability: not all THSA
          suppliers are able to manufacture the PFCA and SFCA and vice versa. For
          example, whereas UTC manufactures the full range of actuators, Rockwell
          Collins is only active in the manufacture of the THSA. The Parties explain that
9
     Form CO, THSA, paras 6.9-6.10.
10
     Case COMP/M.6410 – UTC/Goodrich, paras. 94 and 98.
11
     Case IV/M.1493 – United Technologies/Sundstrand, p. 19; Case COMP/M.2183 – Smiths
     Industries/TI Group, para. 8; case COMP/M.2892 – Goodrich/TRW Aeronautical Systems Group,
     para 10; case COMP/M.6410 – UTC/Goodrich, para. 96.
12
     Form CO, THSA, paras 6.31-6.34.
                                                    10
 ---pagebreak---            THSAs are sometimes tendered together with either the PFCA or the SFCA.
           They reckon however that in most cases, they are sourced standalone.13
(30)       In the Notifying Party's' view, in line with the Commission precedent, the size of
           the aircraft does not further segment the market for THSAs. UTC sees the
           technology as largely scalable and believes that all THSA producers are capable
           of supplying any size of aircraft14. Furthermore, UTC submits that no dividing
           line between small and large aircraft is possible to be drawn in this respect.
(31)       The Notifying Party considers15 there is no important distinction between civil
           and military applications for THSA systems. In the vast majority of cases,
           THSA products on civil and military applications are similar. The Notifying
           Party explains that this is because THSA systems are only used on military
           transport aircraft, rather than specialized military combat aircraft (e.g., fighter
           jets), which are similar to the commercial application. Moreover, the same
           suppliers are generally active in both civil and military applications and there
           will therefore be a similar number of alternative suppliers under either market
           definition post-Transaction.
(32)       The Notifying Party however argues16 that THSAs can be differentiated
           according to the technology they use into hydraulic and electric THSAs. UTC
           submits that in general, large commercial aircraft utilise mechanically controlled
           hydraulic motors, where the motor provides additional speed, force and
           reliability needed to move the heavier control surfaces used by the large aircraft.
           Most regional and business jets on the other hand utilize electric THSAs as less
           power is required and electric THSAs are lighter in weight and more efficiently
           operated. The Parties however acknowledge that there have been some
           exceptions, such as the B787 and A350, large commercial aircraft that use
           electrical THSAs, and regional and business jets that use hydraulic THSAs, such
           as the Gulfstream G550.
(33)       As concerns the pricing of THSAs, the Notifying Party submits that hydraulic
           THSAs are significantly more expensive than electric ones, hydraulic ranging
           from USD […] to USD […] while Rockwell Collins' electric THSAs cost in
           general USD […]. The […]'s electric THSA fell into the price range of the
           hydraulic, however, at USD […].17
(34)       According to the Notifying party, not all suppliers are capable of manufacturing
           both types: Although UTC has electro-mechanical design capability, it only
           manufactures hydraulic THSAs18 whereas Rockwell Collins produces only
           electro-mechanical ones and claims not being able to manufacture the hydraulic
           variant. The Notifying Party submits that the hydraulic system alone constitutes
           half of the price of a hydraulic THSA, limiting supply side substitutability.
13
     E.g. for the […], the THSA was tendered as part of the PFCA, whereas […] has tendered all THSAs
     separately for all platform in the past 10 years.
14
     The Parties also note that THSAs are only present on the more sophisticated aircraft, most business
     jets and smaller aircraft do not have THSA systems.
15
     Form CO, THSA, para 6.31.
16
     Form CO, THSA, para 6.37.
17
     Form CO, THSA, para 6.15.
18
     The […] supply an electric THSA system.
                                                       11
 ---pagebreak--- (35)       The results of the Commission's market investigation confirmed the Parties'
           argument that THSAs were indeed a separate market from the rest of the
           actuators due to the absence of demand side substitutability and the limited
           supply side substitutability.19
(36)       Market participants also confirmed that size of the aircraft did not matter, as
           scaling up was not an issue for suppliers from a technology standpoint:
           specification and characteristics of THSAs are always unique and associated to
           the aircraft type, size and load which they are designed for.20
(37)       As regards military THSA, respondents mostly thought that in principle they are
           to be differentiated from civil applications, as the structure of the aircraft that
           the THSA is mounted on is differed and prices for military THSAs are
           significantly higher, as platform size did not allow allocating the fixed
           development costs across a large number of products. It was noted, however,
           that in general, as also true for the military application, the THSA is custom
           made for the platform and in this respect commercial and military THSAs were
           similar.21
(38)       As regards a sub-segmentation into hydraulic and electro-mechanical THSA,
           from a technological perspective hydraulic and electric THSAs are different,
           prices are usually different and the market investigation confirmed that the
           aircraft OEM will set the aircraft design requirements and specify if they are
           seeking hydraulic or electrical actuation in most cases.22
(39)       However, some respondents have also submitted that airframers may ask for
           studies for both solutions (electric or hydraulic) in some early requests for
           information. They also explained that electro-mechanical THSAs are gradually
           replacing hydraulic ones, independently of the size of the aircraft. Hydraulic
           THSAs and electro-mechanical THSAs have therefore gradually entered more
           and more in competition with each other.23
(40)       Even if, in general, it appears that larger aircraft are more likely to use a
           hydraulic THSA, evidence shows that Rockwell Collins is already present on
           the […] and Moog on the […] with electro-mechanical THSA. Furthermore,
           some platforms have hybrid systems with both, hydraulic and electric THSA.
(41)       The responding competitors pointed to some supply side substitution, too,
           stating that manufacturers with electro-mechanical capability could technically
           also start manufacturing hydraulic THSAs, as these are technologically
           simpler.24
19
     See minutes of calls with THSA competitors on 30 November 2017, 10 January 2018 and
     16 January 2018, see also replies to question 31 of Questionnaire 1 - Competitors.
20
     See replies to question 31.3 to Questionnaire 2 - Airframers.
21
     See replies to questions 8 and 31 of Questionnaire 1 - Competitors and question 30 of Questionnaire 2
     - Airframers.
22
     See replies to question 31 of Questionnaire 1 - Competitors and question 31 of Questionnaire 2 -
     Airframers.
23
     See replies to question 32 of Questionnaire 1 - competitors.
24
     See minutes of calls with THSA competitors on 20 February 2018, see replies to question 31 of
     Questionnaire 1 - Competitors and replies to question 31 of Questionnaire 2 – Airfamers.
                                                         12
 ---pagebreak--- (42)      In summary, the market investigation did not confirm the justification for further
          segmenting THSAs into electric and hydraulic THSAs. Therefore, for the
          purposes of the present decision the Commission considers that the market for
          THSAs will encompass both electric and hydraulic THSAs for any type of
          aircraft. Whether the relevant product market for THSAs is to be sub-segmented
          into civil and military application, will be left open.
6.1.3.    Mechanical sub-assemblies for the THSA system: the ball screw
(43)      The mechanical ball screw assembly is the main mechanical component of the
          THSA. Mechanical sub-assemblies include ball screws (a screw and nut
          assembly that has a rolling ball interface between the screw and nut to give
          efficient operation), as well as a trunnion assembly, a no-back, and all secondary
          load path devices. For the purposes of operating the THSA, the screw is rotated
          and the nut (which is prevented from rotating) translates rotational motion to
          linear motion.25
                                     Figure 3 - Ball screw for the THSA
                                                Source: Form CO.
(44)      The ball screw constitutes a major proportion of the value of the THSA system,
          […] as reported by the Parties.26
(45)      Only UTC is active in the manufacture of ball screws, Rockwell Collins is not.
(46)      Other suppliers of THSA systems, e.g., Liebherr, Moog or Parker, do not have
          in-house design and production capabilities for ball screws either and will
          procure the ball screw assembly to specification.27 Also Boeing has been
          sourcing components and integrated the THSA system internally.
(47)      In a previous decision, the Commission discussed the market for ball screws for
          THSA and found that these sub-assemblies were specific to the THSA and could
25
     Form CO, para 6.39.
26
     See reply to question 60 of the Commission's RFI#1 on 21 December, 2017.
27
     Form CO, para 6.40, confirmed by the market investigation, see replies to question 34 of
     Questionnaire 1 - Competitors.
                                                      13
 ---pagebreak---           not be used for other actuators.28 The ultimate market definition was left open
          however.
(48)      For the purposes of the assessment of this case, the Commission will consider
          the relevant product market for ball screws for THSAs. Even under this
          narrowest plausible market definition, no serious doubts arise as to the
          compatibility of the Transaction with the internal market.
6.2.      Pilot Controls
6.2.1.    Introduction
(49)      Pilot controls are equipment directly accessible to the pilot in the cockpit
          providing the man-machine interface for piloting functions (speed up, brake,
          land, etc.). Pilot controls typically include throttle quadrants, joysticks and
          yokes, rudder pedals, flight deck control suites, active side stick units, thrust
          control assemblies, different kinds of levers (flap slat lever, landing gear control
          lever, braking control lever, speedbrake lever) and nose wheel steering
          handles29. Pilot controls are based on three main technologies: (i) mechanical or
          manual, (ii) hydro-mechanical / hydraulic, and (iii) fly-by-wire30.
(50)      The Parties' activities only overlap with regard to three types of pilot controls:
          (a)   Pilot control sticks (hereinafter also referred to as 'sticks'), that is center
                yokes and sidesticks, whereas Rockwell Collins manufactures and sells
                center yokes (but no sidesticks), and UTC manufactures and sells
                sidesticks (but no center yokes). Pilot control sticks are used primarily to
                control an aircraft’s elevators and ailerons. The elevators are part of the
                tail, at the rear of an aircraft, and they adjust an aircraft’s pitch. This
                allows the pilot to change the angle of attack, increasing or decreasing the
                altitude. The ailerons form part of the trailing edge of the wings, and they
                help to control the aircraft in roll31.
                        Center yokes consist of a grip positioned on a central column front
                         and center for both the pilot and co-pilot. Rotating the control
                         wheel moves the ailerons and rolls the axis. Fore and aft
                         movements of the control column move the elevator and change
                         the pitch of the axis32.
                        A sidestick is located on the side console of the pilot. Sidesticks
                         convert the pilot’s hand movements into electrical signals, which
                         are then processed by the aircraft’s computers to determine how to
                         move the control surfaces to best achieve what the pilot wants.
                         This replaces mechanical linkages and means that pilot inputs do
                         not directly move the control surfaces33. Most sidesticks today are
                         'passive' sidesticks meaning that there is no tactile feedback from
28
     Case COMP/M.6410 – UTC/Goodrich, paras 102ff.
29
     Case M.8425 – Safran/Zodiac Aerospace, para. 183.
30
     Form CO, Pilot Controls, para. 6.2.
31
     Form CO, Pilot Controls, para. 6.5.
32
     Form CO, Pilot Controls, para. 6.6.
33
     Form CO, Pilot Controls, para. 6.11.
                                                    14
 ---pagebreak---                          the aircraft or the other pilot. 'Active' sidesticks, introduced only
                         recently, provide tactile and visual feedback in response to pilot
                         and autopilot commands but have not yet been widely adopted in
                         the commercial aircraft space34.
             (b)    Rudder brake pedal systems ('RBPS') are located on the floor in front of
                    the pilot. They control the rudder, as well as the brakes on the wheels
                    while the aircraft is touching the ground. The rudder is a vertical flight
                    surface typically attached to the fin (or vertical stabilizer). It allows the
                    pilot to control the yaw of the vertical axis to change the horizontal
                    direction in which the nose is pointing35.
             (c)    The throttle quadrant assembly ('TQA') is normally located on the
                    centre console, between the pilot and first officer. It allows the pilot to
                    control the fuel flow in an aircraft, which determines the engines’
                    thrust36.
                                   Figure 4 - Pilot controls in a cockpit
                                                 Source: Form CO.
6.2.2.    Relevant product markets
(51)      Pilot controls have been subject of Commission precedents only to a limited
          extent. The Commission previously noted that, according to its market
          investigation, the pilot controls have very different functions, technologies,
          requirements, procurement and suppliers and therefore the claim that no
          distinction should be made between different pilot controls for the purpose of a
          market definition was not confirmed. However, ultimately, the exact product
          market definition was left open37.
34
     Form CO, Pilot Controls, paras. 6.14, 6.15.
35
     Form CO, Pilot Controls, para. 6.16.
36
     Form CO, Pilot Controls, para. 6.18.
37
     Case M.8425 – Safran/Zodiac Aerospace, paras. 188-191.
                                                       15
 ---pagebreak--- 6.2.2.1. The Notifying Party's submission
(52)      In line with this precedent, the Notifying Party submits that center yokes,
          sidesticks, RBPS and TQA should all be considered separate products market
          due to the lack of demand side substitutability and only limited supply side
          substitutability between the different types of pilot controls38.
(53)      This segmentation should apply both for civil as well as for military
          applications39. Furthermore, no segmentation should be made according to
          different type of technology40. Ultimately, the Notifying Party claims the market
          should not be further segmented by the type of aircraft (large commercial,
          regional or business jet)41, referring by analogy to the decision in
          UTC/Goodrich42, where the Commission concluded that markets for actuations
          systems should not be further segmented according to the size of the aircraft43.
(54)      In particular as regards the distinction between the pilot control sticks 'center
          yokes' and 'side sticks', the Notifying Party maintains that these pilot controls
          belong to separate markets, which are not affected markets for the purpose of
          this Transaction. Whereas from a demand-side perspective, yokes and sidesticks
          perform the same function, both pilot controls are strongly differentiated and
          subject to airframers' particular preferences (historical design, engineering
          philosophy). The Notifying Party finally argues from a supply-side perspective
          that it would be difficult for a supplier of sidesticks to manufacture center yokes
          and vice versa44.
6.2.2.2. The Commission's assessment
(55)      The results of the Commission's market investigation confirmed the Notifying
          Party's approach to assume separate product markets for pilot control sticks, the
          RBPS and TQA.
(56)      A regards demand side considerations, the vast majority of respondents
          confirmed that sticks, RBPS and TQA are not substitutable with one another and
          that they do not have similar prices. Some respondents put forward that the pilot
          controls have similar technical characteristic, but this was not the majority45.
          One customer responded that "[d]espite the fact that they are all part of cockpit
          control, sticks, RBPS and TQA do not have the same function and are not used
          in the same way (RBPS is used with the feet when the others with the hand). In
          this context, it is not the same loads that can apply the pilots (i.e. Pilot is able to
          develop much higher loads with the legs than with the hand).", whereas another
38
     Form CO, Pilot Controls, paras. 6.30 – 6.32.
39
     Form CO, Pilot Controls, para. 6.34.
40
     Form CO, Pilot Controls, para. 6.33.
41
     Form CO, Pilot Controls, para. 6.35.
42
     Form CO, Pilot Controls, para. 6.35.
43
     Case COMP/M.6410 – UTC/Goodrich, para. 98.
44
     Form CO, Pilot Controls, paras. 6.37 – 6.40.
45
     See replies to question 48 of Questionnaire 1 – Competitors; Replies to question 50 of
     Questionnaire 2 –Airframers.
                                                   16
 ---pagebreak---           stated that "[s]ticks, RBPS, and TQA are technically different. These products
          perform different functions"46.
(57)      The results of the market investigation showed further that there are are no clear
          indications of sufficient supply side substitutability to include the products in the
          same relevant market. Even if there are opinions that a supplier of one kind of
          pilot controls (sticks, RBPS, TQA) may easily start producing another kind of
          pilot controls, this has been challenged by roughly the same number of
          respondents in the Commission's investigation47.
(58)      Furthermore, there is no differentiation required as regards the type of the
          aircraft. Market participants widely agreed that it would not make a difference if
          the pilot controls are used on a large commercial aircraft, regional aircraft or
          business jet4849.
(59)      In relation to sidesticks and center yokes, the majority of responses to the
          market investigation concurred that sidesticks and center yokes are not fully
          substitutable with one another and that they lack similar technical
          characteristics. There are differences in prices, even though there is a wide
          understanding that the purpose of sidesticks and center yokes is the same50. As
          regards the supply-side substitutability, the investigation produced a mixed
          picture. Some respondents believe that a sidestick manufacturer can easily start
          producing center yokes and vice versa51. Others disagree however. One
          respondent mentioned that: "Sidesticks and centre yokes may have similar
          technical characteristics; but sidestick controls 2 axes and centre yoke controls
          1 axis"; and another submitted that "Suppliers of side sticks can NOT easily start
          producing centre yokes because the technology of the 2 products is different"52.
(60)      However, it should be noted that a majority of market participants takes the
          view that sidesticks and center yokes do compete53. This is explained by the fact
          that "[s]ide sticks supplier may influence aircraft manufacturers to move from
          center yokes (older technology) to side stick (newer technology (…))"54
46
     See a reply to question 50 of Questionnaire 2 –Airframers.
47
     See replies to question 48 of Questionnaire 1 – Competitors; replies to question 50 of Questionnaire 2
     – Airframers.
48
     See replies to question 48.2 of Questionnaire 1 – Competitors. Replies to question 50.2 of
     Questionnaire 2 – Airframers.
49
     As regards a potential segmentation according to either civil or military use of an aircraft, the
     Commission's market investigation did not provide sufficient evidence that such segmentation should
     be made for the purpose of the product market definition - Replies to question 30 of Questionnaire 2 –
     Airframers.
50
     See replies to question 51 of Questionnaire 1 – Competitors; Replies to question 51 of
     Questionnaire 2 – Airframers.
51
     See replies to question 51 of Questionnaire 1 – Competitors; Replies to question 51 of
     Questionnaire 2 – Airframers.
52
     See replies to question 51.1 of Questionnaire 2 – Airframers.
53
     See replies to question 52 of Questionnaire 1 – Competitors.
54
     See a reply to question 52.1 of Questionnaire 1 – Competitors.
                                                        17
 ---pagebreak---  ---pagebreak--- 6.3.       Ice Protection
6.3.1.     Introduction
(65)       Ice protection systems are used to prevent the accretion of ice on aircraft
           surfaces or remove accreted ice, in particular, on propellers and the leading
           edges of aircraft wings. The systems operate either by preventing the initial
           accretion of ice or by periodically removing any ice which has formed58.
(66)       There are several applications for ice protection on an aircraft, such as on wings,
           on the vertical and horizontal stabilizers, on windshields, sensors, etc.59.
(67)       Furthermore, ice protection products for the same application on aircraft may
           utilize different kinds of technologies, such as pneumatic ice protection,
           thermal-pneumatic ice protection, chemical ice protection, electro-thermal ice
           protection and electro-mechanical expulsion ice protection60.
(68)       The Parties are both active in ice protection systems for wings and propeller
           heaters with the overlap concerning mainly general aviation aircraft. UTC
           manufactures wing ice protection products based on the pneumatic ice
           protection technology and to a certain extent electro-thermal technology, and
           propeller ice protection products based on electro-thermal technology as well as
           chemical technology. Rockwell Collins produces wing ice protection products
           based on pneumatic ice protection technology and propeller ice protection
           products based on electro-thermal technology as well as chemical
           technology61,62.
6.3.2.     Relevant product markets
(69)       There are no Commission precedents as regards ice protection products on
           aircraft.
6.3.2.1. The Notifying Party's submission
(70)       The Notifying Party proposes to define different ice protection markets based on
           the application on the aircraft. It argues that there is no demand substitution
           between ice protection products designed for different applications, that
58
     Form CO, Ice Protection, para. 6.1. For the purpose of this decision, the term 'ice protection' or 'ice
     protection systems', respectively, is used both for systems that prevent the accretion of ice and for
     systems that remove already accreted ice.
59
     Form CO, Ice Protection, para. 6.39.
60
     Form CO, Ice Protection, para. 6.7-6.28.
61
     Parties' reply to question 35 of RFI 3 pre-notification of 7 February 2018, as regards the production of
     ice protection products for propellers based on chemical technology.
62
     The Parties overlap in a third product: engine inlet de-icers. These can be either pneumatic or
     elastromeric and are designed to protect the inlets placed on the wings. According to the Notifying
     Party, the combined turnover does not exceed EUR […] and the Parties' combined market share is
     [0-5]% (Form CO, Ice Protection, paras. 6.55 and 6.56). Considering the very limited size of this
     activity and hence a very limited potential impact on competition as well as the lack of complaints in
     the market investigation, this product will not be discussed further in the decision.
                                                          19
 ---pagebreak---           procurement for each application is carried out separately, and that the supply-
          side substitution is limited63.
(71)      Hence, the Notifying Party submits that there are two relevant product markets:
              (a)    for wing ice protection products; and
              (b)    for propeller ice protection products (that are sometimes also referred
                     to as 'propeller heaters').
(72)      In the Notifying Party's view, the relevant product market for wing ice
           protection also includes ice protection products for vertical and horizontal
           stabilizers, as there is, as opposed to other applications on aircraft, a high degree
           of supply-side substitutability since most of wing ice protection suppliers also
           offer ice protection products for vertical and horizontal stabilizers64.
(73)      The Notifying Party also claims that further segmentations by aircraft type are
          not warranted65.
(74)      Furthermore, according to the Notifying Party, no distinction should be made
          between sale of ice protection products on the original equipment market and on
          the aftermarket66.
(75)      Finally, for wing ice protection products in particular, the Notifying Party brings
          forward that the relevant product market shall comprise all ice protection
          technologies that could be used on aircraft that might use pneumatic ice
          protection. In the Notifying Party's view this excludes thermal-pneumatic ice
          protection systems (also referred to as 'bleed air systems') as these are used
          primarily on large commercial aircraft, regional jets and large business jets,
          which are types of aircraft that do not use pneumatic ice protection67.
(76)      Since virtually all propeller ice protection products utilize the same technology
          (electro-thermal), no distinction should be made in consideration of the
          technology in the opinion of the Notifying Party68.
6.3.2.2. The Commission's assessment
(77)      The results of the Commission's market investigation did not indicate anything
          to the contrary that each ice protection application on the aircraft constitutes a
          separate product market. More specifically, the market investigation confirmed,
          in line with the Notifying Party's' view, that ice protection on wings and (vertical
          and horizontal) stabilizers belong to one product market.69 One respondent
63
     Form CO, Ice Protection, para. 6.40.
64
     Form CO, Ice Protection, para. 6.41.
65
     Form CO, Ice Protection, para. 6.43.
66
     Parties' reply to question 101 of RFI 1 pre-notification of 14 November 2017; Form CO, Ice
     Protection, footnote 77.
67
     Form CO, Ice Protection, para. 6.45.
68
     Form CO, Ice Protection, para. 6.46.
69
     See replies to question 120 of Questionnaire 1 – Competitors; Replies to question 118 of
     Questionnaire 2 –Airframers.
                                                    20
 ---pagebreak---           pointed out that as regards ice protection for wings and stabilizers "same
          physics, same thermodynamics" apply70.
(78)      However, respondents to the market investigation indicated a further relevant
          segmentation of the product market by technology for wing ice protection and
          horizontal and vertical stabilisers. Whereas pneumatic, thermal pneumatic,
          thermal electric, chemical and electro-mechanical ('EMEDS') ice protection
          technologies exist for wing ice protection and vertical and horizontal stabilizers,
          only thermal electric and chemical are the technical options for propeller
          heaters71.
(79)      For wing ice protection, according to the market participants, the technologies
          are not substitutable with each other. Whereas the intended use is identical, the
          majority of respondents held that ice protection systems of these kinds differ in
          product characteristics and price and are not substitutable with one another in
          general. Respondents to the market investigation explained that "[t]he different
          methods are technically different and thus not substitutable with one another"
          and supported the opinion that "these technologies are not generally
          interchangeable". Additionally, suppliers using certain technologies cannot
          easily start producing wing ice protection using other technologies72. Relating to
          supply side substitution, it was stated that "[i]t is a significant investment for a
          supplier to add the capability of another technology (eg it is a significant
          undertaking for an electro-thermal supplier to add chemical technology, it is a
          significant investment for a pneumatic supplier to add electro-mechanical
          technology, etc)"73.
(80)      This result is supported by further replies received during the market
          investigation demonstrating that different technologies for wing ice protection
          cannot be used on all types of aircraft. Market participants stated, among others,
          that "[p]neumatic de-icing could certainly hardly be implemented on certain
          commercial aircraft (…)" and that "[d]e-icing [technologies are] generally used
          on smaller, slower aircraft [whereas] [a]nti-icing (higher performance) [are]
          generally used on larger faster (jet category) transports"74
(81)      The Commission notes that replies from the market investigation do not
          distinguish between different ice protection products solely in view of the type
          or size of the aircraft but rather point out that the suitability of an ice protection
          technology depends on several technical criteria such as the aircraft speed or the
          wing material. Certain technical criteria may be more common for certain types
          of aircraft but a type or size of an aircraft, respectively, does not necessarily
          determine specific technical criteria75.
70
     See a reply to question 120 of Questionnaire 1 – Competitors.
71
     Form CO, Ice Protection, para. 6.39 including Table 3.
72
     See replies to question 119 of Questionnaire 1 – Competitors; Replies to question 117 of
     Questionnaire 2 – Airframers.
73
     For all quotes in this paragraph: See replies to question 119.1 of Questionnaire 1 – Competitors.
74
     For all quotes in this paragraph: See replies to question 119.1 of Questionnaire 2 – Airframers.
75
     As regards a potential segmentation according to either civil or military use of an aircraft (this applies
     both for wing and stabilizer ice protection as well as for propeller ice protection), the Commission's
     market investigation die not provide sufficient evidence that such segmentation should be made for
                                                          21
 ---pagebreak--- (82)      For propeller ice protection products, the market investigation indicated that
          propeller ice protection products are in general substitutable in terms of prices
          (the prices are different in absolute terms but similar in proportion to the size of
          the propeller) and the intended use, but may, however, differ in terms of certain
          technical criteria76.
(83)      Furthermore, according to the majority of the market respondents, the original
          equipment sales market and the aftersales market should not be considered as
          separate markets in ice protection products77. One respondent explained that
          "[t]he aftermarket is not necessarily independent from the OE market due to the
          fact that suppliers normally protect their right to distribute the product, unless
          you are licensed by the OE to do so."78
(84)      The Commission concludes that for the purpose of defining the relevant product
          markets for ice protection products on aircraft, different technologies (such as
          pneumatic, thermal-pneumatic, electro-thermal, chemical, electro-mechanical
          expulsion), each form a separate product market.
(85)      The Commission further concludes that as regards the specific ice protection
          applications on wings and stabilizers, these belong to the same product market.
(86)      There are strong indications for separate markets of the applications of ice
          protection products on aircraft (wings, propellers, etc.). Therefore, the
          Commission concludes that, except for the specific constellation of wings and
          stabilizers, the relevant product market is to be segmented according to different
          applications for ice protection products.
(87)      In conclusion, the Commission takes the view that no further segmentation of
          the relevant product markets should be made according to the type or size of an
          aircraft and between original equipment sales market and the aftermarket.
6.4.      Oxygen systems
6.4.1.    Introduction
(88)      Oxygen systems provide supplemental oxygen to passengers and crew members
          for specific situations or for the provision of emergency oxygen in the event of
          smoke, fire, fumes, or loss of cabin pressure. They are present throughout the
          aircraft, and are a regulatory requirement for aircraft which fly above a certain
          altitude.
(89)      Oxygen systems consist of a number of individual yellow oxygen masks stored
          in the compartments near passenger seats (as presented in Figure 5) and near
          areas like lavatories and galleys, and an oxygen source, such as a centralized
          gaseous cylinder or decentralized chemical oxygen generator. A chemical
     the purpose of the product market definition – See replies to question 30 of Questionnaire 2 –
     Airframers.
76
     See replies to question 121 and 121.1 of Questionnaire 1 – Competitors; replies to question 120
     and 120.1 of Questionnaire 2 – Airframers.
77
     See replies to question 122 of Questionnaire 1 – Competitors; replies to question 121 of
     Questionnaire 2 – Airframers.
78
     See a reply to question 121 of Questionnaire 2 – Airframers.
                                                        22
 ---pagebreak---            oxygen generator system connects to a limited number of masks in a certain
           compartment (e.g., above a passenger seating row). Pulling a mask will trigger
           the supply of oxygen which will last for at least 15 minutes. The entire system
           can usually be reset in the cockpit or in some other location in the aircraft.79
                                          Figure 5 - Oxygen systems
                                                 Source: Form CO.
(90)       Aircraft also typically have portable oxygen systems on board for the crew.
           Portable systems exist in different forms: masks connected to portable devices,
           or even hoods.
6.4.2.     Relevant product market
(91)       The Notifying Party considers that oxygen systems form part of a single relevant
           product market for civil applications.80 According to the Notifying Party, all
           oxygen systems, across all aircraft types, both portable and non-portable, have
           similar underlying technology and a similar production process. Further, oxygen
           systems generally perform the same function, and are held to the same
           regulatory requirements, regardless of aircraft type. Moreover, all main market
           players offer a full range of oxygen systems.81
(92)       The Commission has not previously considered the market for aircraft oxygen
           systems.
(93)       The market investigation has not brought any evidence that would go against the
           Notifying Party's proposed market definition. Further, any potential
           segmentation of the oxygen market (by aircraft type or between portable and
           non-portable oxygen systems) would have no impact on the competitive
           assessment. The precise market definition for oxygen systems can therefore be
           left open.
79
     Form CO, other products, paragraphs 6.3 to 6.6.
80
     Military applications are different from a technological perspective. If military applications are
     include in the oxygen market, the market share of Rockwell Collins would be lower according to the
     Notifying Party ([30-40]%). This share is however likely to be underestimated as it is unclear whether
     all companies identified by the Notifying Party are indeed active in the oxygen sector.
81
     Form CO, Other products, paragraphs 6.11.
                                                         23
 ---pagebreak--- (94)       Furthermore, the Notifying Party suggests that while they may often be
           incorporated into them, oxygen systems are a separate product from passenger
           service units (PSUs; for a further discussion of PSUs, see section 6.7).
(95)       The results of the Commission's market investigation broadly confirmed that
           there is no strong preference in the market for PSUs and oxygen bundles.
           Furthermore, market bids for PSUs and oxygen systems have been seen both
           separately (for instance the latest Boeing 777X tender) and together.
(96)       On this basis, the Commission maintains that oxygen systems may be
           considered a separate product market from PSUs.
6.5.       Aircraft seating
6.5.1.     Introduction
(97)       There are two basic types of aircraft seating:
               (a)    Passenger seating and crew seating. Passenger seating is located in the
                      aircraft cabin and is used by passengers. It is found on large
                      commercial aircraft, regional jets, and business jets. Passenger seating,
                      except for business jet passenger seating, can also be divided by class
                      (e.g., economy class, business class, and first class, each with varying
                      degrees of luxury).
               (b)    Crew seating is non-passenger seating used by the flight crew. It is
                      divided into two types: pilot seating and cabin attendant seating
                      (“CAS”). Pilot seating is located in the aircraft cockpit, and is used by
                      the pilot and co-pilot. CAS is located throughout the aircraft, is used by
                      flight attendants, and is also referred to as “flight attendant seating”.82
(98)       There is no overlap between the Parties in commercial aircraft passenger
           seating, which represents more than 90% of the overall aircraft seating business.
           Rockwell Collins produces commercial passenger seats, but UTC does not. The
           activities of the Parties overlap in business jets seating and CAS leading to
           affected markets in both areas. They also overlap in pilot seating without leading
           to affected markets.83
6.5.2.     Business jets seating
(99)       The Notifying Party argues that business jet passenger seating is found on
           business jets as well as on commercial airframes converted for private or
           business use. It differs from passenger seating found on large commercial
           aircraft and regional jets (although there is according to the Notifying party a
82
     Form CO, Aircraft seating, paragraphs 6.6 to 6.8.
83
     The Parties consider there are several differences between pilot seating and other forms of aircraft
     seating which warrant their being treated separately. Pilot seats must be able to move and be adjusted
     horizontally and vertically to a greater degree than passenger seats and must conform to more
     stringent crashworthiness standards. For these reasons, the Parties consider that pilot seating
     constitute a distinct market which has been overall confirmed by respondents to the market
     investigation. The Parties achieve a combined market share of [10-20]% in pilot seating. Therefore
     pilot seating will not be assessed further in this decision.
                                                           24
 ---pagebreak---           degree of functional overlap with commercial first-class seating). First, business
          jet passenger seating typically is highly adjustable; it can often be made to lie
          completely flat, and more advanced models have a wide range of motion along
          running tracks. Second, business jet passenger seating can take several forms in
          addition to upright seats, such as corner units, divans, and even pull-out bed
          divans. Third, business jet passenger seating is mostly bespoke and is usually
          manufactured to a higher standard for passenger comfort (premium leather,
          integrated heating and internet connectivity).84
(100)     In a previous case, the Commission considered a segmentation between
          commercial and business jet seats and a further segmentation of commercial
          seats into first, business and economy class, but left the ultimate market
          definition open.85
(101)     A majority of respondents to the market investigation have confirmed that in
          general business jet seats are materially different from and therefore not
          interchangeable with passenger commercial aircraft seating (LCA or regional
          jets).86 Respondents have in particular submitted that passenger seating for
          business jets are specific in the functions and in the variety of configurations
          sought, notably in relation to size, customization, material, complexity,
          functionality and testing requirements.
(102)     However, the question whether business jets seats belong to a separate market or
          to the overall market for passenger seats (where there is no overlap between the
          Parties 'activities) can be left open as the transaction does not raise serious
          doubts regarding its compatibility with the internal market even on a narrow
          market for business jets seats.
6.5.3.    Cabin attendant seating
(103)     As with pilot seating, the Notifying party submits that there are differences
          between CAS and other forms of aircraft seating. CAS has a different form from
          other seating, as it is often stowable and wall mounted. Additionally, CAS must
          undergo more stringent crashworthiness testing than passenger seating, as it
          must be certified to a 16G standard while the industry standard for passenger
          seating is currently 9G and 12G.87
(104)     The Commission has not previously considered the market for CAS.
(105)     Respondents to the market investigation have in general confirmed that cabin
          attendant seating are materially different from and therefore not interchangeable
          with pilot seating88, notably because pilot seating has many more control and
          requirements and certification paths than an attendant seat.
84
     Form CO, Aircraft seating, paragraph 6.11.
85
     Case M.8305 – Rockwell Collins/BE Aerospace, para. 14.
86
     See replies to question 70 of Questionnaire Q2 - Airframers and replies to question 72 of
     Questionnaire 2 - Competitors.
87
     Form CO, Aircraft seating, paragraph 6.25.
88
     See replies to question 72 of Questionnaire 2 - Airframers and replies to question 75 of
     Questionnaire 2 - Competitors.
                                                    25
 ---pagebreak--- (106)     However, the question whether cabin attendant seats belong to a separate market
          or to a broader market encompassing pilot seats (where the combined market
          share is around [10-20]%) can be left open as the transaction does not raise
          serious doubts even on a narrow market for cabin attendant seating.
6.6.      Interior lighting
6.6.1.    Introduction
(107)     Interior lights illuminate the inside of the aircraft, back-light passenger signs,
          and cockpit displays and controls. Interior lighting includes main cabin lights
          (wash lights), reading lights, egress lights, and batteries (which show the way
          out of the aircraft in the event of an emergency), signage (such as information
          signs and exit signs), cockpit lights, and cargo lights.
6.6.2.    Relevant product market
(108)     The Notifying Party argues that all the above mentioned products listed in
          paragraph (107) belong to the same relevant product market given the degree of
          supply- side substitutability. The Notifying Party also claims there is no reason
          to further segment this market by type of aircraft, or to differentiate between
          original equipment sales and after-market/ retrofit sales.
(109)     Moreover, the Notifying Party argues that integrated interior lighting solutions
          (where the airframer contracts with cabin integrators either for a complete
          lighting system or for a floor-to-floor interior solution) should not be considered
          a separate market.
(110)     In previous decisions, the Commission distinguished exterior lighting from
          interior lighting. The Commission also considered a segmentation of the
          different types of interior lighting products but ultimately left the exact market
          definition open89.
(111)     Respondents to the market investigation agree in general that interior lighting
          products have similar characteristics and they all agree that LED is the main
          technology used in the industry90. Not all of them share the view that a supplier
          of a certain type of product can easily switch production to another type of
          product91. The majority of respondents do not see significant differences in
          lighting products per type of aircraft but some respondents have singled out that
          lighting for business jets had different aesthetical requirements and a different
          economy of scale92. The majority of OEM respondents considered the
          aftermarket to be independent from the original sales market93.
89
     Case M.8305 – Rockwell Collins/BE Aerospace, paras. 26; case COMP/M.6410 – UTC/Goodrich,
     paras. 134, 138.
90
     See replies to questions 94, 96 and 97 of Questionnaire 1 - Competitors and replies to questions 91,
     95 and 96 of the Questionnaire 2 – Airframers.
91
     See replies to question 94 of Questionnaire 1 - Competitors and replies to question 91 of
     Questionnaire 2 – Airframers.
92
     See replies to questions 94.3 and 94.4 of Questionnaire 1 - Competitors and replies to question 91.2 of
     Questionnaire 2 – Airframers.
93
     See replies to question 105 of Questionnaire 1 - Competitors.
                                                        26
 ---pagebreak--- (112)     However, the question whether a further segmentation of the interior lighting
          market is warranted can be left open as the transaction does not raise serious
          doubts even on narrower markets for interior lighting.
6.7.      Passenger Service Units
6.7.1.    Introduction
(113)     Passenger Service Units ("PSUs") are panels built into the aircraft cabin ceiling,
          above passenger seats, that contain a combination of components: typically a
          reading light, attendant call interface, air vent, seat-belt and no-smoking signs,
          and other passenger-related equipment.
6.7.2.    Relevant product markets
(114)     In the UTC/Goodrich, when assessing the market shares in the interior lighting
          market and in particular in the cabin signage category the Commission took into
          account PSU signage94. Against this background, the Notifying Party submits
          that a distinction should be made between PSUs and interior lighting, since
          PSUs combine lights and other components. The Notifying Party also argues
          there is no reason to further segment the market by type of aircraft as PSUs are
          generally only present on large and regional commercial aircraft 95. According to
          the Notifying Party there is also no reason to distinguish between PSUs supplied
          directly to aircraft OEMs and PSUs integrated in floor-to-floor offerings.
(115)     The airframers that responded to the market investigation found in general that
          PSUs and lighting do not have similar technical characteristics nor use similar
          technologies. The OEM replies were however more dispersed although the
          majority agree that switching production between the two products is not easy96.
          As explained above in section 6.4, some systems OEM considered that the PSU
          market should also include the oxygen system although views were split on this
          issue97.
(116)     Given that the transaction does not raise serious doubts regarding its
          compatibility with the internal market under any plausible segmentation, the
          exact product market definition of the PSUs market may be left open.
6.8.      Potable water systems
(117)     Potable water systems supply water on aircraft for use in sinks and food and
          beverage preparation, such as tea and coffee boilers. On smaller business jet
          aircraft, they are also used for immediate water consumption by passengers. The
94
     Case COMP/M.6410 – UTC/Goodrich, paras. 727 and 728. Notwithstanding On a subsequent
     decision, when defining and assessing the interior lighting market, the Commission did not
     considered in any way PSUs – see case M.8305 – Rockwell Collins/BE Aerospace.
95
     According to the Notifying Party, business jets may use a form of PSU, which are large, custom-made
     pieces. […] – see Form CO, section PSUs, para. 7.23.
96
     See replies to question 109 of Questionnaire 1 - Competitors; and replies to question 106 of
     Questionnaire 2 – Airframers.
97
     See replies to questions 110 and 110.1 of Questionnaire 1 - Competitors.
                                                       27
 ---pagebreak---          Notifying Party submits that wastewater systems are physically separate from
         potable water systems, and do not make use of the same equipment.98
6.8.1.   Relevant product market: potable water systems
(118)    The Commission has not yet examined potable water systems in its decisional
         practice.
(119)    The Notifying Party submits that potable water systems should not be further
         subdivided according to the type of aircraft. According to the Notifying Party,
         potable water systems for all sizes of aircraft generally consist of the same
         essential components: water storage tanks, piping (i.e., metal or plastic lines and
         tubes), water heaters, filtration or purification units, and a control and
         monitoring system. The Notifying Party submits that a competitor active in the
         supply of potable water systems to smaller aircraft can easily execute projects
         for larger ones.99
(120)    Market participants confirmed that waste water systems and potable water
         systems were indeed two distinct systems. Sometimes, they report, airframers
         tender them separately and manufacturers tend to be different.100
(121)    The market definition for potable water systems can be left open as the
         transaction does not raise serious doubt with its compatibility with the internal
         market under any alternative plausible market definition.
6.8.2.   Components for potable water systems
(122)    The Notifying Party submits101 that potable water systems consist of several
         basic plumbing systems, including the storage tank, hose and valves, drain lines
         and masts, and faucets which hold and route water around the aircraft; filtration
         / purification systems, which keep the water safe to drink; and heating and
         control units, which monitor and keep the water liquid and prepare it to a desired
         temperature.
(123)    UTC submits102 that it […] manufactures […] of the components that are
         required to complete a potable water system and purchases the rest from
         competitors such as […].
(124)    UTC is also active in the sale of components required to assemble and integrate
         potable water systems.
(125)    The Notifying Party explains103 that components are produced or procured and
         integrated by all competitors in the market.
98
     Form CO, Potable Water Systems, para 6.1.
99
     Form CO, Potable Water Systems, paras 6.11 and 6.12.
100
     See e.g. minutes of a call with a competitor on 21 December 2017, replies to question 132 of
     Questionnaire 1 - Competitors.
101
     Form CO, Potable Water Systems, para 6.4.
102
     Form CO, Potable Water Systems, para 6.7.
103
     Form CO, Potable Water Systems, para 6.25.
                                                     28
 ---pagebreak--- (126)      In addition, airframers are also customers for components who design and
           integrate the potable water systems themselves and in the Notifying Party's
           assessment this is very widespread.104
(127)      The Notifying Party therefore argues105 that components and the complete
           potable water systems should form part of the same relevant product market.
(128)      The Commission considers that it can be left open whether components for
           potable water systems are part of the market for complete potable water systems
           or whether they constitute separate input markets since no serious doubts arise
           as the compatibility of the Transaction with the internal market in this respect
           under the alternative plausible market definitions.
6.9.       Maintenance Repair and Overhaul ('MRO') operations and spare parts
(129)      In its previous decisional practice the Commission has differentiated four
           different types of MRO operations (i) line maintenance, (ii) heavy maintenance,
           (iii) engine maintenance and (iv) component maintenance.106 The Commission
           concluded that a further differentiation could be made according to the aircraft
           type that is serviced.107
(130)      The Parties are both active in component maintenance for all types of aircraft
           […]. UTC is also active in engine maintenance, but Rockwell Collins is not
           [description of the Parties' MRO activities].
(131)      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.108 The investigation in this case has not resulted in
           evidence to deviate from the Commission's previous practice of defining a
           separate product market for component maintenance.
(132)      As part of their component maintenance, the Parties provide MRO services
           related mainly to their own components and provide spare parts. In this respect,
           a Commission precedent considered a relevant product market for spare parts
           that was separate from the provision of MRO services.109 Nevertheless, the
104
     The Parties are aware of self-sourcing and design of by each of [description of the Parties' market
     intelligence regarding airframer self-sourcing].
105
     Form CO, Potable Water Systems, para 6.3.
106
     See for example case COMP/M.6410 – UTC/Goodrich, para. 174; case COMP/M.3280 – Air
     France/KLM, para. 39; case COMP/JV.19 – KLM/Alitalia, paras. 56-57.
107
     Case COMP/JV.19 – KLM/Alitalia, paras 56-57.
108
     See case M.8425 – Safran/Zodiac Aerospace, para 275.
109
     See case COMP/M.6410 – UTC/Goodrich, paras. 182-191. In another precedent, the Commission
     also considered that the distribution of aerospace spare parts could be divided into different sub-
     segments, such as, on one hand, the distribution of large aerospace parts by airframe and component
     manufacturers, and, on the other hand, the distribution of small spare parts, requiring regular and
     quick replacement, by independent distributors. The Commission considered another possibility of
     separate segments for spare parts dedicated for large commercial aircraft and for general
     aviation/regional aircraft. The Commission also identified a possible distinction between spare parts
     dedicated for commercial aircraft and those for military aircraft. The Commission ultimately left open
     the precise scope of the relevant product market. See case COMP/M.4241 – Boeing/Aviall,
     paragraph 10.
                                                        29
 ---pagebreak---           provision of MRO services may also include the provision of spare parts,
          blurring the lines between those two types of activities.
(133)     MRO services, including component maintenance, are provided either by:
              (a)    The original system, equipment or component manufacturers (‘OEM’,
                     such as the Parties) providing MRO services with regard to their own
                     system, equipment or component;
              (b)    The airlines and airline-owned MRO service providers (such as
                     Lufthansa Technik or Air France Industries, BA Iberia or Air Canada)
                     servicing both their own fleet and that of third parties;
              (c)    Independent MRO service providers (such as ADAT, Haeco or AJ
                     Walter) and
              (d)    Airframers (such as Airbus and Boeing).
(134)     Airlines and airline-owned MRO service providers, independent MRO service
          providers and airframers usually offer MRO services for a broader portfolio of
          products or nose-to-tail ("NTT") MRO services. Once they have won the
          contract with an airline, they can either undertake the MRO services themselves
          or sub-contract it to the respective original system, equipment or component
          manufacturers.110
(135)     In order for an MRO service provider to perform maintenance on any OEM's
          equipment, it requires the spare parts, licenses, specific tools and testing
          equipment, and the technical documentation and manuals how to service the
          equipment, most of which is obtained from the OEM of the component in
          question.
(136)     The replies received to the Commission’s market investigation in this case
          confirmed that all MRO service providers competed against each other in
          servicing the Parties' equipment.111
(137)     Spare parts are sold by OEMs either as stand-alone products or as part of an
          MRO service. Spare parts can not only be supplied by the manufacturer of the
          original equipment but also by alternative third party spare part suppliers. For
          obtaining spare parts that are not OEM, different options exist112.
(138)     It is not necessary to conclude whether spare parts form part of the relevant
          product market for component maintenance (thus encompassing MRO services
          and spare parts) or whether separate markets for component MRO and
          component spare parts should be defined, since the Proposed Transaction does
110
    See case M.8425 – Safran/Zodiac Aerospace, paras. 278-279.
111
    See replies to questions 140 and 141 of Questionnaire 2 - Airframers, question 146 of Questionnaire 1
    - Competitors and replies to question 44 of Questionnaire 3 – Airlines.
112
    Including the PMA ("Parts Manufacturer Approval"), third party replacement parts tested and
    approved by the US Federal Aviation Authority, the Owner Operator Produced Parts ("OOPP"), spare
    parts by the MRO operator or airline, second hand spare parts, or new components supplied by any
    alternative manufacturer holding a Supplemental or Supplementary Type Certificate ("STC"), for
    further details see case M.8425 – Safran/Zodiac Aerospace, paras. 281-284.
                                                       30
 ---pagebreak---           not give rise to serious doubts regarding its compatibility with the internal
          market under each of the alternative plausible market definitions.
6.10.     ARINC
6.10.1. Introduction
(139)     Rockwell Collins offers datalink network services and information technology
          solutions that enable air-to-ground and ground-to-ground secure
          communications113. Air-to ground services include both voice and data
          capabilities. These services are typically purchased by airlines and function as a
          virtual "pipe" through which data is transmitted from the aircraft to the parties
          on the ground, including an airline's operation centre, air traffic control, border
          control and airline partners (including component manufacturers that receive
          data to monitor components’ performance).
(140)     Rockwell Collins' datalink services are generally referred to as ARINC, the
          acronym of Aeronautical Radio Incorporated, a company which Rockwell
          Collins acquired in December 2013. At the time, ARINC also included a
          standard setting organisation which was not acquired by Rockwell Collins.
          ARINC's standard setting organisation was transferred to SAE International114
          instead. Since December 2013, the network and the standard setting organisation
          have operated as independent entities. Moreover, ARINC standards are
          developed and adopted by the Airlines Electronic Engineering Committee
          (AEEC)115, which is part of SAE International.
(141)     Rockwell Collins datalink networks consist of Very High Frequency (VHF) and
          High Frequency (HF) radio signals that are sent by a global network of land
          based radio stations and satellites. Satellite communications are purchased from
          satellite providers to supplement the (in-house) VHF and HF networks of
          datalink providers116. On the ground, Rockwell Collins uses a network of coper
          and fibre lines contracted from commercial telecommunication
          suppliers117.These networks support air-to-ground and ground-to-ground
          communications, respectively. The primary functions of Rockwell Collins’
          datalink network services are set out in Figure 6.
113
    "Air-to-ground" refers to the network services that connect the aircraft in the air with a variety of
    ground locations, such as: air traffic controls and airline operational controls. "Ground-to ground"
    refers to the network services that connect the airlines with a variety of third parties on the ground
    such as airports, governments/immigration authorities, ground handlers, other airlines and travel
    agents.
114
    SAE international is a professional association and standards developing organization for engineering
    professionals in various industries- see https://www.sae.org/about/.
115
    See: AEEC is a standard-setting committee whose members are airframers, OEMs component
    manufacturers, airlines and other aerospace players - see: https://www.aviation-ia.com/activities/aeec.
116
    Inmarsat and Iridium sell satellite connectivity to datalink providers.
117
    See Reply to RFI no 22.
                                                         31
 ---pagebreak---                      Figure 6 - Primary functions of datalink network services
                                                 Source: Form CO.
(142)    Data transmitted over the ARINC network uses the ACARS protocol118. The
         ACARS protocol is also administered by the AEEC. All datalink providers
         adhere to the open ACARS industry standards and all actual or potential users
         (network providers, avionics equipment manufacturers or airlines) have free
         access to this standard. When there is need to transmit an ACARS message on
         the ground-to-ground network, the message is formatted into an IATA Type B
         message119.
(143)    The datalink network services generally interface with an aircraft's radio system
         and its communications data management unit (CMU)120. Radios and CMUs are
         provided by avionics suppliers. Any equipment intended for use with ARINC, or
         other VHF/satellite network, must be tested to ensure that it will not cause
         disruption to the network and that it adheres to the requisite public
         specifications. ARINC and its primary competitor SITA - which operates an air-
         to-ground and ground-to-ground network with a similar geographical coverage-
         provide such qualification testing for aircraft radios and CMUs.
(144)    ARINC does not test other systems or components that interface with the CMU
         on board of the aircraft, such as aircraft interface devices, flight management
         systems, aircraft condition monitoring systems or other aircraft health
118
    ACARS stands for Aircraft Communications Addressing and Reporting System.
119
    Ground to Ground messages are categorised as either IATA Type A or Type B. Type A messaging is
    a two-way (i.e. query and response) message traffic. Type B messaging, which accounts for
    approximately 80-901% of all traffic, is used for one-way message traffic that does not require a
    response. To uplink and downlink messages onto and from air-to-ground network a Message
    Processor formats the message to unsure it complies with the ACARS protocol or the Type-B format
    – See reply to question 5 of RFI no. 22.
120
    Cockpit/ communication data management unit is a pilot interface device through which the pilot
    receives and replies to messages from air traffic control and airline operational controls.
                                                        32
 ---pagebreak---          management type of units. ARINC has a non-discrimination and confidentiality
         policy with regards to the testing of components for use in its network121.
(145)    Rockwell Collins' datalink network services are interoperable with avionics
         from other (non-Rockwell Collins) suppliers and Rockwell Collins' avionics can
         work with other competitors' datalink network services122. Furthermore, ARINC
         and SITA datalink networks function under open access standards. ARINC and
         its primary competitor SITA have reciprocal agreements to deliver each other's
         traffic at no cost in instances where, for example, an airline needs to send traffic
         to a ground control station operation on the other provider's network.
(146)    The ARINC network functions as a utility for the transfer of data at the
         discretion of airlines. The airlines are the primary customers of datalink network
         services providers. The airlines own the data that is transmitted via the network
         and decide who has access to the data123. Rockwell Collins does not receive air-
         to-ground data from ARINC, nor does it have a connection to the ground-to-
         ground network. Rockwell Collins does not monitor data pertaining to its own
         components via ARINC124.
(147)    Third parties, such as component manufacturers and health management
         providers125, may receive data from the aircraft directly from the data link
         network where two conditions are met: (i) they have a contract with datalink
         providers to establish the data usage rates; and (ii) the airline requests for traffic
         related to its fleet to be delivered to the third party. When the two requirements
         are in place, the airline and the third party receive the same data flow, at the
         same speed, pursuant to the Service Level Agreement executed between ARINC
         and the airline. Under the Service Level Agreement, Rockwell Collins is
         required to provide airlines on a regular basis with performance reports, which
         identify the actual performance statistics compared to the overall services goals
         listed in the Service Level Agreement (examples of service goals: above
         [90-100]% availability rate of datalink network services; above [90-100]%
         success delivery rate of uplink messages). The performance reports cover a
         number of metrics broken down by aircraft, geographic area, time periods,
         avionics systems and communication technologies126.
(148)    Alternatively, the airline can choose to receive the ACARS message from the
         data link network to its local ACARS terminal and subsequently route the
         ACARS message to the third party127.
121
    Rockwell Collins' qualification policy available online: https://www.rockwellcollins.com/-
    /media/Files/Unsecure/Services-And-Support/Information-Management/ARINC-
    Aviation/ARINC GLOBALink Avionics Qualification Policy.ashx.
122
    See Form CO, Section datalink services, para 6.19.
123
    Market participants have confirmed that airlines own the data and that OEMs need the airlines
    authorisation to access the data – responses to Follow-up questions of 6 and 9 April 2018.
124
    See Form CO, Section datalink services, para 6.23.
125
    In addition to the component or system manufacturer, airframers, airlines can also provide health
    management services, which consist of diagnostics of aircraft systems, maintenance requirement
    prognostics and component design improvements.
126
    See Parties' response to pre-notification RFI no 2.
127
    Airframer reply of 11 April to EC questions of 9 April.
                                                        33
 ---pagebreak--- (149)     Three types of data are transmitted air-to-ground over the ARINC network:
          (i) air traffic control, (ii) airline operational control and (iii) performance data
          (that is to say engine and other components monitoring data). The Parties
          estimate that […] of the data transmitted pertains to traffic control, […] to
          airline operational control and […] to performance data.
(150)     The performance data that is currently transmitted through ACARS messages on
          the ARINC or SITA networks pertains to the so-called "first generation
          performance data". The ACARS protocol sets a limit on the size of each
          individual message, making it possible to transmit only short low volume
          messages.
(151)     Large sets of performance data used in advanced monitoring of the aircraft
          systems, so-called aircraft health management services128, are currently
          offloaded when the aircraft is on the ground through commercial cellular and
          Wi-Fi networks, or manually (through the use of USB sticks or PCMCIA cards).
(152)     Figure 7 is a diagram of the different data flows within the aircraft, from air-to
          ground and from ground-to-ground.
                             Figure 7 - Diagram of the different data flows
                                                        […]
                               Source: Annex 4 Annex 4c-12 to Form CO, slide 38.
6.10.2. Relevant product market
6.10.2.1. The Notifying Party’s views
(153)     The Notifying Party submits that there is a high degree of substitutability among
          datalink network services that rely on different types of connectivity, including
          VHF and SATCOM as provided by ARINC and SITA. The Notifying Party
          explains that for safety and efficiency reasons, airlines generally have access to
          both ARINC and SITA networks. According to the Parties’ estimates, […] of
          the airlines dual-source129, having one network as the primary and the other as
          the secondary provider130. Despite some differences in the network coverage (as
          the two networks are not identical) the Parties submit that SITA supplies the
          same utility function as ARINC and is a direct substitute with respect to air-to-
          ground and ground-to-ground communication.
(154)     The Notifying Party further submits that in addition to the ARINC and SITA
          networks, there are broadband satellite service providers making inroads into
          offering datalink services. Most of these providers started by offering passenger
128
    Aircraft health management services provide diagnostics of aircraft systems, maintenance
    requirement prognostics and component design improvements. These services rely on performance
    data generated by various sensors installed on aircraft systems. Such sensors generate large volumes
    of high-frequency data, such as vibration levels, speed, temperature, pressure, etc – see Parties' reply
    to questions 1 and 2 RFI no 7.
129
    Even when an airline does not have a contract with the datalink provider, it can still access the
    network of that provider on an ad hoc basis, but the unit price for data usage will be higher.
130
    The majority of airlines that responded to the Questionnaire confirmed that they dual source – See
    Replies to Question 17 of Questionnaire to Customers- Airlines.
                                                        34
 ---pagebreak---           inflight connectivity and today some also offer datalink services for the airlines
          operational use, such as real-time weather monitoring. This has resulted in the
          migration of same data traffic of ARINC and SITA's networks onto to these
          alternative networks according to the Notifying Party.
(155)     Notwithstanding, the Notifying Party submits that the VHF/Satellite datalink
          networks do not have the bandwidth or the configuration to transmit large sets of
          data as the second generation network services which rely on broadband satellite
          solutions or other means of data transmission. According to the Notifying Party,
          in light of differing technology, suppliers and performance levels, first
          generation network services are wholly distinct from second generation network
          services.
(156)     The Notifying Party further submits that a sub-segmentation of the datalink
          network services based on type of aircraft is not warranted. With the exception
          of helicopters which do not use these services, all other aircraft are offered and
          use these services in a similar manner.
6.10.2.2. The Commission’s assessment
(157)     The results of the Commission's market investigation have shown that the
          majority of airlines consider the datalink services offered by ARINC and SITA
          to be interchangeable. The geographic coverage difference has nonetheless been
          singled out131. In fact, while Rockwell Collins is the exclusive supplier of VHF
          in […], SITA is the exclusive supplier of VHF in […]. Nonetheless both airlines
          can provide coverage using other connectivity means132. The majority of OEMs
          therefore considered that ARINC and SITA compete133.
(158)     Market participants have also corroborated that large sets of data used in
          advanced health management services are offloaded when the plane is on the
          ground through cellular or Wi-Fi networks or manually134 and that broadband
          connectivity providers which are already offering services related to passenger
          inflight connectivity and some cabin operational data could also in the near
          future transmit performance data135.
(159)     However, the question whether first generation and second generation datalink
          services constitute separate markets or belong to a single product market can be
          left open as the transaction does not raise serious doubts regarding its
          compatibility with the internal market under any of those segmentations.
131
    See replies to question 18 of Questionnaire 3 - Airlines.
132
    SITA has mentioned that it has satellite coverage in China – See SITA's reply to EC questions of
    6 April 2018. The Parties submitted they also provide services in […] using HF or satellite instead of
    VHF – See Form CO.
133
    See replies to question 156 of Questionnaire 1 – Competitors.
134
    On this matter the Commission sent specific questions to two airlines, two airframers, two engine
    OEMs and a few datalink network providers. They all agree that the large sets of data required for
    health management is offloaded pre or post flight when the aircraft is on the ground using cellular or
    Wi-Fi connectivity or manually – Replies to 6 and 9 April EC questions.
135
    Broadband provider's reply of 14 April 18 to the EC questions of 9 of April.
                                                        35
 ---pagebreak--- 6.11.    Inertial Measurement Units
6.11.1. Introduction
(160)    Inertial Measurement Units (IMUs) are devices that sense rotation, acceleration,
         and occasionally the surrounding field (through gyroscopes, accelerometers and
         magnetic sensors). IMUs are often incorporated into Inertial Navigation
         System (INS).
(161)    IMUs are often used in conjunction with positional tracking systems, such as
         Global Positioning Systems (GPS) receivers. Using IMUs on their own can lead
         to measurement errors that arise from continually integrating acceleration with
         respect to time to calculate velocity and position. Navigation systems often
         include GPS and IMUs to increase precision.
(162)    IMUs can be categorised by performance, by their ability to work in different
         environment (space, air, land and maritime) and technology type (automotive
         and electronics).
6.11.2. Relevant product market
(163)    UTC proposes to segment the market according to performance: high-grade
         IMUs for use in aircraft navigation systems; (ii) low-grade military IMUs for
         use in drones, missiles and land vehicles; and (iii) IMUs for use in consumer
         electronics, such as smartphones.
(164)    While generally acknowledging the differences in performance levels, not all
         respondents to the market investigation agree with the specific segmentation
         suggested by UTC. One competitor adds another category for an ultra-high
         grade; while another considers five categories: strategic, navigation, tactical,
         industrial and consumer136.
(165)    As the transaction does not raise serious doubts regarding its compatibility with
         the internal market under the alternative plausible market definitions, the exact
         market definition for the IMUs market may be left open.
6.12.    Military GPS receivers
6.12.1. Introduction
(166)    The GPS is a radio-navigation system that provides geolocation data to users via
         satellite triangulation. Although the term has become synonymous with global
         positioning systems generally, it refers to the system operated by the United
         States. Other countries have developed their own radio-navigation systems,
         e.g. European Union's Galileo, Russia's GLONASS or China's BeiDou.
(167)    GPS satellites broadcast two types of codes: (i) the unencrypted
         coarse/acquisition (C/A) code, which is made freely available to the public; and
         (ii) the restricted precision P(Y) code, which incorporates system to prevent
         potential interference with its signals through spoofing or jamming. In 1998, the
136
    See replies to question 6 of the Questionnaire_IMU_Competitors.
                                                      36
 ---pagebreak---           United States Joint Chiefs of Staff selected a Selective Availability Anti-
          Spoofing Module (SAASM) as the United States' preferred GPS security
          architecture. SAASM GPS systems are exclusively used in military applications
          under the control of the United States Department of Defence137.
6.12.2. Relevant product market
(168)     The Notifying Party considers that C/A code and SAASM GPS receivers
          constitute two separate markets. According to the Notifying Party, C/A code
          GPS receivers are manufactured by many suppliers for applications available to
          the public. By contrast, SAASM GPS receivers require authorisation from the
          United States Department of Defence both to manufacture and to purchase.
          They are used exclusively for military applications.
(169)     Based on their use, the Notifying Party further segments the SAASM GPS
          receivers for aircraft applications and for non- aircraft applications.
(170)     In a previous decision the Commission has considered the segmentation of the
          GPS receivers between commercial, military, and institutional but ultimately left
          the market open138.
(171)     Given that the transaction does not raise serious doubts regarding its
          compatibility with the internal market under the plausible alternative market
          definitions, the exact product market definition of the GPS receivers market may
          be left open.
6.13.     Air data systems
6.13.1. Introduction
(172)     Air data systems provide a range of flight parameters such as pressure, air speed,
          altitude, angle of attack and sideslip. Traditional, non-integrated air data systems
          rely on a combination of external probes (sensors), pressure transducers or air
          data computers. The more recent integrated air data systems rely on air data
          computers integrated in the sensors themselves (“smart probes”) without
          pressure transducers or separate air data computers.
6.13.1.1. Air data sensors
(173)     Air data sensors are exterior devices used to measure the aircraft air stream
          environment in terms of pitot (impact) and static (ambient) pressure139,
          temperature, and angle of attack. They include air data probes, angle of attack
          sensors and temperature sensors. Air data sensors either use pressure transducers
          or air data computers (ADC) to convert external pressure information into an
          electronic signal. The pressure from air data probes can travel through
          pneumatic tubing into pressure transducers, which in turn provide electronic
          pressure signals directly to the aircraft avionics. Alternatively, an ADC can be
137
    See Parties' response to EC Questions on Vertical Issues, of 31 January 2018.
138
    Case COMP/M.3680 – Alcatel/Finmeccanica/Alcatel Alenia Space & Telespazio.
139
    Pitot pressure is the pressure that is measured by a Pitot tube, an open-ended tube connected to a
    pressure-measuring device
                                                       37
 ---pagebreak---           used to convert the outside pressure into signals, perform corrections and
          transmit the information to the avionics system140.
(174)     Air sensors are engineered to comply with system level requirements that are
          unique to each aircraft in terms of size, weight, power, and other key
          performance criteria.
6.13.1.2. Air data computer
(175)     ADCs collect information from aircraft sensors and translate it into flight
          readings, including in particular altitude, airspeed, angle of attack, and
          temperature. ADCs require specific aircraft architecture, which allows for
          pneumatic tubing and wiring to connect the aircraft’s probes to the ADC.
6.13.1.3. Smart probe
(176)     Integrated air data systems combine the functionality of the sensing probes with
          an integrated air data computer into a single component that provides all critical
          air data parameters. This is a different technology from traditional air data
          systems and it has implications in the aircraft design, namely it can lead to
          a 50% weight saving when compared to the traditional air data systems because
          there is no need for pneumatic tubing, and there will be less electrical wiring.
6.13.2. Relevant product market
(177)     In line with the Commission's precedent in UTC/Goodrich141, the Notifying
          Party argues that air data probes form part of a single separate product market.
          According to the Notifying Party, despite the fact that air data sensors are
          engineered to comply with specifications unique to each aircraft, all major
          suppliers are able to manufacture air data probes for a range of different aircraft
          types and therefore a segmentation of this market per type of aircraft is not
          warranted.
(178)     The Notifying Party is also of the opinion that air data computers are not
          interchangeable with pressure transducers, but depending on the design of the
          system, an air data system can use either pressure transducers or ADCs to
          convert external pressure information into an electronic signal.
(179)     The Notifying Party further submits that integrated air data systems (smart
          probe) are not substitutable with traditional data systems. From a demand
          perspective, although for a new platform airframers may consider both systems
          in their trade studies, they make a choice early on in the process which results in
          very different air data system architecture. From a supply side perspective given
          the significant differences in technology, suppliers of traditional air data systems
          are not necessarily able to supply integrated air data systems.
(180)     Based on the information collected from the Parties and third parties during the
          market investigation, the Commission considers that ADCs and air probes
          belong to separate markets due to their different characteristics and
140
    Form CO, Air Data Sensors section, para. 6.6.
141
    Case COMP/M.6410 – UTC/Goodrich, para 169.
                                                  38
 ---pagebreak---           functionalities. Regarding the question whether the smartprobe constitutes a
          separate market from the other air probes, indeed most of the market participants
          responding to the Commission’s investigation recognised the particular features
          of this product, namely its capability to substitute a complete (traditional) air
          data system composed of probes, pneumatic tubing, air transducers and/or air
          computers142.
(181)     As the transaction will not raise serious doubts regarding its compatibility with
          the internal market under the alternative plausible market definitions, the exact
          market definition of each one of them may be left open.
6.14.     Aircraft Engines
6.14.1. Introduction
(182)     Aircraft engines power and propel the aircraft. UTC is active in the market for
          aircraft engines, operating through Pratt & Whitney, a subsidiary firm, as well as
          two joint ventures, International Aero Engines and Engine Alliance.143 Rockwell
          Collins does not engage in this market.
6.14.2. Relevant product markets
(183)     The Notifying Party submits that the definition for the aircraft engine market
          may be left open on the basis that in the absence of any overlaps, the
          Transaction should not give rise to competition concerns under any plausible
          definition of the market.
(184)     The Notifying party puts forward three principal engine types, set out as
          follows:144
             (a)    Turbofan engines, where a fan driven by a turbine provides extra air to
                    the burner and gives extra thrust. These are typically installed in large
                    commercial aircraft (both wide-bodied and narrow-bodied aircraft),
                    regional jets or corporate jets.
             (b)    Turboprop engines, where thrust is provided by an external propeller
                    rather than an internal fan. These offer the combination of high thrust
                    and low fuel consumption ideal for short-haul aircraft.
             (c)    Turboshaft engines, which produce shaft power, rather than jet thrust.
                    These are similar to their turboprop counterparts but are procured
                    almost exclusively for helicopters.
142
    See replies to question 142 of Questionnaire 1 - Competitors and replies to question 22 of
    Questionnaire 2 - Airframers.
143
    IAE AG is a joint venture between P&W, Japanese Aero Engine Corporation (“JAEC”), and MTU
    Aero Engines, solely controlled by UTC (Case COMP/M.6446 – Pratt&Whitney/International Aero
    Engines). It manages the engineering, sales, production, customer support, and aftermarket services
    for the V2500 engine. IAG LLC is a joint venture between the same entities that is responsible for the
    production of parts for combustor components and assembly of the combustor modules for the
    PurePower PW1100G-JM aero engine. Together IAR AG and IAG LLC constitute IAE. Engine
    Alliance is a 50/50 joint venture between P&W and GE Aviation
144
    Form CO, Aircraft engines, paragraphs 6.2 to 6.5.
                                                      39
 ---pagebreak--- (185)    The Notifying Party also puts forward that further segmentation of turbofan
         engines has historically also been considered by the Commission on the basis of
         the 'mission profile' of the aircraft, i.e. the purpose for which the engine is
         procured. This refers to the aircraft's seating capacity, flying range, price and
         operational cost among other things.145
(186)    On the basis of this approach, the Commission considers that aircraft engines
         can be distinguished between146:
             (a)  engines for Large Commercial Aircraft or LCA. These can be
                  potentially sub-segmented into engines for narrow-body/single-aisle
                  aircraft and engines for wide-body/double-aisle aircraft due to their
                  different mission profile.
             (b)  engines for regional aircraft. The Commission has considered splitting
                  this category further into a distinction between engines for small
                  regional jets, designed for the transportation of 30 to 50 passengers, and
                  engines for large regional jets, designed for the transportation of 70 to
                  90 passengers.
             (c)  jet engines for Corporate Aircraft. This category may be further
                  segmented into the market for heavy, medium and light corporate
                  aircraft.
(187)    As no other major element to distinguish the market has been identified, the
         Commission will retain the product market definition based on engine type
         segmentation in this case. This segmentation has been deemed appropriate in
         earlier decisions147 and remains broadly so according to the current market
         investigation, based on the fact that customers do not regard these engine types
         as substitutable and that the suppliers and their respective strengths differ
         between engine types.
6.15.    Avionics
6.15.1. Introduction
(188)    Avionics refers to a series of equipment that is used for navigation,
         communications and the evaluation of flight conditions. Collectively this
         equipment forms the 'avionics suite', and the majority of this equipment is
         located in the cockpit. Rockwell Collins currently manufactures and supplies
         standardized cockpit avionics equipment, such as communications systems,
         navigation, and display and flight control systems for both commercial and
         military customers. UTC does not sell avionics.
6.15.2. Relevant product markets
(189)    The Notifying Party submits that the definition for the avionics market may be
         left open on the basis that in the absence of any overlaps, the Transaction should
145
    Form CO, Aircraft engines, paragraphs 6.11 and 6.12.
146
    Case M.8242 – Rolls-Royce/ITP; Case COMP/M.2220 – General Electric/Honeywell.
147
    Case M.8425 – Safran/Zodiac Aerospace.
                                                     40
 ---pagebreak---           not give rise to competition concerns under any plausible definition of the
          market.
(190)     In a previous case the Commission has considered each individual avionics
          product (aircraft flight-control systems, monitoring systems, communications
          systems, navigation systems, weather systems and anti-collision systems) to be
          separate product markets.148
(191)     More consistently however, previous practice by the Commission has drawn a
          distinction between the avionics systems required for (i) large commercial
          aircraft (typically powered by turbofan jet engines), (ii) regional/business jets
          and (iii) military aircraft.149
             (a)     It has been noted that there is no clear segmentation between the
                     regional transport and the business aviation segment with regard to the
                     avionics products/ (sub-)systems that are offered, since the latter are the
                     same in terms of price, size, capabilities and technical
                     interdependency150.
             (b)     The structure of supply and demand and nature of customers differs
                     between large commercial aircraft on the one hand and
                     regional/business jets on the other hand, with airframers seeking a more
                     integrated style of avionics in the cockpit for regional and business
                     aircraft, and a more federated style of avionics for large commercial
                     aircraft (where some products may be chosen or changed by
                     airlines).151 This is because in the regional and business space, avionics
                     suppliers are selected by the airframer in an SFE model, while in large
                     commercial aircraft they may be offered under an SFE or a BFE
                     procurement model.152
(192)     These differences in turn will correspond to material, functional and software
          differences in the avionics systems of an aircraft.
(193)     This forms the justification for a distinction in the avionics market consistent
          with what the Commission has done previously, distinguishing between avionics
          for large commercial aircraft on the one hand and avionics for regional
          jets/corporate jets on the other hand. The market investigation in this case has
          not provided evidence to deviate from this distinction153.
148
    Case COMP/M.2220 – General Electric/Honeywell.
149
    A further distinction may be drawn for the avionics systems required for helicopters, but as the Parties
    are not active in avionics for helicopters, avionics for helicopters will not be discussed further in this
    decision and the relevant product market definition may be left open in this respect.
150
    Case COMP/M.1601 – Allied Signal/Honeywell; COMP/M.2220 – General Electric/Honeywell.
151
    Case COMP/M.2220 – General Electric/Honeywell.
152
    Reply of the Parties to the Commission's RFI#2 dated January 23, 2018.
153
    See non-confidential minutes of a call with an engine competitor dated 18 April, 2018 that confirmed
    that avionics systems do not necessarily differ between aircraft with different engines.
                                                         41
 ---pagebreak--- 6.16.    Environmental control systems
6.16.1. Introduction
(194)    Environmental control systems (“ECS”) manage the flow of air within the
         aircraft, which helps to regulate cabin temperature and cabin pressure, as well as
         to prevent ice from forming on flight surfaces and components.
(195)    ECS include many types of products which perform different functions in the
         aircraft, namely (i) bleed air systems (control the distribution of the air taken
         from the engine and provide it to the air conditioning, anti-ice and engine
         starting systems); (ii) air conditioning systems (provide passengers with
         heated/cooled conditioned air); (iii) ventilation systems (circulate air around the
         aircraft); (iv) cabin pressure control systems (maintain comfortable pressure in
         the cabin as the aircraft changes altitude) and (v) anti-ice systems (use hot air
         taken from the engine and deliver it to the wings and engine inlet surfaces to
         prevent ice from forming).
6.16.2. Relevant product market
(196)    The Notifying Party agrees with the Commissions' approach in the
         GE/Honeywell case, where the Commission reviewed the parties’ market shares
         on the basis of an overall market for ECS.
(197)    In United Technologies/ Sundstrand, the Commission noted that ECS includes
         systems which perform different functions in the aircraft, namely bleed air
         systems, anti-ice systems, air conditioning and cabin pressure control systems,
         and that a distinction can be drawn between air cycling cooling technology and
         vapour cycle cooling, but it ultimately left the market definition open154.
         In GE/Honeywell the Commission indeed considered the parties' market share
         for an overall market155. In its latest decision, Safran/Zodiac, the Commission
         also considered a distinction according to systems function and according to
         technology used but ultimately left the market definition open156.
(198)    In the present case there is no indication that would lead to deviate from the
         Commission precedents. In any case, as the proposed transaction does not raise
         serious doubts regarding its compatibility with the internal market in any
         plausible segmentation of this market, the exact market definition can be left
         open.
6.17.    Food and beverage preparation and storage equipment
(199)    Food and beverage preparation and storage equipment (“FBPSE”) refers to
         galley inserts adapted for the use of preparing and storing food and beverages.
         FBPSE includes products such as ovens, refrigerators and coffee machines for
         installation in aircraft galleys. They are sold as galley inserts to be integrated in
         the overarching galley structure.
154
    See case COMP/M.1493 – United Technologies/Sundstrand, paras. 18-19.
155
    See case COMP/M.2220 – General Electric/Honeywell, para.270.
156
    See case M.8425 – Safran/Zodiac Aerospace, paras 174- 177.
                                                    42
 ---pagebreak--- (200)     The Notifying Party considers that all FBPSE products form part of a single
          relevant product market. According to the Notifying Party, FBPSE are
          somewhat different from other galley inserts with respect to technologies used.
          Furthermore, the majority, if not all, of Rockwell Collins' competitors in this
          space can, and do, offer a full portfolio of FBPSE. Moreover, FBPSE is
          generally purchased as a package according to the Notifying Party.
(201)     One of the main competitors has corroborated the Notifying Party's position in
          the Commission's market investigation. It has distinguished galleys for storage
          from inserts which refer to domestic electrical appliances such as ovens,
          refrigerator, and coffee machine. Within inserts, it considered that no distinction
          is warranted since "for “visual commonality” reason, Airlines often select a
          complete set of inserts (depending on their needs) which enables them to have
          electrical appliances with a similar exterior design"157.
(202)     As the proposed transaction does not raise serious doubts regarding its
          compatibility with the internal market in any plausible market definition, the
          exact definition of the FBPSE market may be left open.
7.        GEOGRAPHIC MARKET DEFINITION
7.1.      Original aircraft equipment
(203)     As is the case for the other markets for civil aerospace applications and in line
          with Commission's precedents in this sector, the Notifying Party submits that the
          geographic market definition for all products markets discussed in Sections 6.1
          to 6.17 is worldwide.
(204)     The market investigation confirmed that most of the aerospace equipment
          suppliers serve their customers regardless of their location and customers choose
          their suppliers worldwide.
(205)     Competing original equipment manufacturers responding to the market
          investigation agreed that procurement of aircraft equipment and their
          manufacturing was taking place on a worldwide scale, suppliers were active
          across countries and international trade flows were significant. Some
          respondents remarked that there were some caveats: some countries imposed
          trade barriers and transport costs were not to be completely disregarded.
          Furthermore, market respondents noticed some variation in prices, albeit not
          between the same components sold to different customers across the world but
          between components manufactured in different regions due to differences in
          labour costs. All taken into account, the prevailing view of the respondents
          confirmed the precedents and a worldwide market for different types of
          aerospace equipment.158
(206)     Regarding military applications, respondents confirm that restrictions on trade,
          such as governmental export controls on such components geographically limit
157
     See minutes of a call held with the competitor on 4 January 2018.
158
     See replies to question 28 of Questionnaire 2 - Airframers and replies to question 6 of Questionnaire 1
     - Competitors.
                                                         43
 ---pagebreak---           the range of suppliers available to customers159. In any event, such measures
          affecting the Parties' products are not susceptible to influence the competitive
          assessment in the EEA.
(207)     The Commission therefore considers that the geographic market for all
          aerospace equipment discussed in Sections 6.1 to 6.17 is worldwide in scope
          (for MRO and spare parts, see below).
7.2.      MRO and spare parts
(208)     In a precedent case, the Commission found that, for component MRO services,
          the location of the facility is of secondary importance and that such services do
          not need to be performed at airports. The Commission found that most
          component MRO service providers are active globally and both the service
          providers and customers considered that the markets for component MRO
          services were worldwide in scope, regardless of the type of aircraft or
          component. The precedent found some indication that wheels and brake MRO
          services may be an exception to this and could be local in scope, and concluded
          that for the purposes of that decision it was not necessary to define the precise
          geographical scope of component maintenance.160
(209)     As regards spare parts, a precedent161 found that the distribution of aerospace
          spare parts takes place at the worldwide level or at least EEA-wide level. In a
          more recent case, the Commission recognised that it is a worldwide market as
          spare parts are sold to customers worldwide irrespective of the suppliers’
          location and the price does not vary substantially depending on whether they are
          sold in the EEA region or worldwide.162
(210)     Respondents to the Commission's market investigation considered that
          component MRO and also spare parts, similar to the original equipment, were
          part of a worldwide geographic market.163
(211)     The Commission therefore concludes that for the purposes of this decision the
          relevant geographic markets for component MRO services and spare parts will
          be considered worldwide in scope.
8.        COMPETITIVE ASSESSMENT
8.1.      Horizontal relationships
8.1.1.    Analytical framework
(212)     The Commission Guidelines on the assessment of horizontal mergers under the
          Council Regulation on the control of concentrations between undertakings (the
159
     See replies to question 7 of Questionnaire 1 – Competitors and replies to question 29 of
     Questionnaire 2 – Airfamers.
160
     Case COMP/M.6410 – UTC/Goodrich, 26 July 2012, paragraph 198.
161
     Case COMP/M.4241 – Boeing/Aviall, 18 August 2006, paragraph 11.
162
     Case COMP/M.6410 – UTC/Goodrich, 26 July 2012, paragraph 199.
163
     See replies to question 6.3 of Questionnaire 1 - Competitors and replies to question 28.3 of
     Questionnaire 2 – Airfamers and replies to question 10.3 to Questionnaire 3 - Airlines.
                                                        44
 ---pagebreak---           "Horizontal Merger Guidelines")164 distinguish between two main ways in
          which mergers between actual or potential competitors on the same relevant
          market may significantly impede effective competition, namely non-coordinated
          and coordinated effects.
(213)     Non-coordinated effects may significantly impede effective competition by
          eliminating important competitive constraints on one or more firms, which
          consequently would have increased market power, without resorting to
          coordinated behaviour. In that regard, the Horizontal Merger Guidelines
          consider not only the direct loss of competition between the merging firms, but
          also the reduction in competitive pressure on non-merging firms in the same
          market that could be brought about by the merger165.
(214)     The Horizontal Merger Guidelines list a number of factors which may influence
          whether or not significant non-coordinated effects are likely to result from a
          merger, such as the large market shares of the merging firms, the fact that the
          merging firms are close competitors, the limited possibilities for customers to
          switch suppliers, or the fact that the merger would eliminate an important
          competitive force. That list of factors applies equally if a merger would create or
          strengthen a dominant position, or would otherwise significantly impede
          effective competition due to non-coordinated effects. Furthermore, not all of
          those factors need to be present to make significant non-coordinated effects
          likely and this is not an exhaustive list166.
(215)     Furthermore, in accordance with the Horizontal Merger Guidelines, a merger
          with a potential competitor can have horizontal anti-competitive effects in two
          situations: (i) where the potential competitor constrains the behaviour of firms
          active in the market, notably when the potential competitor possesses assets that
          could easily be used to enter the market without incurring significant sunk costs
          or (ii) where the merging partner is very likely to incur the necessary sunk costs
          to enter the market in a relatively short period of time after which it would
          constrain the behaviour of firms currently active in the market.167
(216)     For the merger to have significant anti-competitive effects, two basic conditions
          must be fulfilled. First, the potential competitor must already exert a significant
          constraining influence or there must be a significant likelihood that it would
          grow to become an effective competitive force. Evidence that a potential
          competitor has plans to enter a market in a significant way could help the
          Commission reach such a conclusion. Second, there must not be a sufficient
          number of other potential competitors, which could maintain sufficient
          competitive pressure after the merger.168
8.1.2.    THSA
(217)     Affected markets arise due to the horizontal overlap of the Parties' activities in
          the manufacture and sale of THSAs.
164
     OJ C 31, 5.2.2004, p. 5.
165
     Horizontal Merger Guidelines, paragraph 24.
166
     Horizontal Merger Guidelines, paragraph 26.
167
     Horizontal Merger Guidelines, paragraph 59.
168
     Horizontal Merger Guidelines, paragraph 60.
                                                   45
 ---pagebreak--- (218)    The Parties' combined market share amounted to [50-60]% (increment of
         [5-10]% by Rockwell Collins) in 2016 and has been relatively stable over the
         past three years169. If airframers’ in-house production is excluded and only the
         merchant market is considered, the combined market share of the Parties rises
         to [70-80]% (increment of [10-20]% by Rockwell Collins).170
(219)    Shall a military segment for THSA be considered, the Parties' combined market
         shares have been varying between [60-70]% and [80-90]% between 2014
         and 2016.171
(220)    The Notifying Party claims172, however, that irrespective of the market
         definition, the concentration does not negatively affect competition in THSAs
         for the following reasons:
            (a)    UTC submits that historical market shares are not informative in
                   bidding markets Historical market shares therefore reflect the success
                   of the aircraft platform more than the competitive strength of the THSA
                   supplier.
            (b)    UTC also submits that UTC and Rockwell Collins do not consider each
                   other as competitors: UTC and Rockwell Collins design and
                   manufacture different types of THSA systems for largely different
                   types of aircraft. UTC supplies primarily hydraulic THSA systems,
                   which airframers typically require for large commercial aircraft.
                   Rockwell Collins supplies only electric THSA systems, which
                   airframers usually utilize for regional and business jets.
            (c)    UTC does not expect this situation to change […] and electric THSA
                   systems to replace hydraulic THSA systems, arguing that both
                   technologies will continue to co-exist in parallel, albeit for largely
                   different applications.
            (d)    UTC also claims that Rockwell Collins is not a major THSA supplier
                   and at least another eight competitors are active in THSAs, namely
                   Parker Hannifin, Moog, Safran, Liebherr, Thales, Shimadzu,
                   Electromech and Beaver Aerospace, many of these strong and well
                   established in THSA.
            (e)    In addition to these, UTC argues, airframers represent an additional
                   competitive constraint due to their capability to manufacture the THSA
                   in-house.
(221)    The Commission's investigation could not confirm the Notifying Party's
         assessment.
169
    [50-60]% in 2015 and [40-50]% in 2014.
170
    According to the Parties, Boeing and Dassault self-supply the THSA for a number of their platforms.
171
    Form CO, THSA, para 7.17.
172
    Form CO, THSA, para 7.1.
                                                       46
 ---pagebreak--- (222)    Recent bidding activity indicates that UTC and Rockwell Collins have indeed
         been competing for the same projects: […].173 Most notably, both have
         competed against each other for the large platforms of […] but also for the […].
(223)    The market investigation revealed that UTC and Rockwell are the two main
         suppliers for THSAs and two of the three independent suppliers for large
         commercial aircraft (with Moog). Although Rockwell traditionally supplies
         THSAs rather for regional and business jet platforms and UTC for large
         commercial aircraft, the trend towards electric THSAs has enabled Rockwell
         Collins to bid and win contracts against UTC for large platforms […].174
(224)    While UTC is mainly active in hydraulic THSA, it has capacity to manufacture
         electric THSAs: As also indicated by the Parties, UTC […]. Market participants
         indicated that, although the substitution is not immediate, the evolution is clearly
         towards the more electric solutions and these are becoming more and more
         standard, even for large aircraft.175 […].
(225)    As regards airframers' in-house capacity, Boeing is indeed capable of
         manufacturing THSAs in house and does so for multiple platforms. For Boeing,
         all future platforms or derivatives would be evaluated for a make or buy
         decision. Other airframers indicated that they could possibly insource the
         manufacture of THSAs, however this is a long-term strategic decision that is not
         taken on an ad-hoc basis as it requires considerable investment into production
         capacities.176
(226)    A number of customers and competitors have expressed concerns regarding the
         increase of Parties' bargaining power for THSAs and the reduction of choice
         post- merger.177
(227)    Some market participants also pointed out that one cannot completely disregard
         current market shares, as they also reflect the cash generating potential of a
         competitor's THSA business, which is vital in maintaining and further
         developing the business, which requires funds.178
(228)    Some respondents to the investigation have also raised concerns as regards the
         possibility for the merged entity to bundle actuators such as THSAs and flight
         control systems (pilot controls and electronic flight controls). According to those
         respondents, some airframers may seek to source such bundles which could
         potentially have a negative effect on single product suppliers.179 These concerns
         will be assessed in section 8.3.6.
173
    Reply of the Parties to the Commission's RFI#1 and RFI#3 on bidding data on 25 January 2018 and
    26 February, 2018 respectively.
174
    See replies to questions 35 and 38 of Questionnaire 1 - Competitors.
175
    See replies to questions 31 and 32 of Questionnaire 1 - Competitors and question 32 of
    Questionnaire 2 - Airframers.
176
    See replies to question 41 of Questionnaire 2 - Airframers.
177
    See replies to question 45 of Questionnaire 1 -Competitors, See replies to question 46 of
    Questionnaire 2 - Airframers.
178
    See minutes of calls with competitors on 10 January, 2018 and 20 February, 2018.
179
    See replies to questions 43 and 44 of Questionnaire 1 - Competitors.
                                                        47
 ---pagebreak--- (229)      The Commission therefore concludes that theTransaction raises serious doubts
           with regard to the Parties' activities in the manufacture of THSAs.
8.1.3.     Pilot Controls
(230)      As mentioned in section 6.2, the Parties are present in the following relevant
           markets: Sticks, RBPS and TQA.
8.1.3.1. Sticks (center yokes and sidesticks)
(231)      In sidesticks, UTC has a market share of [40-50]% on the merchant market,
           whereas Rockwell Collins has 0%. On the merchant market of center yokes,
           Rockwell Collins has a market share of [40-50]% whereas UTC has a market
           share of 0%180.
(232)      Therefore, the Transaction would not raise serious doubts as to its compatibility
           with the internal market for a separate product market of center yokes or for a
           separate product market of sidesticks.
(233)      If an overall product markets for sticks is defined (including both center yokes
           and sidesticks), the Parties would have a combined market share of [40-50]% on
           the overall merchant market for pilot control sticks181.
(234)      The Commission notes that in that case, however, the Parties could not be
           considered as close competitors in pilot control sticks. For each of types of
           sticks they would face partially the same competitors as Esterline Corporation,
           Safran and Woodward produce both types of sticks. In past tenders for pilot
           control sticks, the Parties competed only in […] tenders out of […] against each
           other. Whereas in the market investigation the majority of competitors took the
           view that in general the Parties are close competitors in pilot controls (thus
           relating also to RBPS and TQA)182, one customer respondent stated – relating
           overall to pilot controls - that it does "not recognize UTC and Rockwell Collins
           competing in the market."183 and another added that it "considers UTC and
           Rockwell Collins as being "close competitors" only for RBPS."184
(235)      Furthermore, the investigation revealed that the market participants do not
           expect significant impact in the market of sticks. Whilst the respondents were
           indifferent about the impact on prices, quality and innovation, some stated that
           competition may rather increase185.
(236)      In view of the above considerations, the Commission considers that also in the
           event of a product market comprising center yokes and sidesticks the
           Transaction does not raise serious doubts as to its compatibility with the internal
           market with respect to pilot control sticks. In any event, however, the
180
     Form CO, Pilot Controls, paras. 7.12 and 7.13.
181
     Calculated on the basis of the sales volumes for 2016 indicated by the Notifying Party in Form CO,
     Pilot Controls, paras. 7.12 and 7.13.
182
     See replies to question 60 of Questionnaire 1 – Competitors.
183
     See a reply to question 58.1 of Questionnaire 2 – Customers-Airframers.
184
     See a reply to question 58.1 of Questionnaire 2 – Customers-Airframers.
185
     See replies to question 66 of Questionnaire 1 – Competitors; Replies to question 65.1 of
     Questionnaire 2 –Airframers.
                                                        48
 ---pagebreak---           commitments include the divestment of Rockwell Collins' entire activities in
          pilot controls, thus also its activities in sticks, as discussed in section 9.
8.1.3.2. Rudder Brake Pedal System
(237)     The Notifying Party submits that their combined position in RBPS does not lead
          to affected markets as the Parties' combined market shares on the merchant
          market for RBPS is rather moderate with [10-20]% based on sales in 2016186.
(238)     However, the analysis of the bidding data draws a different picture of the
          Parties' current market position. In RBPS, either UTC or Rockwell Collins
          won […] out of the […]most recent bids for large commercial aircraft, […] out
          of […]for regional aircraft and […] out of […]for business jets187. Considering
          for instance the most recent bids in large commercial aircraft, all […] have been
          won either by UTC or Rockwell Collins188.
(239)     The market investigation further revealed that the majority of the respondents
          does not contemplate to sponsor a market entry of a new supplier for pilot
          controls189 and there were no recent market entries in pilot controls in general,
          which one respondent commented as follows: "All players have been in this
          market for decades. The barriers to entry seem quite high"190.
(240)     The results of the market investigation also show that many of the responding
          competitors and some of the airframers saw the Parties as the most important
          competitors in pilot controls (both in TQA and RBPS) some ranking the Parties
          as number one and two globally191.
(241)     Ultimately, as regards the impact of the Transaction on the market for RBPS, the
          answers of the market respondents are not homogenous relating to prices,
          quality and innovation, but some airframers assume that the market power of the
          Parties will increase, whilst competitors' market power will decrease192.
(242)     The Commission notes that although the market shares for RBPS are moderate,
          the bidding data and the market investigation points to the Parties being close
          competitors and particularly strong in recent tenders193. Furthermore, the Parties'
          strong market position resulting from the most recent successes of the Parties in
          bids was largely confirmed by market participants and there are high barriers to
          enter the market for potential new suppliers. Finally, the purportedly largest
          competitor mentioned by the Notifying Party in RBPS is apparently active
          mainly in the armaments industry and has not been mentioned by any
          respondent in the market investigation. The Commission concludes, therefore,
186
     Form CO, Pilot Controls, paras. 7.15.
187
     None of the Parties bid for military aircraft.
188
     […].
189
     See replies to question 60 of Questionnaire 2 – Airframers.
190
     See a reply to question 61.1 of Questionnaire 2 – Airframers.
191
     See replies to question 56 of Questionnaire 1 – Competitors, replies to question 56 of Questionnaire 2
     – Airframers.
192
     See replies to question 67 of Questionnaire 1 – Competitors, replies to question 65.2 of
     Questionnaire 2 – Airframers.
193
     In particular, UTC won the tender for the […] with revenues expected from […].
                                                        49
 ---pagebreak---           that the Transaction raises serious doubts as regards its impact on competition
          for RBPS on aircraft.
8.1.3.3. Pilot Controls – Throttle Quadrant Assembly
(243)     The Parties' combined market share is [50-60]% in TQA on the merchant
          markets according to the Notifying Party's submission194.
(244)     This high market share was also confirmed through the analysis of the bidding
          data195. In TQA, the Parties won […] out of the […] most recent bids for large
          commercial aircraft, […] out of […] for regional aircraft, […] out of […] for
          business jets and […] out of […] in military aircraft, thus demonstrating a strong
          position on the market for TQA.
(245)     The Commission notes that the two strongest competitors post-merger would
          have each a market share of [10-20]%.
(246)     The general results of the market investigation relating to pilot controls as
          reflected in Section 8.1.3.2 of this decision also apply to TQA:
              (a)    As indicated by the bidding data, the Parties are close competitors. This
                     has been confirmed by a number of market participants during the
                     Commission's market investigation196.
              (b)    Many of the responding competitors and some of the airframers saw the
                     Parties as the most important competitors in pilot controls (both in
                     TQA and RBPS) some ranking the Parties as number one and two
                     globally197.
              (c)    The majority of the respondents does not contemplate to sponsor a
                     market entry of a new supplier for pilot control 198 and there were no
                     recent market entries in pilot controls in general while barriers to entry
                     are high199.
              (d)    Some airframers assume that the market power of the Parties will
                     increase, whilst competitors' market power will decrease200.
(247)     On the basis of the above, the Commission concludes that the Transaction raises
          serious doubts as regards its impact on competition for TQA on aircrafts.
194
     Form CO, Pilot Controls, para. 7.18.
195
     Reply of the Parties to the Commission's RFI#1 and RFI#3 on bidding data on 25 January, 2018 and
     on 25 February respectively.
196
     See replies to question 60 of Questionnaire 1 – Competitors, replies to question 58 of Questionnaire 2
     – Airframers.
197
     See replies to question 56 of Questionnaire 1 – Competitors, replies to question 55 of Questionnaire 2
     – Airframers.
198
     See replies to question 60 of Questionnaire 2 – Airframers.
199
     See replies to question 61 of Questionnaire 2 – Airframers.
200
     See replies to question 65.3 of Questionnaire 2 – Airframers.
                                                        50
 ---pagebreak--- 8.1.4.    Ice Protection
(248)     In view of the product market definition, the Transaction gives rise to
          horizontally affected markets regarding pneumatic ice protection products for
          wings and stabilizers and for electro-thermal (including chemical) ice protection
          products for propellers.
(249)     The Notifying Party argues that the Transaction will not significantly impede
          competition because there are strong alternative suppliers, in particular in case
          of wing ice protection a number of more advanced wing ice protection
          technologies and in the aftermarket competition not only from original
          equipment suppliers but also from those who seek supplemental type certificates
          ('STC'), allowing them to replace other producers’ ice protection products201.
          Furthermore, the Notifying Party claims that customers source through bidding
          processes, which renders historic market shares less relevant202.
(250)     According to the estimate of the Notifying Party, 70%-80% of the overall sales
          in wing ice protection and 50%-60% of the overall sales in propeller ice
          protection market are accounted for by the aftermarket, the rest by the OE
          market. The Commission notes that whereas UTC is covering both the OE
          market as well as the aftermarket, Rockwell Collins is active primarily on the
          aftermarket.
8.1.4.1. Pneumatic ice protection for wings and stabilizers
(251)     Other than the Parties the only other competitor offering pneumatic wing ice
          protection products is Zodiac Aerospace. Based on this, the Commission notes
          that post-merger the number of competitors on the pneumatic ice protection
          market for aircraft wings and stabilizers would decrease from three to two.
(252)     The Parties' combined market share in pneumatic wing ice protection is
          [50-60]% according to the Notifying Party’s estimates for the year 2016. The
          market share remains rather stable considering previous years (2014: [50-60]%;
          2015: [50-60]%)203.
(253)     In view of the overall sales value of wing ice protection products including other
          technologies such as EMEDS or electro-thermal, the pneumatic wing ice
          protection products accounted for [70-80]% of the sales value in 2016. In
          assessing the importance of pneumatic ice protection in the future, the
          Commission notes that also this share remained rather stable through the past
          years (2014: [80-90]%, 2015: [80-90]%)204, even though the market
          investigation revealed that there is a general trend towards electro-thermal ice
          protection solutions205.
201
     Form CO, Ice Protection, paras. 7.1., 7.4 – 7.9.
202
     Form CO, Ice Protection, paras. 7.2 and 7.3.
203
     Form CO, Ice Protection, paras. 7.13.
204
     Form CO, Ice Protection, paras. 7.11.
205
     See replies to question 130 of Questionnaire 2 – Airframers.
                                                        51
 ---pagebreak--- (254)     The market investigation further showed that the Parties are seen as close
          competitors by their rivals206. The Commission received statements such as:
          "Both [Rockwell Collins] and UTC make similar pneumatic boots and propeller
          heaters. They compete directly in the aftermarket with equivalent offerings."207
          Another respondent noticed that "UTC and Rockwell Collins are the two biggest
          suppliers for Wing Ice Protection (pneumatic ice wing ice protection and
          propeller heaters)."208. Furthermore, the Parties are named frequently amongst
          the strongest competitors by competing ice protection manufacturers209.
          Customers consider UTC to remain strong also in future210. The closeness of
          competition is further demonstrated by the fact that Rockwell Collins is active
          primarily on the aftermarket ([…]211), where it seeks to supply its ice protection
          products to customers who originally purchased aircraft with ice protection
          products from UTC212.
(255)     For the impact of the Transaction, the majority of respondents expect
          competition to decrease213 and some expect prices to increase214.
(256)     The Commission notes that, regarding the aftermarket, UTC offers certified ice-
          protection products on […] types of aircraft215. On […] out of these, there is no
          competitor with a certified de-icing product. Post-merger, however, this number
          would increase to […] out of […], where the merged entity would not have any
          competitor with a certified ice protection product216.
(257)     On the basis of the above, the Transaction raises serious doubts as regards its
          impact on competition for pneumatic ice protection products on aircraft wings
          and stabilizers, first and foremost based on the post-merger duopoly comprising
          the merger entity and Zodiac, as well as the current strong combined position of
          the Parties in view of the market shares and the merger entity's forecasted strong
          market position in the future.
8.1.4.2. Electro-thermal ice protection for propellers
(258)     The Parties' combined market share in propeller ice protection is [30-40]%
          according to the Notifying Party’s estimates for the year 2016. The market share
          remains rather stable considering previous years (2014: [40-50]%;
          2015: [40-50]%)217.
206
     Airframers do not consider the Parties as 'close competitors' – see replies to question 128 of
     Questionnaire 2 – Customers. This is in line with […].
207
     See replies to question 126.1 of Questionnaire 1 – Competitors.
208
     See replies to question 126.1 of Questionnaire 1 – Competitors.
209
     See replies to question 124 of Questionnaire 1 – Competitors.
210
     See replies to question 125 of Questionnaire 2 – Airframers.
211
     Form CO, Ice Protection, paras. 6.11 and 6.36.
212
     See minutes of a call with a component OEM, on 23 March, 2018.
213
     See replies to question 128 of Questionnaire 1 – Competitors.
214
     See replies to question 124 of Questionnaire 1 – Competitors.
215
     Document 'Supplemental_Response_to_Q1(b)', submitted to the Competition Bureau Canada as
     response by the Notifying Party to March 16 RFI of the Competition Bureau Canada.
216
     Analysis by the Commission of the Document 'Supplemental_Response_to_Q1(b)', submitted to the
     Competition Bureau Canada as response by the Notifying Party to March 16 RFI of the Competition
     Bureau Canada.
217
     Form CO, Ice Protection, para. 7.13.
                                                        52
 ---pagebreak---  ---pagebreak---           on the merged entity post-merger as well as the lack of concerns resulting from
          the market investigation. It can, however, remain open whether there are serious
          doubts as to the Transaction's compatibility with the internal market in view of
          propeller ice protection as the propeller ice protection business of Rockwell
          Collins is part of the commitment entered into by Rockwell Collings relating to
          its entire ice protection business as set out in section 9.
8.1.5.    Aircraft seating
8.1.5.1. Business jets seats
(263)     UTC is a Tier 1 supplier for business jet passenger seating. UTC’s sales are to
          airframers or to those firms contracted by the aircraft owner to perform interior
          completion. UTC’s largest customers for business jet passenger seating are […].
(264)     Rockwell Collins sells most of its business jet passenger seating products as a
          Tier 1 supplier to aircraft OEMs, which include […].
(265)     The Parties achieve a moderate combined market share of [20-30]% in business
          jets seats (UTC: [5-10]%, Rockwell Collins: [10-20]%) and face competition
          from Ipeco ([20-30]%), RCO Engineering ([10-20]%) and PAC ([5-10]%).
(266)     The consolidated bidding data shows that UTC and Rockwell Collins are not
          the closest competitors in business jet passenger seating, and that UTC is a
          relatively minor            ([…]) competitor in this business. According to
          the consolidated bidding data, UTC bid on […] out of […] opportunities
          ([…]%) but only was selected for […] opportunities ([…]%) while Rockwell
          Collins bid on […] out of 25 opportunities ([…]%) and was selected for
          […] opportunities ([…]%). Rockwell Collins has met […] in a larger number of
          bids ([…] out of […]) than UTC ([…] out of […]).
(267)     No concerns have been expressed during the market investigation as regards the
          impact of the Transaction on competition for business jets seats.223
(268)     On the basis of the above, the Transaction does not raise serious doubts as
          regards its compatibility with the internal market for business jets seats.
8.1.5.2. Cabin attendant seating
(269)     UTC is a Tier 1 supplier for CAS. UTC’s largest CAS customers are […], with
          total sales of EUR […].
(270)     Rockwell Collins has […].
(271)     The Parties achieve a combined market share of [70-80]% in CAS but the
          increment is particularly small (UTC: [70-80]%, Rockwell Collins: [0-5]%),
          reflecting Rockwell Collins' […] relevance in this market. The parties face
          competition from Zodiac ([…]%) and other suppliers like Meggitt and Heico.
223
     See replies to question 90-1 of Questionnaire 2 – Airframers.
                                                        54
 ---pagebreak--- (272)     No concerns have been expressed during the market investigation as regards the
          impact of the Transaction on competition for CAS.224
(273)     On the basis of the above, and notably the very small increment arising from the
          Transaction, the Transaction does not raise serious doubts as regards its impact
          on competition for CAS.
8.1.6.    Oxygen Systems
(274)     Rockwell Collins provides oxygen systems for all types of aircraft. Oxygen
          systems are sold either directly to aircraft OEMs (Airbus, Boeing, Textron) or to
          interior integrators. In either case, it is the aircraft OEM who chooses the
          oxygen supplier and decides whether it will integrate itself or will delegate the
          integration to a Tier-1 supplier (such as an interior integrator or a PSU supplier)
          prior to its delivery to the OEM.
(275)     In 2016, Rockwell Collins had sales of EUR […] in oxygen systems,
          corresponding to a market share of [50-60]%.
(276)     UTC does not manufacture oxygen systems. UTC is however working on an
          […]e development program for an oxygen system that [description of UTC's
          Oxygen Program]. Specifically, UTC is working […] to research and develop a
          [description of UTC's Oxygen Programme 1] oxygen […] (Programme 1) and to
          develop […] oxygen [description of UTC's Oxygen Programme 2]
          (Programme 2).
(277)     UTC is therefore a potential competitor of Rockwell Collins in the oxygen
          systems market. Pursuant to the Horizontal Merger Guidelines, for a merger
          with a potential competitor to have significant anti-competitive effects, two
          basic conditions must be fulfilled. First, the potential competitor must already
          exert a significant constraining influence or there must be a significant
          likelihood that it would grow into an effective competitive force. Evidence that a
          potential competitor has plans to enter a market in a significant way could help
          the Commission to reach such a conclusion. Second, there must not be a
          sufficient number of other potential competitors, which could maintain
          sufficient competitive pressure after the merger.225
(278)     At this stage of the proceedings, the Commission takes the view the merger of
          Rockwell Collins, which is active in the oxygen systems market with UTC as a
          potential competitor in this market is likely to have anti-competitive effects and
          therefore raises serious doubts as to its compatibility with the internal market in
          this respect.
(279)     As regards the likelihood that UTC will grow into an effective or competitive
          force in the oxygen market, UTC has explained that both programs are
          [description of UTC's Oxygen Programs]. With respect to Programme 2,
          [description of UTC's Oxygen Programs].226
224
     See replies to question 90-2 of Questionnaire 2 – Airframers.
225
     HMG, paragraph 60.
226
     See response to RFI 5, dated 27 March 2018, paragraphs 9.1 to 9.8.
                                                        55
 ---pagebreak--- (280)    However, the Commission considers that […], there is a significant likelihood
         that UTC will grow into an effective competitive force in oxygen systems.
(281)    The most recent internal document of UTC as regards oxygen systems (dated 8
         March 2018)227 indicates that entry into service […].228 Another internal
         document states that [quote from UTC's internal document].229
(282)    The likelihood of success for these programmes is further enhanced by the […].
         In an internal document dated February 2017, UTC mentions that [quote from
         UTC's internal document]230. In another internal document, the interest of […] is
         described as follows [quote from UTC's internal document].231
(283)    The table in Figure 8 shows the market share objectives of UTC as regards
         oxygen systems by platforms types for the major customers.232 [Details of
         UTC's R&D programs].
                   Figure 8 - Market share objectives of UTC in oxygen systems
                                                        […]
(284)    On the basis of the above, the Commission considers that there is a significant
         likelihood that UTC post-entry would grow into an effective competitive force
         in the oxygen market.
(285)    As regards the existence of competitors which could maintain sufficient
         competitive pressure after the merger, the current market for oxygen systems is
         particularly concentrated, with only two main suppliers. Rockwell Collins holds
         a market share of [50-60]%, and its only other active competitor, Safran/Zodiac,
         has a [30-40]% market share233. A narrower segmentation by aircraft type or
         portable and non-portable oxygen systems would not change the picture of a
         duopoly market in oxygen systems.
(286)    Further, the market investigation has shown that Safran/Zodiac ([30-40]%
         market share), engages mainly in legacy business and has not won any new
         platforms in the last decade. In an internal document of Rockwell Collins related
         to oxygen systems, Zodiac is described as a company that [quote from Rockwell
         Collins' internal document] and [quote from Rockwell Collins' internal
         document]234. In another internal document, Rockwell Collins describes Zodiac
         as follows [quote from Rockwell Collins' internal document].235
227
    See […].
228
    See […], slide 8.
229
    See […], slide 12.
230
    Ibidem, slide 19.
231
    […].
232
    See […], slide 9.
233
    The Notifying Party has explained that "other suppliers" account for the remaining [0-5]% of the
    market but they have not been identified in the form CO and the Parties' internal documents only
    discuss Zodiac as an alternative supplier in oxygen systems.
234
    See B/E Aerospace (subsequently acquired by Rockwell Collins) […] slide 10.
235
    See B/E Aerospace (subsequently acquired by Rockwell Collins) […], slide 17.
                                                       56
 ---pagebreak--- (287)     This non-competitive market situation is confirmed by UTC in one of its
          internal documents where they explain that [quote from UTC's internal
          document]236. Another company active in a neighbouring area in the aerospace
          sector explained that there is "a place in the global commercial passenger plane
          market for an additional new oxygen technology provider as there is currently
          no competition".237
(288)     Furthermore, barriers to entry in the oxygen market are high, consisting of
          intellectual property, engineering, regulatory agency compliance, certification
          and overall programme schedule. They are further increased by the presence of a
          dominant supplier like Rockwell Collins in the market which states as an
          objective in one of its internal documents [quote from Rockwell Collins' internal
          document]238
(289)     The existence of barriers to entry was confirmed by a market player which
          indicates that "large players in the military aerospace oxygen area could decide
          to enter the civilian market. The technologies used are different between the
          civilian and military markets but the fact that it is airworthy oxygen in both case
          could be used to develop a dedicated product offering(…) it is not a swift entry
          and expansion"239. No player active in the oxygen military market has indicated
          to the Commission that it wishes to enter the oxygen civil aircraft market.
(290)     Against that background, the likely entry of UTC in oxygen systems could have
          beneficial effects on competition in a concentrated market where barriers to
          expansion and entry are significant. The Commission therefore considers that
          the Transaction raises serious doubts as regards its impact on competitionto its
          compatibility with the internal market as regards oxygen systems.
8.1.7.    Interior lighting
(291)     UTC is present in lighting with a full range of products but does not have "floor-
          to-floor" interior capabilities. UTC sells both to airframers and Tier 1 suppliers.
          UTC's aftermarket sales represent circa [50-60]% of its lighting business. Most
          of these sales are spare parts sales; only […] comes from retrofit sales.
(292)     Rockwell Collins is mainly present in cabin lighting and cabin signage.
          However, Rockwell Collins has "floor-to-floor" capabilities. Rockwell Collins
          also sells to airframers and Tier 1 suppliers. [70-80]% of Rockwell Collins'
          revenues in lighting come from sales to airframers, [10-20]% to integrators and
          the remaining [10-20]% are aftermarket sales.
(293)     Both UTC's and Rockwell Collins' OE sales are SFE. In the interior lighting
          market, the Parties have a combined market share of [20-30]% (UTC [10-20]%
          and Rockwell Collins [10-20]%). In the OE market, the Parties have a combined
          market share of [30-40]% (UTC [10-20]% and Rockwell Collins [20-30]%) and
          in the aftermarket, [10-20]% (UTC [10-20]% and Rockwell Collins [5-10]%). In
          case the interior lighting market were segmented by aircraft type, the Parties
236
     See […], slide 16.
237
     See reply to a RFI dated 6 April 2018.
238
     See […], slide 24.
239
     See reply to a RFI dated 9 April 2018.
                                                   57
 ---pagebreak---           would have a combined market share of [30-40]% (UTC [20-30]% and
          Rockwell [10-20]%) in LCA; [30-40]% (UTC [10-20]% and
          Rockwell [10-20]%) in regional aircraft; [20-30]% in business jets (UTC [0-5]%
          and Rockwell [10-20]%); [5-10]% in military aircraft (UTC [5-10]% and
          Rockwell [0-5]%); and [0-5]% in helicopters (UTC [0-5]% and
          Rockwell [0-5]%).
(294)     The Parties' main competitor is Diehl and there are several other smaller players
          present in most segments of the lighting market: Koito, Honeywell, Leonardo,
          Asronics, Bruce Aerospace.
(295)     The majority of airframers do not consider the parties to be close competitors240,
          which is reflected in the bidding data. The Parties do not seem to meet often (in
          […]% of the tenders for LCA, […]% for regional aircraft and […]% for
          business jets). The percentage of tenders in which one of the Parties won is
          relatively high: […]% for LCA ([…]); […]% for Regional ([…]); […]% for
          business jets ([…]). However, in most cases that one of the Parties won a tender
          […]241. The bidding data also shows that frequently airframers split the tender
          and multisource from different suppliers.
(296)     Although some airframers that participated in the market investigation
          considered that the Transaction would increase the Parties' market power, none
          has expressed any concern regarding an increase in prices or a decrease in
          quality or innovation in the PSU market242.
(297)     On the basis of the above, the Transaction does not raise serious doubts as to its
          compatibility with the internal market as regards its impact on competition for
          interior lighting products.
8.1.8.    PSUs
(298)     UTC is a Tier 1 and a Tier 2 supplier of PSUs. [Description of UTC's sales
          strategy]. UTC sells standardised PSUs to […] but […] the customised PSUs it
          sells to other customers, […]. UTC's aftermarket sales represent circa [20-30]%
          of its PSUs business. […]. UTC's biggest customer in the aftermarket is […].
(299)     Rockwell Collins is a Tier 1 and Tier 2 supplier of PSUs. Rockwell Collins sells
          PSUs as a stand-alone product (to […]) but also with oxygen system (to […])
          and as part of a floor-floor offer (to […]). Most of Rockwell Collins' revenues
          come from […] PSUs. Rockwell Collin's aftermarket sales represent circa
          [5-10]% of its PSU business. […].
(300)     UTC's and Rockwell Collins' OE sales are all SFE. The Parties estimate that
          their combined market share in an overall PSU market is [40-50]%
          (UTC [20-30]% and Rockwell Collins [10-20]%). In case the market is
          segmented per aircraft type, the Parties combined market share raises to
          [40-50]% in the LCA (although Rockwell Collins market share remain at
          [10-20]%), and to [40-50]% in the regional aircraft (UTC [20-30]% and
240
     See replies to question 100 of Questionnaire 2 – Airframers.
241
     [Details of Parties' bids].
242
     See replies to question 104 of Questionnaire 2 - Airframers.
                                                        58
 ---pagebreak---           Rockwell Collins [20-30]%). In case the relevant market would comprehend
          both PSU and interior lighting, the Parties combined market share is [20-30]%.
          In case the relevant market would include PSUs and oxygen systems, the parties
          combined market share would be [50-60]% (UTC [5-10]% and Rockwell
          Collins [40-50]%). In a market comprising PSUs, lighting and oxygen systems,
          the Parties combined market share would be [30-40]% (UTC [10-20]% and
          Rockwell Collins [20-30]%).
(301)     The Parties' main competitors are Safran and Astronics. Both of them are
          present in interior lighting, oxygen systems (except for Astronics) and both of
          them have also integration capabilities.
(302)     UTC and RC were not perceived as close competitors by the majority of
          customers243 which is reflected in the bidding data. The Parties do not seem to
          meet often ([…]% of the times for LCA, […]% for regional aircraft and […] in
          business jets). The percentage of tenders in which one of the Parties won is
          relatively low at […]% for LCA ([…]); […]% for regional aircraft ([…]).
(303)     Although some airframers that participated in the market investigation
          considered that the Transaction would increase the Parties' market power, none
          has expressed a concern regarding an increase in prices or a decrease in quality
          or innovation in the PSU market244.
(304)     On the basis of the above, the Transaction does not raise serious doubts as
          regards its impact on competition for PSUs.
8.1.9.    Potable water systems
(305)     UTC is active in potable water systems where its focus is […]. It has no
          presence in […] potable water systems, and has no current plans to expand into
          this area. UTC provides potable water systems for the […], among others. UTC
          is […].245
(306)     The Parties submit that Rockwell Collins which is active in wastewater systems,
          […]: it has carried out […] so far, with […] and […].246
(307)     The Parties' activities therefore overlap only marginally in the sale of potable
          water systems. While UTC estimates its market share at [30-40]% for 2016,
          Rockwell Collins considers its market share, with its one project carried out so
          far, to be below [0-5]%. If a sub-segmentation per aircraft type is considered,
          UTC's share in the business jet segment rises to [80-90]% in 2016, with an
          increment of [0-5]% by Rockwell Collins.247
(308)     However, the Notifying Party argues248 that these estimated market shares
          largely overestimate UTC's actual presence in potable water systems, as they do
243
     See replies to question 110 of Questionnaire 2 – Airframers.
244
     See replies to question 115 of Questionnaire 2 – Airframers.
245
     Form CO, Potable Water Systems, para 6.8.
246
     Form CO, Potable Water Systems, para 6.9.
247
     Form CO, Potable Water Systems, Table 2 and Table RFI2.1.
248
     Form CO, Potable Water Systems, para 7.4.
                                                        59
 ---pagebreak---           not include the sale of components by other OEMs to airframers who have
          historically been and many are still integrating purchased components to
          assemble the potable water system themselves and not purchasing the entire
          system.249 The UTC sales figures, on the other hand do include UTC's
          component sales.
(309)     In the Notifying Party's estimate, the overall market size could be larger than
          double for the market encompassing all aircraft types and possibly […]% larger
          for the business segment.
(310)     In any event, the Notifying Party submits250, Rockwell Collins is […] on this
          market and Rockwell Collins supplies the […] potable water system […], who is
          a Rockwell Collins waste system customer. Rockwell Collins has […].
(311)     The Notifying Party points to the presence of a number of strong competitors
          including Zodiac, the market leader, Diehl, Transdigm, JAMCO, as well as a
          number of other component suppliers, including Cox & Co, International Water-
          Guard, Yokohama, and DYNAMO Aviation along with many other smaller
          companies.
(312)     UTC expects251 […] and […] to significantly increase market share in the near
          future, having recently won tenders for aircraft that are currently ramping up
          production, such as the […] tender won by […], increasing from […] planes
          produced in 2016 to […] in 2018.
(313)     During the investigation, Zodiac, Diehl and Transdigm confirmed being present
          as competitors on a large number of platforms252. They saw Rockwell Collins
          present on the market, but held that it was not closely competing with UTC.253
(314)     Bidding data submitted by the Parties254 reflects the same picture: since the
          year 2000, Rockwell has been […] for potable water systems.
(315)     On the basis of the above, the Transaction does not raise serious doubts as to its
          compatibility with the internal market as regards its impact on competition for
          potable water systems.
8.1.10. MRO and spare parts
(316)     The Parties' activities overlap with regard to the provision of component
          maintenance in terms of providing MRO services and selling spare parts. Both
          UTC and Rockwell Collins are active in servicing their own components and
249
     Such as for instance including, […]. See the Notifying Party's reply to question 12 of the
     Commission's RFI#1 on19 December, 2017 and see also UTC's letter to the US Department of Justice
     on potable water systems on 6 October, 2017).
250
     Form CO, Potable Water Systems, para 7.7.
251
     Form CO, Potable Water Systems, para 7.8.
252
     See replies to question 130 of Q1 - Questionnaire to competitors.
253
     See replies to question 134 of Q1 - Questionnaire to competitors, see also minutes of calls with
     competitors on 21 December 2017 and 4 January, 2018.
254
     Reply of the Parties to the Commission's RFI#1 and RFI#3 on bidding data on 25 January, 2018 and
     on 25 February respectively.
                                                        60
 ---pagebreak---           achieve significant turnover on the aftermarket: [30-40]%255 of UTC's
          and [20-30]% of Rockwell Collins' turnover stems from their activities on the
          aftermarket; revenues from maintenance activities and sale of spare parts.
(317)     The Parties do not provide maintenance services on each other's equipment and
          the Parties […] provide maintenance services on any third party OEM
          equipment256, each focussing instead on providing maintenance services on its
          own equipment.
(318)     Some of the Parties' competitors for MRO services voiced concerns about
          ongoing foreclosure practices by OEMs, including UTC and Rockwell Collins,
          when competing for carrying out maintenance on their equipment: they claim
          that OEMs try to limit their access to the technical documentation, spare parts
          and tools and that OEMs set excessive license fees for third party operators.
          They argue that spare parts, manuals, tools and testing equipment are all
          essential inputs without which an independent MRO cannot carry out
          maintenance on the equipment. The complainants are concerned that the
          Transaction will increase UTC's incentives to foreclose access to spare parts and
          manuals257 and that its increased market power will translate into capturing more
          MRO revenues from independent MRO service providers.
(319)     The Parties' competitors held in this respect that OEM's offering bundles of
          equipment with associated support services (maintenance and spare parts) was
          common practice, enabling them to offer customers discounts and competitive
          prices.258
8.1.10.1. The Parties' arguments
(320)     The Parties submit that they are not competing against each other in the field of
          MRO services and spare parts: They do not service each others' equipment […].
          Their MRO activities are essentially limited to servicing their own equipment
          only.259 Therefore, there is no competitive overlap between their aftermarket
          activities.
(321)     Although their overall market share for component maintenance is estimated
          at [20-30]% and [5-10]% for UTC and Rockwell Collins respectively,260 the
          Parties also argue that they do not enjoy exclusivity on the maintenance of their
          own equipment: UTC estimates that on average [50-60]% of its equipment has
          been serviced by third party providers in 2016 and 2017. For Rockwell Collins
          the estimates differ across product groups, in interior systems it is as high
255
     Excluding engine sales and maintenance.
256
     UTC has some repair work on one of its repair sites for third party equipment [description of UTC's
     repair activities]. Rockwell Collins gives a similar estimate ([…]) for the proportion of third party
     equipment serviced out of all equipment serviced by Rockwell Collins.
257
     See minutes of a call with an MRO competitor on 27 March 2018. See also replies to question 44 of
     Q3 – Questionnaire to customers - airlines.
258
     See replies to question 12 of Questionnaire 1 - Competitors.
259
     See point 11.1 of UTC's reply to the Commission's RFI#6 on 3 April, 2018.
260
     See reply to question 12 of RFI#8 on 10 April, 2018. Figure encompassing MRO services including
     spare parts.
                                                        61
 ---pagebreak---           as […]% whereas in lighting and commercial system products the ratio is lower,
          [10-20]% and [30-40]% respectively.261
(322)     UTC explains that complex parts in which the OEM holds relevant IP rights are
          typically supplied by the OEM and that UTC does have components and spares
          that can exclusively be replaced by UTC262. UTC also explains that often from a
          business perspective, [details of UTC's contracts with customers].263
(323)     UTC adds however, that [details of the Parties' repair activities].
(324)     UTC also argues that many supply contracts [details of UTC's supply contracts],
          limiting its ability to foreclose MRO competitors.
(325)     The Notifying Party adds that reputational issues discipline its behaviour on the
          aftermarket also limiting its incentives to foreclose its MRO competitors, who
          are also its customers at the same time.
8.1.10.2. The Commission's assessment
          (A)            Horizontal overlap in MRO
(326)     As regards the horizontal overlap between the Parties' activities in component
          MRO services, the Commission concludes that no serious doubts arise since:
              (a)    The Parties' combined market share would reach [30-40]% which as
                     such is not indicative of strong market power. More importantly,
                     however, the Parties do not service each other's components. Therefore
                     irrespective of their combined market shares, they are not currently
                     competing with each other. As explained, UTC and Rockwell Collins
                     focus on servicing their own components and […].
              (b)    Furthermore, although some respondents indicated in the market
                     investigation that the larger product portfolio could potentially increase
                     the market power of the merged entity vis-à-vis customers, the
                     Commission considers that the Transaction will not fundamentally
                     change the competitive landscape. That is because the set of products
                     on which the merged entity will carry out MRO services does not reach
                     the full scope of nose-to-tail MRO service providers to be able to fully
                     compete with them after the Transaction. UTC will have on average
                     a [20-30]% presence with its equipment on existing platforms
                     (expressed as the cost of all components supplied by the merged entity
                     as a proportion of the total procurement cost of an aircraft, as set out in
                     paragraph (432)). It will however not be able to substitute the potential
                     need of an airline for a nose-to-tail MRO service provider. Therefore,
                     the Transaction does not lead to significant changes in the competitive
                     dynamics of the existing situation.
261
     Replies to question 10 of RFI#8 on10 April, 2018.
262
     See UTC's reply to question 102 of RFI 1 as 21 December, 2017.
263
     See UTC's reply to question 5 of RFI 12 on 16 April, 2018.
                                                       62
 ---pagebreak---              (c)    Alternative component MRO service providers will remain available
                    after the Transaction. This is confirmed by the Parties' OEM
                    competitors replying to the market investigation.264 Furthermore, all but
                    one airframer responding to the market investigation confirmed having
                    its own MRO operations,265 as did a number of airlines,266 and the
                    market investigation confirmed that for the servicing of an OEM's
                    equipment, the airlines' MRO providers, airframers and other
                    independent MRO operators are all in competition with each other.267
                    The level of competition in providing component MRO services is also
                    reflected by the […] ratio of the Parties' components not serviced by
                    the Parties themselves ([50-60]% for UTC; […]268 for Rockwell
                    Collins, as concerns overlap products, see paragraph (321)). As one
                    large OEM put it: "As concerns MRO, the largest role is played by the
                    airframers, then the airlines and the role of the equipment
                    manufacturers is less, more of a supportive role".269
         (B)            Horizontal overlap in spare parts
(327)    Similarly, as regards the horizontal overlap between the Parties' activities in
         supplying spare parts, the Commission concludes that no serious doubts arise
         since:
             (a)    The Parties' combined market share in component MRO including
                    spare parts would reach [30-40]% which as such is not indicative of
                    strong market power. More importantly, however, the Transaction will
                    not change the competitive landscape in the supply of spare parts since
                    the Parties do not manufacture each other's components for the
                    aftermarket. Therefore irrespective of their achieved market shares,
                    they are not currently competing with each other. UTC [description of
                    UTC's spare parts sales]. The Commission notes that a subsidiary of
                    Rockwell Collins (Intertrade Ltd) [description of Rockwell Collins'
                    spare parts sales]270.
             (b)    The merged entity will continue to face competition from alternative
                    spare parts that can be used instead of their original products,
                    developed and manufactured by third party spare parts suppliers. UTC
                    submits that on average [20-30]% of the spare parts required to service
                    UTC equipment is manufactured by alternative third parties. In case of
                    Rockwell Collins, the third party penetration of spare parts is […], up
                    to [10-20]%. In this regard, the Commission takes note of the concerns
                    raised in the market investigation indicating the customers' dependency
                    on the OEM spare part manufacturers and the merged entity's alleged
                    ability to use its leverage to increase prices. However, the Commission
264
    See replies to question 146 of Questionnaire 1 –Competitors.
265
    See replies to question 138 of Questionnaire 2 – Airframers.
266
    See replies to question 26 of Questionnaire 3 - Airlines.
267
    See replies to question 141 of Questionnaire 2 – Airframers.
268
    Except for interior lighting, where the third party maintenance for Rockwell Collins products is
    [0-5]%.
269
    See minutes of a call with a competitor on 19 December, 2017.
270
    In 2017, […], see the Notifying Party's reply to the Commisison's RFI#12 of April 16, 2018.
                                                        63
 ---pagebreak---                     considers that these concerns have been present before the Transaction
                    and relate to practices by OEMs that may be aimed at limiting
                    competition from third party spare part manufacturers (e.g., PMA) and
                    are inherent to a possible single-sourcing strategy chosen by the
                    airframer or the airline. In the Commission's view the concern is not
                    exacerbated by the Transaction, as is does not affect competition
                    between the OEM and third party spare part manufacturers on the
                    aftermarket for spare parts, given that the Parties are not competing
                    against each other on that market271. Therefore the Transaction will not
                    increase concentration levels on the market for spare parts: For any of
                    the Parties’ equipment, either of the Parties and an unchanged number
                    of third party spare part manufacturers will compete.
         (C)           Access to spare parts and other inputs (upstream) for the provision
                       of MRO services (downstream)
(328)    As regards input foreclosure concerns expressed by certain market participants
         during the Commission's market investigation that the OEMs restrict access to
         spare parts272 and other inputs (such as to documentation, IP rights, tooling,
         testing equipment and maintenance data), the Commission notes that similar
         concerns were voiced during the investigations of the UTC/Goodrich and
         Safran/Zodiac transactions by competing MRO service providers. Nevertheless,
         and for similar reasons as set out in those two previous decisions, the
         Commission concludes that no serious doubts arise due to foreclosure concerns
         in this Transaction since:
             (a)    In UTC/Goodrich the Commission found that such foreclosure
                    practices reported by the independent MRO service providers indeed
                    existed, but that they were unrelated to the concentration. In particular,
                    no link was found between the number of equipment on a given aircraft
                    by any supplier and the existence of or attempts at foreclosure practices
                    by that supplier.273 The same conclusions hold true in this case. The
                    foreclosure concerns expressed relate to the individual equipment,
                    regardless of how many other types of equipment the same supplier has
                    installed on the same aircraft. The potential incentives to try to
                    foreclose competitors from access to necessary inputs follow from a
                    potential position of market power due to the fact that the individual
                    equipment of one supplier has been chosen for a certain platform (with
                    generally limited possibilities for the airframer to replace the equipment
                    during the lifetime of the platform). Those incentives would therefore
                    not be influenced by the same OEM having more equipment installed
                    on the same platform or with the same customer.
271
    […].
272
    For instance, the market participants refer to the possibility that the merger entity would limit the use
    of PMAs (Parts Manufacturer Approval). Those are spare parts not manufactured by the OEM but by
    a third party and certified by the Federal Aviation Agency to meet airworthiness standards.
    Furthermore, market participants report of practices by which OEMs reject warranty if parts are not
    replaced by the OEMs own manufactured spares but alternative suppliers were used.
273
    See case COMP/M.6410 – UTC/Goodrich, paras 735 – 754 and case M.8425 – Safran/Zodiac
    Aerospace, paras 48 -356.
                                                        64
 ---pagebreak---               (b)   As set out in the Safran/Zodiac decision274, any potential ability of the
                    merged entity to engage in input foreclosure would not be related to the
                    Transaction but would come from the chosen single source strategy and
                    the limited substitutability of original spare parts. The same holds true
                    in this case. As such, the Transaction is unlikely to impact the ability of
                    the Parties to restrict or frustrate access to spare parts or other
                    necessary input. The market investigation in case Safran/Zodiac
                    precedent also found275 that the possibilities for input foreclosure also
                    also limited by the OEMs' contractual obligation vis-à-vis the airframers
                    to provide product support, including spare parts and technical
                    documentation to airlines and all MRO service providers chosen by the
                    airline, usually until five aircraft from the platform are still in operation.
              (c)   The addition of Rockwell Collins' share to UTC's existing share of
                    supply of spare parts or other inputs will not materially alter the
                    competitive dynamics on the aftermarket on any given or future
                    platform, as the Transaction will not lead to an increase in
                    concentration on the market for spare parts for any of the Parties'
                    equipment. Even if some incentive to foreclosure were to exist, the
                    Transaction is unlikely to change that incentive, even for future
                    platforms. Furthermore, for existing platforms the merged entity would
                    be bound by its existing contractual obligations. As a consequence, the
                    competition that the merged entity has been facing on the market for
                    spare parts, including from alternative third party spare part
                    manufacturers, before the Transaction is unlikely to be altered as a
                    result of the Transaction.
              (d)   The Commission has not found indications during its market
                    investigation in this case that the previous concentration UTC/Goodrich
                    of 2012 has had adverse effects on the MRO and spare parts markets.
8.1.10.3. Conclusion on MRO services and spare parts
(329)     On the basis of the above, the Transaction does not raise serious doubts
          regarding its compatibility with the internal market for MRO services and spare
          parts. The Commission takes notes of the concerns raised in the market
          investigation, considers however that the concerns are unrelated to the
          Transaction, as already similarly found and explained in its UTC/Goodrich and
          Safran/Zodiac decisions.
8.2.      Vertical links
8.2.1.    Analytical framework
(330)     Vertical mergers involve companies operating at different levels of the same
          supply chain. For instance, a vertical merger occurs when a manufacturer of a
          certain product merges with one of its distributors.
274
     See case M.8425 – Safran/Zodiac Aerospace, paras 48 -356.
275
     Ibindem, para 645.
                                                      65
 ---pagebreak--- (331)   Pursuant to the Commission Guidelines on the assessment of non-horizontal
        mergers under the Council Regulation on the control of concentrations between
        undertakings (the “Non-Horizontal Merger Guidelines”)276, vertical mergers do
        not entail the loss of direct competition between merging firms in the same
        relevant market and provide scope for efficiencies.
(332)   However, there are circumstances in which vertical mergers may significantly
        impede effective competition. This is in particular the case if they give rise to
        foreclosure277.
(333)   The Non-Horizontal Merger Guidelines distinguish between two forms of
        foreclosure: input foreclosure, where the merger is likely to raise costs of
        downstream rivals by restricting their access to an important input, and customer
        foreclosure, where the merger is likely to foreclose upstream rivals by restricting
        their access to a sufficient customer base278.
(334)   Pursuant to the Non-Horizontal Merger Guidelines, input foreclosure arises
        where, post-merger, the new entity would be likely to restrict access to the
        products or services that it would have otherwise supplied absent the merger,
        thereby raising its downstream rivals' costs by making it harder for them to
        obtain supplies of the input under similar prices and conditions as absent the
        merger279.
(335)   For input foreclosure to be a concern, the Merged Entity should have a
        significant degree of market power in the upstream market. Only when the
        Merged Entity has such a significant degree of market power, can it be expected
        that it will significantly influence the conditions of competition in the upstream
        market and thus, possibly, the prices and supply conditions in the downstream
        market280.
(336)   Pursuant to the Non-Horizontal Merger Guidelines, customer foreclosure may
        occur when a supplier integrates with an important customer in the downstream
        market and because of this downstream presence, the Merged Entity may
        foreclose access to a sufficient customer base to its actual or potential rivals in
        the upstream market (the input market) and reduce their ability or incentive to
        compete which in turn, may raise downstream rivals' costs by making it harder
        for them to obtain supplies of the input under similar prices and conditions as
        absent the merger. This may allow the Merged Entity profitably to establish
        higher prices on the downstream market281.
(337)   For customer foreclosure to be a concern, a vertical merger must involve a
        company which is an important customer with a significant degree of market
        power in the downstream market. If, on the contrary, there is a sufficiently large
        customer base, at present or in the future, that is likely to turn to independent
276
    OJ C 265, 18.10.2008, p. 6.
277
    Non-Horizontal Merger Guidelines, para 18.
278
    Non-Horizontal Merger Guidelines, para 30.
279
    Non-Horizontal Merger Guidelines, para 31.
280
    Non-Horizontal Merger Guidelines, para 35.
281
    Non-Horizontal Merger Guidelines, para 58.
                                                 66
 ---pagebreak---           suppliers, the Commission is unlikely to raise competition concerns on that
          ground282.
8.2.2.    Mechanical sub-assemblies for the THSA system: the ball screw
(338)     A THSA competitor suggested that UTC could have an increased incentive for
          input foreclosure of ball screws to competing THSA suppliers following the
          Transaction.
(339)     UTC submits that its production of the ball screw is mainly for captive purposes
          and that it has […]. UTC estimates that its market share for the ball screw is
          [0-5]%. It argues that its activity on the merchant market for the sale of the ball
          screw is related to […] and is therefore limited to […]. UTC further argues that
          alternative suppliers exist for the ball screw, namely Umbra, Beaver, Thomson
          Saginaw, Steinmayer and Sumimoto. UTC estimates that Thomson and Umbra
          in particular are the leading suppliers of ball screws with market shares of
          [20-30]% and [30-40]% respectively.
(340)     The Commission has analysed UTC’s contract with […]283 which is […] with
          [description of UTC’s supply contract].
(341)     The responses to the market investigation confirmed the presence of alternative
          suppliers, in particular Umbra, which was reported to be an important and
          growing284 ball screw supplier. Umbra is not vertically integrated into the
          manufacture of THSAs, therefore all its ball screw production is sold on the
          merchant market. Market participants also mentioned Beaver, Steinmayer and
          Thomson as alternative manufacturers of the ball screw.285
(342)     The Commission further notes that UTC was not implementing a foreclosure
          strategy […] before the Transaction despite being already the leading supplier in
          THSAs. That indicates that UTC had limited ability or incentives to engage in
          input foreclosure due to its downstream activities in THSAs.
(343)     In any event, the commitments whereby Rockwell Collins’ entire THSA
          business is divested (see Section 9), removes the entire overlap between the
          Parties’ activities in THSA. Therefore, after implementation of the
          commitments, the Transaction would not bring about any change in the market
          with relation to the pre-existing vertical link between UTC's activities in the
          manufacture of ball screws and UTC's activities in the manufacture of THSAs.
8.2.3.    Components for potable water systems
(344)     The Notifying Party argues that components and the complete potable water
          systems should form part of the same relevant product market and therefore no
          vertical link arises.
282
     Non-Horizontal Merger Guidelines, para 61.
283
     Annex to the Commission's RFI #4 on ball screw and THSA on 1 March 2018.
284
     At the time of the decision, Umbra was about to take over also Meggit's ball screw operations.
285
     See replies to question 34.1 of Questionnaire 1 - Competitors.
                                                        67
 ---pagebreak--- (345)     If components for potable water systems are considered a relevant market on
          their own, a vertical link is created between UTC's component sales and the
          Parties’ activities in the sales of complete potable water systems.
(346)     The Commission considers however that this vertical link does not lead to any
          input or customer foreclosure concerns:
(347)     Only a minor part of UTC's turnover, less than USD […], is achieved through
          sales of components to UTC's competitors for potable water systems. This
          translates into a negligible market share of UTC on the component market. The
          majority of sales are achieved with airframes. The supply relationships with
          competitors in potable water systems, notably with large competitors such as
          […] have existed before the Transaction and there are no indications that UTC,
          with a [30-40]% market share pre-Transaction in potable water systems has
          engaged or tried to engage in input or customer foreclosure strategies.
(348)     It is unlikely that the marginal addition of Rockwell Collins' potable water
          business downstream where Rockwell Collins achieves a market share of
          [0-5]% market share via […] valued at USD […], could change UTC's
          incentives to continue supplying competitors.
(349)     In any event, many of UTC's competitors in complete potable water systems,
          such as Zodiac or Diehl, Jamco, Cox&Co and International Waterguard
          Industries are all also all active in the manufacture and sale of components.
(350)     Customer foreclosure is equally highly unlikely as Rockwell Collins' purchase
          share on the procurement market for such components is immaterial, in line with
          its marginal activities in potable water systems. Conversely, UTC will not be in
          the position to purchase components from Rockwell Collins to a sufficient
          extent and accordingly will have to continue purchasing these on the merchant
          market.
(351)     Therefore, the Commission considers that the Transaction does not raise serious
          doubts regarding its compatibility with the internal market as regards the vertical
          link that is created between UTC's component business and Rockwell Collins'
          and UTC's potable water systems.
8.2.4.    ARINC
(352)     Rockwell Collins provides datalink network services and estimates that it has a
          market share of [40-50]% in the first generation datalink services. If this market
          were to be segmented by aircraft size, Rockwell Collins market share would be
          [30-40]% in the large and regional commercial aircraft and of [50-60]% in the
          business jets and government aircraft286. In second generation datalink services,
          Rockwell Collins' market share is below [5-10]%.
(353)     UTC is not present in this market. UTC supplies two types of components, the
          aircraft interface device (AID) and Pratt & Whitney's eFast unit that transmit
          data over several communication networks: WI-FI, satellite communication,
          cellular, and VFH/satellite networks. Neither of these components
286
     See Form CO, Section Datalink Network Services, paras. 6.33 and 6.37.
                                                     68
 ---pagebreak---            communicates directly with the VHF/Satellite networks and therefore is subject
           to testing by ARINC or SITA.
               (a)     The AID is a small box that collects, stores and transmits data within
                       the aircraft and off the aircraft287. AIDs are generally designed to
                       ARINC industry standard specifications for data transmission. UTC
                       offers its AID to airlines as a retrofit solution.
               (b)     Pratt & Whitney's eFast is an on-board, near real time data acquisition
                       and transmission unit that automatically downloads, processes and
                       stores data and then uploads it to a customer portal. Although eFAST
                       performs the function of a health monitoring data concentrator and to
                       this extent could be considered as belonging to the same relevant
                       market as an AID, UTC primarily markets eFAST as an engine health
                       management product. UTC supplies eFAST as a standard equipment on
                       the Bombardier Series.
(354)      To date, Rockwell Collins has sold fewer than […] units (for a total of
           approximately USD […]) of its single AID product. All these sales were made
           to […], which offered it to airlines as an optional add-on to the avionics package
           available directly from the production line (i.e. a line fit option). Today […]
           does not market this product anymore288. However, Rockwell Collins will
           supply a modified version of its AID to […] for its flight operations and
           maintenance exchanger ([…]) for the […] and […] families. […] will be
           installing […] on all new […] and […] aircraft […]. The Parties' combined
           market share in 2016 was [10-20]% (UTC [10-20]%, Rockwell Collins [0-5]%).
           The Parties also estimate that in the next 5 years Rockwell Collins' market share
           will not exceed [0-5]% (including sales of its new AID to the […] program)289.
8.2.4.1. Complaints raised during the market investigation
(355)      Some market participants raised concerns during the Commission’s market
           investigation that the merged entity would discriminate against its competitors
           in the supply of aircraft components and in the supply of component MRO290
           services by: (i) hampering the approval of components to be admitted to the
           ARINC network; (ii) hampering access to the ARINC standards; (iii) using
           sensitive information; (iv) degrading the ARINC service level; (v) pricing data
           transmission that pertains to the monitoring of competitors' components higher
           than data transmission pertaining to the merged entity's components and/or
           including such preferential data transmission prices in a bundle with the sale of
           data collection and storage equipment291. They submit that such practices would
287
     An AID acquires data from various aircraft systems including the flight management computer, air
     data inertial reference unit, flight data recorder, digital aircraft condition monitoring systems recorder,
     and multimode receiver. AIDs provide two way transmission with the ability to send data to the
     cockpit and back to the avionics system and to the ground operations.
288
     Rockwell Collins […].
289
     Reply to RFI no.16, on 23 April 2018.
290
     High-volume, advance aircraft data is not used for most MRO services that are offered today but my
     become the basis for advanced MRO services in the future – see Reply to RFI no 7.
291
     See replies to question 155.1 of the Questionnaire 1 - Competitors, replies to question 27.1 of
     Questionnaire 3 - Airlines, replies to question 149.1 of the Questionnaire 2 - Airframers.
                                                            69
 ---pagebreak---           have the effect of making it harder for alternative component and MRO and
          health management providers to offer their services.
8.2.4.2. Discriminatory conduct regarding the testing of components
(356)     One complainant submitted that the merged entity would have the increased
          ability and incentive to discriminate against competitors’ products' access to
          ARINC, given it would have a bigger portfolio of products that rely on access to
          ARINC and compete directly with the complainant. According to the
          complainant, the merged entity could increase prices, establish unfair or
          discriminatory terms and cause delays in the approval process of components to
          be admitted to the ARINC network292.
(357)     The Commission considers that these concerns are not merger-specific and are
          therefore unfounded for the purposes of this merger control procedure. None of
          UTC’s components needs to be tested by ARINC or SITA since none of UTC’s
          components is subject to testing by ARINC. The ability or incentive of
          Rockwell Collins to adopt discriminatory conduct with respect to ARINC
          approvals does not change with the Transaction. The Transaction therefore does
          not bring anything new to the qualification process to be admitted to these
          networks. As mentioned in paragraph (353) the components supplied by UTC,
          which use ARINC or SITA networks, are not tested because they do not
          communicate directly with those networks.
(358)     In any event, as mentioned in paragraph (144) Rockwell Collins has a non-
          discrimination and confidentiality policies293. Testing is conducted in ARINC
          laboratories on an arm's length basis within Rockwell Collins294. Each
          component supplier has access to the tests results and independently tests its
          equipment for public certification purposes in-house, so any discrepancies
          between ARINC results and the supplier's own result can be easily detected.
          Rockwell Collins ARINC adopts testing procedures published by the relevant
          standard-setting bodies and provides these to the component suppliers, who may
          attend testing295. Furthermore, except for the complainant, no other OEM
          competitor has argued having experienced attempts by Rockwell Collins to
          foreclose its access to ARINC296.
292
     Complainant' submission of 27 February 2018. In this submission the complainant argues: "The main
     interaction between [the complainant] and ARINC continues to relate to: (i) being approved to be
     admitted to the ARINC network, and (ii) sending and receiving data over the network using a licence
     (…). On the approving side, [the complainant’s] experience has been that the process for new
     products to be admitted to the ARINC network has become more difficult and the complainant
     believes that it has been treated unfavourably on at least two occasions". This is reiterated by the
     complainant in its reply to question 154.1 of of the Questionnaire to Competitors of Aircraft Systems.
293
     Changing these policies would endanger the commercial success of ARINC, as ARINC works as an
     open-standard secured network.
294
     Form CO, Section Datalink Network Services, para 6.46.
295
     Also to ensure transparency and impartiality, Rockwell Collins also publishes a test results index and
     a qualification annual report - Form CO, Datalink Network Services section, paragraph 6.46. It would
     be at least suspicious that the results of testing were always, or most of the times negative when
     components belonged to a competitor - Form CO, Datalink Network Services section, paragraph 6.46.
296
     See replies to question 153 of the Questionnaire 1 - Competitors.
                                                          70
 ---pagebreak--- 8.2.4.3. Discriminatory conduct regarding access to standards
(359)    The same complainant submitted that Rockwell Collins' ARINC controls
         ARINC interface standards and that the merged entity would have an increased
         ability and incentive to withhold or diminish access to the ARINC standards297.
(360)    The Commission considers that the merged entity would not have the ability or
         incentive to engage in such practices.
(361)    As mentioned in paragraph (140), the AEEC is responsible for the ARINC
         standards and also administers the ACARS protocol. Rockwell Collins has no
         control over either. Any proposed modifications to the ACARS standards (i.e.
         ARINC 618 and 620), as to any other ARINC standards, can be publicly
         submitted by all participants in the AEEC for review by the AEEC. The merged
         entity would not have the ability to withhold or diminish access to ARINC
         standards or modify the ACARS standards to its benefit or in detriment of its
         competitors.
(362)    In addition, the merged entity would not have the incentive to do so. Airlines
         require that the ARINC network, as well as any components with which it
         interacts, adhere to stringent open access standards to ensure complete
         interoperability on all aircraft, which ensures safe and efficient operation. The
         commercial success of the ARINC network depends on the ability to integrate
         with all available aircraft systems298. As another OEM competitor of the merged
         entity explained: "(…) it is unlikely that UTC/Rockwell Collins would attempt to
         move ARINC from an industry consortium approach to an approach that
         exclusively benefits UTC/Rockwell products or technology because the
         remaining industry participants would create an alternate system comparable to
         the current ARINC organizations"299.
8.2.4.4. Access to competitively sensitive information
(363)    The complainant also competes with Rockwell Collins in selling ARINC airtime
         and value-added services to airlines in the business aviation segment. ARINC
         provides airtime packages to the complainant, which the complainant resells to
         airlines together with flight support services, such as weather information or
         aircraft maintenance information.
(364)    Through the operation of the ARINC network, Rockwell Collins knows who the
         complainant's customers for the provision of airtime and flight support services
         are. According to the complainant, Rockwell Collins could use this information
         to approach those customers and sell their own Rockwell Collins services to
         them. The complainant claims it has seen this behaviour by Rockwell Collins in
         the past300.
297
     Complainant's responses of 3 April 2018 to EC follow-up question of 28 March 2018.
298
     Form CO, Section Datalink Network Services, para. 6.19
299
     OEM competitor's reply to EC questions sent on 6 April 2018.
300
     Complainant's reply to the Commission's questions of 26 March 2018 second version sent on
     4 April 2018 and reiterated in the call of 4 April 2018.
                                                          71
 ---pagebreak--- (365)      The Commission considers that this concern is not merger specific and therefore
           unfounded for the purposes of this merger control procedure. UTC does not
           provide datalink networks services and does not provide flight support services
           or resell air time in competition with the complainant. The ability or incentive of
           Rockwell Collins to adopt such conduct does not change with the Transaction.
8.2.4.5. Restrict access to ARINC network301 by degrading service level to competitors
(366)      The complainant also expressed the concern that the merged entity would
           prioritise the data streams pertaining to their products (more favourable
           transmission speed) in detriment of its competitors. According to the
           complainant, the incentive to do so increases as the merged entity has more
           products that communicate via the data link network, for instance for health
           management purposes302. The complainant also mentioned the possibility that
           the merged entity's data traffic could crowd out other messages from
           competitors303. In addition, the complainant also argued that Rockwell Collins
           could access the complainant's components data that is transmitted on ARINC
           network for Rockwell Collins' commercial use304.
(367)      The Commission considers that the merged entity would not have the ability or
           the incentive to adopt such conducts.
(368)      With regards to ability, although not technically impossible, it would be time
           consuming and costly to intercept the messages and to change the architecture of
           the network in order to detect and delay the transmission of some data:
              (a)     Each ACARS message has a header or "identifier" based on which the
                      data is routed305. These "identifiers" are part of the ACARS standard306.
                      However, the data that flows from components (such as, the engine or
                      the APU) is encoded307. According to the Notifying Party, "significant
                      resources would need to be expended to access, intercept and interpret
                      this data. This would require proprietary tools and software from the
                      competing component manufacturer, which are not publicly
                      available308.
301
     ARINC network includes the air-to-ground network and also the ground –to- ground network when it
     is necessary to use that network to transmit ACARS messages.
302
     Complainant's reply of 3 of April 2018 to the Commission's questions of 26 March 2018.
303
     Minutes of the 4 April 2018 call with the complainant.
304
     The complainant refers to both air-to-ground and to ground-to-ground transmissions. It argues that
     encryption is not a fail-safe protection and that despite contractual protections, it would be difficult to
     prove any breach. – see Complainant's reply of 3 of April 2018 to the Commission's questions of
     26 March 2018.
305
     This header identifies the component from which the data flows, the type of data (traffic control,
     operational, or performance data) and the location to where it needs to be transmitted.-call with the
     Parties on 18 April.
306
     Datalink Network provider reply to EC questions of 6 April 2018.
307
     User-defined messages allow the airline to encode or decode messages, and this information is only
     privy to the component provider by permission of the airline. ARINC does not require the airline to
     disclose this information. The airline may decide to disclose this information in order for ARINC to
     help solve network issues – see minutes of 18 April call with the parties. Encryption increases
     confidentiality treatment and reduces the size of the message and consequently its cost in terms of
     data usage - Form CO, para. 6.64 of the Datalink Network Services section.
308
     Form CO, Section Datalink Network Services para, 6.64.
                                                          72
 ---pagebreak---              (b)    Any attempt at altering the content of the data would require resources
                    to decipher the code and to make changes to the code. Any changes to
                    the code would render the message unreadable which would be
                    immediately noticed by airlines309.
             (c)    To delay the transmission of messages, either message priority
                    indicators would need to be altered (which would have little effect in
                    terms of timing - difference of milliseconds), or a new algorithm would
                    need to be designed, which is also costly.
(369)    In addition, such conducts would imply a breach of contract not only with the
         component OEMs but also with the airlines:
             (a)    Rockwell Collins operates the ARINC network separately from its
                    other businesses. [Description of Rockwell Collins’ use of ARINC and
                    its contractual obligations].
             (b)    Rockwell Collins is contractually obliged to provide […]310.
             (c)    Rockwell Collins is required to provide airlines on a regular basis with
                    performance reports, which identify the actual performance statistics
                    compared to the overall services goals listed in the Service Level
                    Agreements.
(370)    Moreover, Rockwell Collins is not the only provider of air-to-ground datalink
         services. SITA is a strong competitor in this business. Although the complainant
         argued that SITA is not substitutable with ARINC given the differences in
         geographic coverage and that it is costly to switch from one to another, the
         market investigation does not support these claims:
             (a)    A clear majority of airlines and component OEMs considered that
                    ARINC and SITA compete with one another311.
             (b)    Although the VHF/Satellite network is not identical and each company
                    has "gaps" in a given region or country, both use satellite connectivity
                    in those areas to bridge those gaps.
                 As to the easiness of switching frorm one provider to the other, the results
                 of the market investigation were less conclusive. About half of the airlines
                 consider that switching is not easy, because it requires changes in the
                 software. One airline pointed out that reprograming old CMUs (ACARS
                 MU systems) could be costly, while others consider that such switching is
                 easy312. However, most of these airlines that responded to the market
                 investigation, including those that claimed that switching was not easy,
                 already dual source today313 and one large airline has recently changed all
309
    Form CO, Section Datalink Network Services, para. 6.52.
310
    Form CO, Section Datalink Network Services, para. 6.55.
311
    See replies to questions 18 and 18.1 of Questionnaire 3 - Airlines, replies to question 156 of
    Questionnaire 1 - Competitors.
312
    See replies to question 19 and 19.1 of Questionnaire 3 – Airlines.
313
    See replies to question 17 of Questionnaire 3 - Airlines.
                                                        73
 ---pagebreak---                   its global fleet from SITA to ARINC […]314. As for the older ACARS MU
                  systems, switching may imply removing the system off the aircraft and
                  updating it in a shop, or replacing it. However, the Parties estimate that the
                  number of aircraft that operate this type of system represent [0-5]-[5-10]%
                  of the total active fleet. Moreover, as these MU systems are not
                  compatible with new standards for ATC communications in the EU and
                  USA, they shall all be replaced […]315.
(371)     With regards to incentives, such conduct would most likely harm ARINC's
          reputation as an open datalink network provider and it could only be beneficial
          for the merged entity if it could convince airlines to buy its products to avoid
          delays or data tempering, which would not be likely given the lack of legitimate
          reasons for the discrepancies. Faced with such behaviour airlines would most
          likely switch to SITA.
(372)     In fact, the complainant itself acknowledges that since the acquisition of the
          ARINC network by Rockwell Collins it never had a problem with its license to
          send and receive messages through ARINC, or with the actual sending and
          receiving of messages through ARINC (despite already competing with
          Rockwell Collins in the provision of certain aircraft components)316.
(373)     Similarly, the merged entity would have neither the ability nor the incentive to
          crowd out competitors by increasing the number of messages sent over the
          ARINC network from its own components and leaving less bandwidth for
          messages originating from competitors’ components:
              (a)     The airframers decide which components generate data and how the
                      data is transmitted within the aircraft and off the aircraft, not the
                      datalink operator.
              (b)     The airlines also decide on how they want to collect and receive the
                      data from the aircraft and who has access to that data. It is not the
                      datalink network provider who decides how much data and what type
                      of data is transmitted through its network.
              (c)     Airlines would be aware of any difficulty encountered by components
                      OEMs, who need the airlines' authorisation to access the data, and there
                      is a strong likelihood that they would switch to SITA. Given that the
                      vast majority of ARINC customers are airlines, not components
                      OEM317 the merged entity would hardly have any incentive to adopt
                      such conduct.
314
    See Form CO, Datalink Network Services section, para. 6.27.
315
    Parties reply to question of 2.4 of RFI no. 8.
316
    The complainant's submission of 27 February 2018 reads "The main interaction between [the
    complainant] and ARINC continues to relate to: (i) being approved to be admitted to the ARINC
    network, and (ii) sending and receiving data over the network using a licence.[§] On the licensing
    side, [the complainant] and ARINC continue to have a good working relationship since ARINC was
    acquired by RC.
317
    Parties reply to question of 3 of RFI no. 8.
                                                     74
 ---pagebreak---              (d)    ARINC's network is not suitable for second generation performance
                    data, as illustrated by the fact that already today the vast majority of
                    performance data used by UTC’s and other competitors’ health
                    management services is offloaded when the aircraft is on the ground via
                    cellular and Wi-Fi networks.
(374)     For similar reasons the merged entity would not have the ability or incentive to
          access the complainant's data flows or any of its competitors' data flows
          transmitted through ARINC network and use the information to gain
          competitive advantage.
(375)     The mere fact that data is routed through ARINC network would not give the
          merged entity immediate access to competitively sensitive information about the
          competitors' components or systems. To have access to such data flows, the
          merged entity would have to intercept the data which is costly and contrary to
          the contracts with airlines and third parties.
             (a)    As mentioned above, significant resources would need to be expended
                    to access, intercept and interpret the data. This would require
                    proprietary tools and software which are not available. Even in case the
                    intercepting and decoding of the message was successful, the
                    unauthorized reader would need to know the baseline specifications of
                    the component to which the data pertains to interpret the data in a
                    meaningful way.
             (b)    ARINC is contractually required to […]318. In addition third parties can
                    request additional confidentiality provisions. For example, in an
                    agreement with a competitor it is established that […]319.
(376)     With regards to incentives, again such conduct would most likely harm
          ARINC's reputation as an open datalink network provider. Moreover, the
          majority of data routed through ARINC is operational in nature and has limited
          competitive sensitivity, therefore its value is unlikely to compensate the
          investment in time and in money to be able (if at all) to intercept and interpret
          the data.
8.2.4.6. Price discrimination (including bundles) regarding access to the ARINC
          Network
(377)     The complainant submits that the merged entity may price discriminate in
          ARINC's network services, (i) by charging competitors higher prices, (ii) by
          offering discounts to the transmission of data pertaining to its own components,
          and/or (iii) by bundling data transmission services with any data system or
          component that generates data required for the provision of health management
          services or MRO services.
(378)     The Commission considers that the merged entity would not have the ability to
          leverage its position in the ARINC network business to improve its position in
          the aircraft health management services market or in the MRO services. There
318
     See Form CO, Datalink Network Services section, para 6.67.
319
     See Form CO, Datalink Network Services section, para 6.67.
                                                     75
 ---pagebreak---          are three main reasons – which will be expanded upon below - for the merged
         entity's lack of ability: (i) ARINC's VHF/satellite network is not an important
         input for the transmission of performance data; (ii) airframers determine the
         hardware and software that gathers and transmits data within the aircraft and off
         the aircraft; (iii) airlines choose the transmission data provider and authorise the
         transmission of data to third parties.
         (A)            ARINC's VHF/satellite network is not an important input for the
                        transmission of performance data
(379)    First, ARINC faces competition from SITA in the transmission of real time first
         generation performance data320. Therefore, any attempt to delay data streams,
         temper with the data or charge higher prices would lead to customers switching
         to SITA321.
(380)    Second, as confirmed by the market investigation VHF/Satellite networks are
         not a relevant means to transmit second-generation performance data322. On the
         contrary, the VHF/satellite networks do not have the bandwidth or the
         configuration to transmit the large sets of data required:
             (a)     As explained in paragraph (150), the ACARS protocol is only suitable
                     for sending short messages. The performance data transmitted in real
                     time through ACARS pertains to short condition status reports (the so-
                     called first generation performance data).
             (b)     The large volume, high frequency performance data used in predictive
                     health management services (the so-called second generation data) is
                     transferred when the aircraft is on the ground through cellular, Wi-Fi
                     networks, or manually.
(381)    Third, already today there are many alternatives to offload second generation
         data using cellular and Wi-Fi networks, including the Parties' solutions:
             (a)     Companies such as Teledyne, Avionica, Sagem, and Astronics, have
                     developed AIDs and other solutions to transfer data when the aircraft is
                     on the ground through these networks.
             (b)     Also Rockwell Collins' AID product for […] program323, Rockwell
                     Collins' AIMCS324 and UTC's eFAST product325 make use of cellular
320
    See paragraph (370) above.
321
    See paragraph (370) above.
322
    The complainant itself acknowledges that ARINC does not have the capacity to transmit large sets of
    data: "Currently only key messages and alerts as chosen by the customer are transmitted through
    ARINC in “real time”. The current ACARS/VHF networks are not fast enough to handle larger
    amounts of data and can be likened in performance to internet modems from the 1980s." – see
    minutes of the call of 4 of April 2018.
323
    Rockwell Collins will provide dual cellular connections for […] and […] aircraft starting in 2018.
    One channel is reserved for […] data transfers to support its […] Airplane Health Management. The
    second channel will be for the airline's own use for its operational and maintenance programs, or to
    use ACARS over IP, instead of a first generation datalink network. More importantly, Rockwell
    Collins will not have access to the data that is captured and transmitted. It will be limited to providing
    the hardware component (AID) and managing the data transmission from […] to the […] servers.
                                                         76
 ---pagebreak---                      connectivity to transmit performance data on the ground. The
                     cellular/Wi-Fi connectivity for these applications is provided by
                     telecommunication networks and not by ARINC (or SITA).
(382)     Fourth, given the costs and the limited capacity of VHF/Satellite networks,
          ACARS over IP is currently being developed to allow the transmission of
          ACARS messages via cellular, Wi-Fi networks on the ground and through
          second generation satellite networks in-flight326. Hence, this can be expected to
          further reduce the relevance of ARINC and SITA networks for the transmission
          of aircraft performance data.
(383)     Fifth, the Parties327 and other market participants328 expect that real-time
          performance data will, in the future, be transmitted through high bandwidth
          satellite connectivity. Second generation air-to-ground links using medium-band
          and broadband satellite have been developed mainly to enable passenger internet
          connectivity. Today there are several providers of these services, such as
          Panasonic, GoGo and Global Eagle Entertainment. Thales, SITA and Rockwell
          Collins operate as value-added resellers of both of Inmarsat and Iridium's
          service329. In the future, these broadband connectivity services could be used to
          also transmit in-flight other aircraft data, including performance. Rockwell
          Collins has around [0-5]% market share as a reseller of satellite broadband
          connectivity and estimates that its market share will not exceed [5-10]% […]330.
          (B)            Airframers, not the Parties, determine the hardware and software
                         that gathers and transmits data within the aircraft and off the
                         aircraft
(384)     As to the role of the airframers, they determine which components of the aircraft
          will generate performance data, and what types of data they will generate and
          how the data is transmitted. As specified by the airframer, these components
          will "publish" data into the aircraft internal network using ARINC standards,
          and the Aircraft Condition Monitory System331 will "listen" to and record the
324
    […] by Rockwell Collins for the […] platform. It allows the transmission of […]. While the ACARS
    over IP standard is being developed, […] are transmitted through cellular or WiFi on the ground and,
    in the future, may also be transmitted in-flight through second-generation satellite services.
325
    UTC's solution (eFAST) is installed on […] aircraft and makes use of cellular connection to
    download large amounts of data to a customer portal.
326
    ACARS over IP refers to an industry standard that is being developed by the standard setting body
    SAE International. The Parties estimate the standard may take […] to become ratified. Rockwell
    Collins' AID for the […] program and […] are intended to support ACARS over IP when the standard
    is complete (likely with new software).
327
    Parties' submission of 10 April 2018 and the Parties' reply to RFI no. 8. An airframer corroborated
    that ACARS-over-IP for real time, air-to-ground communications will be certified soon – see
    airframer reply of 11 of April to EC questions of 9 of April.
328
    Replies to Commission flow-up questions of 9 and 12 of April.
329
    The value-added consists in managing the relationship with the customer, providing the on-board
    system to connect passengers to the internet and the ground infrastructure to connect the passenger to
    the commercial internet once the signal reaches the ground through broadband satellite – see Minutes.
330
    See Parties' reply to question 2 of RFI no. 21.
331
    Aircraft condition and monitory system (ACMS) is a software that collects and stores performance
    data generated by aircraft components. ACMS is typically hosted in the aircraft's data management
    hardware, such as an AID.
                                                         77
 ---pagebreak---           specific data streams, as defined by the airframer or the aircraft operator 332. The
          merged entity has therefore no control on how much performance data is
          generated and on how that data is transmitted within the aircraft and off the
          aircraft.
(385)     Furthermore, Airframers are trying to enhance their position in health
          management333 and MRO services by taking control of the data generated by
          aircraft systems in order to create unique datasets, not available to component
          suppliers. In their most recent platforms, Airbus and Boeing design the data
          flow in such way that the data will go through the airframers' servers before
          getting to the component manufacturer or the airline. For example, Airbus has
          taken the position that data generated by the engine's FADEC should not be
          available to the engine supplier (in this case Pratt & Whitney) or to the airline
          directly. Instead the data will be aggregated by Airbus' aircraft data management
          system (FOMAX) and transferred to Airbus' data centre for processing.
          Accordingly, the merged entity will face strong competition on health
          management services, including from Airbus and Boeing, and the control of the
          ARINC network will not give it a particular advantage.
          (C)           Airlines choose the transmission data provider and authorise the
                        transmission of data to third parties
(386)     As to the role of airlines, the airlines choose the data network provider and
          authorise third parties' access to the data generated by their fleet. The airline
          may choose to route their aircraft management data to a health management
          provider or to develop their own IT infrastructure with analytical capabilities (as
          FedEX did).
(387)     With regards to incentives, as mentioned before any discrimination in the
          provision of VHF/Satellite services would jeopardise ARINC's reputation as an
          open network and lead to customers switching to other alternatives.
(388)     Similarly, the merged entity would not have the ability or incentive to bundle
          aircraft components (that generate performance data) or systems (that support
          the aggregation or transfer of data) with cheaper or free of charge ARINC
          transmissions.
(389)     In addition to all the reasons explained above, the opportunity to offer such kind
          of bundle is limited to bundling ARINC access either with Buyer Furnished
332
    In addition to ACMS, another software used to transmit data to the ground is the quick access
    recorder (QAR). These systems are present on most large commercial and regional aircraft, and must
    be tested, validated and certified by the airframer before they are put on the aircraft.
333
    Today, Boeing offers its health management services to […] airline operators; Airbus services
    […] airline operators, Lufthansa Technik services […] and Honeywell services […] airline operators.
    UTC is has […], in addition to its helicopter health management product and the health management
    services for Pratt & Whitney's engines. UTC currently offers […] a legacy-component which will be
    decommissioned in […]. Rockwell Collins provides no health management services – Parties reply to
    question 1 of RFI no. 7 Parties reply to question 1 of RFI no. 8; Parties reply to question 15 of
    RFI no. 16.
                                                         78
 ---pagebreak---            Equipment or with retrofit components, where the merged entity would
           encounter one and the same customer, the airlines334:
              (a)    Within UTC’s portfolio, the only BFE product where UTC has a
                     market share above [30-40]% that can generate performance data is
                     wheels and brakes for LCA. Already today, without Rockwell Collins
                     capabilities UTC offers health management services for its brakes.
                     Taking into consideration the positioning of LCA airframers in the
                     provision of health management services, it is very unlikely that such a
                     bundle would be successful.
              (b)    As for the retrofit components, in particular UTC's AID (as suggested
                     by a market participant), such bundle would not be very likely. First,
                     not often the airline would be in a position to change the component
                     provider in retrofit solutions and if it did there are other alternatives to
                     UTC's AIDs (UTC has [10-20]% market share). Second, retrofit
                     solutions do not cover necessarily the entire fleet of the airline, while
                     ARINC services are subscription-based service contracts for the entire
                     fleet.
(390)      For all the above reasons, it is unlikely that the merged entity would leverage its
           position in the provision of network services to harm competition in the
           provision of health management services.
8.2.5.     IMUs and GPS
(391)      The Parties' activities in IMUs and GPS receivers lead to both vertical and
           conglomerate links with UTC being active in the supply of IMUs and Rockwell
           Collins being active in the supply of GPS receivers.
(392)      As regards IMUs:
              (a)    UTC only supplies tactical IMUs and […]. UTC estimates that in 2016
                     the IMU market was worth EUR […] and that it had a [30-40]% market
                     share. UTC estimates that Honeywell had also a [30-40]% share of this
                     market, while the remaining third is divided among: Safran ([10-20]%),
                     Systron        Donner         ([10-20]%),          Litton      ([10-20]%),         and
                                             335
                     Sensanor ([0-5]%) . UTC expects its and its competitors' market
                     shares to be similar in 2017336.
              (b)    Rockwell Collins does not manufacture IMUs. However, Rockwell
                     Collins sources tactical IMUs from […] for its integrated offer of IMUs
                     and C/A code GPS receivers337 and for a Common Range Integrated
334
     AID's, ACMS are sold to the airframers as SFE, for example Rockwell Collins' new AID for the […]
     program, UTC's eFAST product. The complainant mentioned the possibility of the merged entity
     offering preferential pricing or free transmissions of data pertaining to the merged entity's Auxiliary
     Power Units but this system is sold as SFE (and thus not to the same customer base as the ARINC
     data link network services which are sold to airlines).
335
     See reply to question 6 of RFI no. 6 and to question 5.1 of RFI no. 21.
336
     See reply to question 5.1 of RFI no. 21.
337
     Rockwell Collins' Athena 511 product. It sold […].
                                                         79
 ---pagebreak---                     Instrumentation System ("CRIIS")338. Rockwell Collins also purchases
                    tactical IMUs from […]. These tactical IMUs are not incorporated into
                    any Rockwell Collins product, but are used for experimental purposes.
                    Overall, Rockwell Collins has purchased EUR […] of IMUs in 2016
                    (EUR […] from […] and EUR […] from […]).
(393)     As regards GPS receivers:
              (a)   Rockwell Collins manufactures and supplies both C/A code and
                    SAASM code GPS receivers. As the complaint that was put forward in
                    the market investigation pertains to SAASM code GPS receivers, the
                    Commission's analysis will be focussed on this market and its possible
                    segmentations. According to Rockwell Collins, in 2017 the market size
                    of SAASM GPS receivers for aircraft applications amounted to
                    EUR […] and its market share was approximately [10-20]%. Rockwell
                    Collins estimates that in 2017, the market size of SAASM GPS
                    receivers for non-aircraft applications amounted to approximately
                    EUR […] and its market share was [70-80]%. There are […] other
                    companies authorised by the US Department of Defence to
                    manufacture and supply SAASM GPS receivers: […] and […].
              (b)   UTC is not present in any of the GPS receivers markets and its tactical
                    grade IMUs can only be integrated with SAASM GPS receivers for
                    non-aircraft applications.
8.2.5.1. Complaint raised during the market test investigation
(394)     A competitor of UTC in tactical IMUs, that supplies tactical (low-grade) IMUs
          to Rockwell Collins, complained that post-Transaction Rockwell Collins would
          internalise its demand for IMUs and stop purchasing them from the
          complainant, giving preference to UTC.
(395)     In addition, the same complainant, who also sources SAASM GPS receivers
          from Rockwell Collins, claimed that post-Transaction Rockwell Collins would
          supply SAAM GPS receivers only on less favourable terms or would stop
          supplying them. The complainant claims that the merged entity could displace
          the complaints' integrated offers first in the non-aircraft space and later in the
          aircraft space339.
          (A)           Customer foreclosure concern
(396)     Rockwell Collins is not an important customer or channel to sell tactical IMUs.
          As mentioned above, the tactical IMUs market was worth EUR […] in 2016 and
          Rockwell Collins total purchase of this product was less than [0-5]%. In
          addition, Rockwell Collins is also not an important tactical IMU customer of the
338
     CRIIS is an integrated system delivered to […] for the operational testing and training of weapon
     systems. Rockwell Collins sold […] units in the past two years.
339
     See complainant's responses of 3 April 2018 to EC follow-up question of 26 March 2018.
                                                       80
 ---pagebreak---           complainant since its purchases correspond to far less than [5-10]% of the
          complainant total sales of tactical IMUs340.
(397)     Even if post-Transaction, Rockwell Collins would stop sourcing IMUs from the
          complainant, that would not have a significant impact neither in the tactical
          IMUs market, nor in the complainant's tactical IMUs business.
          (B)           Input foreclosure concern: SAASM GPS for aircraft applications
(398)     The merged entity neither has the ability nor the incentive to stop supplying
          SAASM GPS receivers for aircraft applications.
(399)     With regards to ability, Rockwell Collins' market share is around [10-20]% and
          there are four other alternative suppliers. The complainant already certified a
          competitor of Rockwell Collins to be its supplier of SAASM GPS receivers for
          aircraft applications for one of its integrated offers, substituting Rockwell
          Collins in new platforms341.
(400)     With regards to incentives, the merged entity would be unlikely to forego a
          revenue stream (sales of SAASM GPS receivers for aircraft applications) when
          it does not have the capability to supply an integrated offer similar to the
          complainant, and consequently recoup the lost revenue through the sale of a
          competing integrated offer:
              (a)    On the one hand, the complainant is the most important customer of
                     Rockwell Collins for SAASM GPS receivers for aircraft applications.
              (b)    On the other hand, and more importantly, UTC does not manufacture
                     high-grade IMUs, which are the suitable IMUs to be integrated with
                     SAASM GPS receivers for aircraft applications.
(401)     In fact, to the extent that UTC is not active, nor has plans to enter the high-grade
          IMUs market, the proposed Transaction changes nothing to what Rockwell
          Collins could have done on a unilateral basis before the Transaction.
          (C)           Input foreclosure          concern:   SAASM        GPS      for  non-aircraft
                        applications
(402)     Similarly, the merged entity does not have the ability or the incentive to stop
          supplying SAASM GPS receivers for non-aircraft applications.
(403)     With regards to ability, given procurement characteristics in the industry, the
          merged entity would not be able to tie or commercially bundle Rockwell
340
    This calculation is made based on the value of Rockwell Collins purchases and the complaint's market
    share in IMUs estimated by the Parties.
341
    Around 2010 the complainant implemented a dual source strategy for the SAASM receivers and
    qualified […] receivers for use in new platforms. In 2013, Rockwell Collins issued a last time buy
    notice of its GEMV and GEM VI (SAASM) GPS receivers. The complainant chose not to continue
    purchasing Rockwell Collins' updated GEM GPS receiver (GEM VII) and opted to do a last buy of
    the legacy technology. Rockwell Collins expects that these deliveries will be completed […] – see
    Parties reply to RFI no. 11, on 11 April 2018.
                                                       81
 ---pagebreak---          Collins' SAAMS GPS receivers with UTC's tactical grade IMUs, displacing the
         complainant.
             (a)     First, the integration of SAASM GPS for non-aircraft applications with
                     tactical IMU is generally made for precision weapons. With one
                     exception, all weapons manufacturers procure these two products
                     separately and integrate them in-house. The integration requires
                     proprietary knowledge about the interface, performance parameters and
                     design of the weapon, which is not typically available either to SAASM
                     GPS or to tactical IMUs suppliers. In the exceptional case where the
                     weapon OEM subcontracted the integration of the navigation system, to
                     the Parties' understanding this integration is also done based on the
                     weapon OEM's proprietary knowledge. Therefore, even in this case, the
                     subcontractor cannot integrate independently from the weapon OEM.
                     In fact, the complainant's integrated offer is made for the manufacture
                     of weapons and the complaint also supplies tactical IMUs on a stand-
                     alone basis to other weapons OEMs.
             (b)     Second,     although Rockwell Collins has a strong position in this
                     segment     ([70-80]% market share), it does not have a "must-have"
                     product.    Currently, […] supply weapons OEMs and […] have been
                     certified  by the US Department of Defense and have the capability to
                     do so.
(404)    With regards to incentive, since Rockwell Collins and UTC sell respectively and
         on a stand-alone basis SAASM GPS receivers and tactical grade IMUs to
         weapons OEM, it is very unlikely that post-Transaction the merged entity would
         forgo a certain revenue stream ([…]) to push for a new bundle offer when the
         majority of their potential customers is not open to such integrated offer:
             (a)     On one hand, […]342.
             (b)     On the other hand, […]343.
(405)    In terms of effects, SAASM GPS receivers are not an (important) input for the
         manufacture and supply of tactical grade IMUs, so there would be little (if any)
         impact on the IMUs market. Moreover, in the unlikely scenario where the
         merged entity would bring to the market a new integrated solution accepted by
         the weapon OEMs this is not necessarily a negative outcome. It would mean a
         new product on the market, and, possibly, competition for the complainant, in
         case already today the complainant can offer integrated solutions independent
         from the weapons OEMs.
342
    See Parties' reply to question 4 of RFI no.11.
343
    See Parties' submission of 11 April 2018.
                                                   82
 ---pagebreak--- 8.2.6.    Air data probes and Air data computers
(406)     UTC supplies air sensors and smart probes. UTC has a leading position in both
           of these markets, in particular with regards to the smart probe which is a
           relatively recent product first developed by UTC:
               (a)     In the overall market for air data probes, UTC has a market share
                       of [60-70]%, followed by Thales ([10-20]%) and Heico ([10-20]%). In
                       large commercial aircraft, UTC has a larger market share ([70-80]%)
                       and its main competitors are Thales ([5-10]%) and Heico ([5-10]%). In
                       business jets, UTC has a market share of [70-80]%, followed by
                       Safeflight ([20-30]%) and Esterline ([0-5]%). In military aircraft, UTC
                       has a market share of [70-80]% and its main competitors are Safeflight
                       ([10-20]%) and Transdigm ([5-10]%). In regional jets, UTC has a
                       lower market share ([50-60]%) and Heico ([20-30]%) and
                       Thales ([10-20]%) are its main competitors. Finally, in helicopters,
                       UTC has a market share of [30-40]% and its main competitors are
                       Thales ([30-40]%) and Safeflight ([10-20]%).
               (b)     In the overall market for (new) integrated air data systems (smart
                       probe), UTC has market share of [90-100]% followed by
                       Transdigm ([5-10]%) and Meggit ([0-5]%). In LCA and Regional Jets,
                       UTC has [90-100]%. In Business Jets, UTC has [90-100]% and
                       TransDigm has [5-10]%. In Military aircraft, UTC has [60-70]%,
                       Meggit has [20-30]% and Transdigm has [10-20]%.
               (c)     In case the air data probes market would also include smartprobes,
                       UTC's market share would be [70-80]%, followed by Thales and Heico
                       with [5-10]% each.
(407)     Rockwell Collins is not a supplier of either air sensors or smart probes.
          Rockwell Collins supplies air data computers on a stand-alone basis, but […].
          UTC sells air data computers to a […] platforms. The Parties estimate that their
          combined market share is [10-20]% (Rockwell Collins [10-20]% and
          UTC [0-5]%). The Parties main competitors in air data computers market are
          Thales ([30-40]%), Honeywell ([20-30]%) and Curtis-Wright ([10-20]%)344.
8.2.6.1. Complaint raised during the market investigation
(408)     A component OEM who supplies air data computers and recently entered the air
          data probes market (no turnover yet) argued that Rockwell Collins would be a
          significant sales channel for its air data probe business but post-merger
          Rockwell Collins would preferentially select UTC air data probes to the
          exclusion of other competitors345.
(409)     The complainant further argued that post-merger UTC would no longer have the
          incentive to supply its competitors with its probes.
344
     Parties' reply to question 8 of RFI no. 5.
345
     Complainant's reply to question 141.1 of Questionnaire to Competitors of Aircraft Systems; and
     Complainant's responses of 3 April 2018 to EC follow-up question of 26 March 2018.
                                                       83
 ---pagebreak--- (410)     Another component OEM who is present in the avionics market mentioned that
          the merged entity could bundle its smart probe with avionics making it more
          difficult to compete in the avionics market.
          (A)           Customer foreclosure concern
(411)     The merged entity has no ability to engage in customer foreclose in the air
          probes market. First, air data computer manufacturers are not the only customers
          or the primary customers for air data probes, but airframers are346.
(412)     Second, Rockwell Collins does not appear to have a sufficiently strong position
          in ADC to justify the customer foreclosure concern raised by the complainant.
          As mentioned, there are two other competitors (including the complaint) with a
          higher market share than Rockwell Collins and there are several other
          suppliers347. Third, as the complainant itself acknowledged two other OEMs,
          Transdigm/Aerosonic and Aeroprobe have entered the ADC market recently348.
(413)     The merged entity would also not have the incentive to engage in customer
          foreclose on the air probes market. First, Rockwell Collins […], but it sells its
          ADC predominantly on a stand-alone basis […]349. Second, the Parties
          submitted that ADC is […] for Rockwell Collins ([…]). Third, already today
          UTC […]. Going forward the merged entity is interested in […].
(414)     In terms of effects, without using Rockwell Collins as a channel for its air probe
          market, the complainant made an entry in this market securing two platforms.
          Even in case the merged entity will not procure air probes from the complaint it
          is difficult to envisage how this could negatively affect the complainant's
          business to any significant extent and consequently the overall air probe market.
          (B)           Input foreclosure concern
(415)     The merged entity will not have the ability or incentive to carry out an input
          foreclosure strategy.
(416)     First, air probes are not a necessary input for air data computers. As mentioned
          above air probes are usually selected by the airframers and not by the air
          computer manufacturers. Second, although UTC is the market leader of air
          probes, there are alternative suppliers. Third, the complainant itself has recently
          entered the market.
(417)     The merged entity will also have no incentive to engage in input foreclose of air
          data computer manufacturers. First, UTC's […] supply agreement where it was
          selected by a customer other than an airframer is the contract with the
          complainant. UTC has submitted that […]. Second, already today UTC supplies
          air sensors and some ADCs and it has never leveraged its position in air probes
346
    The vast majority of airframers confirm that they choose the air probe supplier – see replies to
    question 133 to the Questionnaire to Customers- Airframers.
347
    Respondents to the question 140 of the Questionnaire to Competitor of Aircraft Systems considered
    that although Rockwell Collins has an important position in the air data computer market there are
    many alternative suppliers of ADC.
348
    Complainant's reply to questions 140 and 141 of Questionnaire to Competitors of Aircraft Systems.
349
    […].
                                                     84
 ---pagebreak---           to gain a better position in the ADC market, indicating limited incentives to do
          so after the Transaction.
(418)     In terms of effects, the supply agreement between the complainant and UTC is
          [0-5]% of UTC business and therefore an […] of the air data probes market.
(419)     Finally, already today UTC supplies air data probes and air data computers
          together for two platforms. These offers represent [0-5]% of UTC business in air
          probes. There are other components OEMs that have the capability to supply
          both air probes and air computers (e.g. Thales, Transdigm) and some are present
          with both products in the same platform.
(420)     These integrated offers have not had the effect of foreclosing, or raising entry
          barriers in either the air probe market (where the complainant has just entered)
          or the air data computers market (where the complainant acknowledges two new
          entries)350.
          (C)           Smart probe and avionics
(421)     An OEM competitor explicitly referred to the possibility of the merged entity to
          bundle its smart probe with avionics to the detriment of the avionics
          competitors351.
(422)     It is unlikely that the merged entity would have the ability or the incentive to
          significantly harm competition in the avionics market by offering such
          commercial bundle.
(423)     First, UTC is the market leader in smart probes with high market shares.
          However there are no indications that UTC has attempted or been successful in
          leveraging its position in smart probes to increase its position in any other
          aircraft component, let alone that such strategies have resulted in foreclosure
          effects. Furthermore, airframers will usually procure air systems and avionics
          separately. Second, the value of SmartProbes is minimal compared to the value
          of avionics system, so a discount on SmartProbes would not be important
          enough to influence the selection of the avionics system. Third, already today
          there are avionics companies who have the capability to offer traditional air data
          systems and avionics (e.g. Thales and Honeywell) and this has not impeded
          other avionics companies without such capabilities from competing.
8.3.      Conglomerate links
8.3.1.    Introduction
(424)     The Commission has applied its analytical framework (described in
          section 8.3.2) to analyse certain general conglomerate considerations of this
          Transaction (section 8.3.3) before analysing the specific conglomerate links
          between the Parties’ activities in aircraft engines and avionics (section 8.3.4),
350
     According the Merger Non-Horizontal guidelines bundling or tying may have anti-competitive effects
     when it leads to the reduction of rival's ability or incentive to compete and/ or deters entry – See
     paragraphs 111 and 112.
351
     Complainant's reply to the Commission's questions of 26 March, 2018.
                                                        85
 ---pagebreak---           environmental control systems and galley cooling (section 8.3.5) and pilot
          controls, flight controls and actuation (section 8.3.6).
8.3.2.    Analytical framework
(425)     Pursuant to the Non-Horizontal Merger Guidelines,352 in most circumstances,
          conglomerate mergers do not lead to any competition problems. However,
          foreclosure effects may arise in conglomerate mergers when the combination of
          products in related markets may confer on the Merged Entity the ability and
          incentive to leverage a strong market position from one market to another
          closely related market by means of tying or bundling or other exclusionary
          practices.
(426)     The Non-Horizontal Merger Guidelines distinguish between bundling, which
          usually refers to the way products are offered and priced by the Merged Entity
          and tying, usually referring to situations where customers that purchase one
          good (the tying good) are required to also purchase another good from the
          producer (the tied good).
(427)     Within bundling practices, a distinction is also made between pure bundling and
          mixed bundling. In the case of pure bundling the products are only sold jointly
          in fixed proportions. With mixed bundling the products are also available
          separately, but the sum of the stand-alone prices is higher than the bundled
          price. Tying can take place on a technical or contractual basis. For instance,
          technical tying occurs when the tying product is designed in such a way that it
          only works with the tied product (and not with the alternatives offered by
          competitors).
(428)     While tying and bundling have often no anticompetitive consequences, in
          certain circumstances such practices may lead to a reduction in actual or
          potential competitors' ability or incentive to compete. This may reduce the
          competitive pressure on the Merged Entity allowing it to increase prices or
          deteriorate supply conditions in other ways. In this particular case regarding the
          combination of engines and avionics, the complainant has raised concerns of
          mixed bundling and technical tying.
(429)     In assessing the likelihood of such a scenario of conglomerate effects, the
          Commission examines, first, whether the merged firm would have the ability to
          foreclose its rivals, second, whether it would have the economic incentive to do
          so and, third, whether a foreclosure strategy would have a significant
          detrimental effect on competition, thus causing harm to consumers. In practice,
          these factors are often examined together as they are closely intertwined.
8.3.3.    General considerations on conglomerate effects of the Transaction
(430)     UTC and Rockwell Collins manufacture and market a broad range of systems
          and equipment for the aerospace industry. However, there are a number of
          factors that make foreclosure due to conglomerate effects of the Transaction
352
     Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control
     of concentrations between undertakings, Official Journal C 265 of 18/10/2008 ("Non-Horizontal
     Guidelines").
                                                     86
 ---pagebreak---           highly unlikely. A full overview of the market shares of the aircraft equipment
          and components where the Parties’ activities do not overlap but where their
          market shares exceed 30% are set out in Annex 1.
(431)     During the market investigation, market participants acknowledged the
          complementarity between the Parties’ portfolios and the limited degree of
          competition between them in general. Nevertheless, some market participants
          expressed the concern that the merged entity could have increased ability and
          incentive to tie or bundle aircraft components and systems, negatively affecting
          the ability of competitors with a smaller portfolio to compete, which could
          ultimately lead to a potential limitation of choice for customers. However, most
          of the voiced concerns were unspecific, without a concrete concept of how tying
          or bundling could materialize and how this could lead to harming competition.
          In addition, most market participants noted, equally on a general note, that the
          merged entity's ability to bundle or tie would ultimately depend on the
          airframers’ willingness to accept such bundled or tied offers.353
(432)     Taking a broader perspective on the importance of the merged entity as a
          supplier of aircraft components, and following on some market participants'
          feedback that UTC's market power could significantly increase after the merger
          through the sheer number of components they have installed on an aircraft,354
          the Commission notes that a bottom up calculation of the share of components
          provided by the parties on existing platforms355 amounts currently to an average
          of [20-30]% (with an average increment compared to the pre-merger situation of
          [5-10]% brought by Rockwell Collins). Although there is some variation
          between platforms and for a number of platforms the Parties' share of
          components as of the total can be higher, even the highest procurement share is
          below [50-60]%356. This indicates that, generally speaking, there are alternatives
          available that have been chosen by airframers for many different components on
          the aircraft.
(433)     The Notifying Party adds357 that o UTC and Rockwell Collins focus on different
          types, namely on SFE and BFE equipment respectively, as regards their non-
          overlap products. This in their view limits the bundling opportunities
          significantly for two main reasons: First, SFE and BFE products are sold to
          different customers (airfamers and airlines respectively), therefore, there is no
          scope for bundling. Second, the Transaction does not result in any significant
          increment to an existing portfolio of BFE products.
353
    See replies to questions 12, 19, 22, 23, 24, 26 and 161 of Questionnaire 1 -Competitors.
354
    Some indicated UTC could have a share of over [50-60]% of the total procurement cost of an aircraft,
    e.g. see replies to question 9 of Q3 - Questionnaire to customers –airframers, see also minutes of a
    call with a competitor on 16 January, 2018.
355
    See the Parties' replies to questions 26 and 27 of the Commission's RFI#1: Proportion of procurement
    cost of all equipment installed by the merged entity as a proportion of the total procurement cost of a
    platform. The calculation was carried out for the major 30 platforms where both Parties are present.
356
    Ibid. The highest shares can be noted for […], the merged entity's share is [40-50]% with an [5-10]%
    increment by Rockwell Collins, the following highest is reported to be on the […]
    ([30-40]%+[5-10]%) and on the […] ([20-30]% + [0-5]%).
357
    See the Notifying Party's reply to the question 23 'Conglomerate' of the Commission RFI#1 as of
    11 January, 2018.
                                                         87
 ---pagebreak--- (434)    UTC's only BFE products are: wheels & brakes and some comfort enhanced
         Cabin Attendant Seating. The Notifying Party sees bundling in general to occur
         between systems that fit or work together closely. And none of these products,
         in their view, is a good candidate to be bundled with Rockwell Collins' BFE
         products; avionics, commercial passenger seating, datalink network services and
         food & beverage systems. Therefore, any conglomerate theory should focus on
         SFE products.
(435)    The Notifying Party acknowledges358 that there is certain room for commercial
         bundling and quotes for instance a supply agreement with a regional jet
         manufacturer in 2012 where UTC [details of UTC's supply agreement and
         bidding strategy].
(436)    In this respect, the Notifying Party explains that smaller airfamers of regional
         and business jets more often seek to procure packages as they value the OEMs
         integration capacity, whereas large airframers, having more extensive own
         integration capacity, rather opt for individual packages.
(437)    To underline this, the Notifying Party notes that large airframers have the
         tendency of breaking up product packages, which they had tendered together
         previously. Rockwell Collins mentions a situation where, having bid on an RFI
         in 2013 for a large commercial airframer encompassing all pilot controls, where
         the package, after receipt for the offers, was divided into separate RFIs again for
         each pilot control.
(438)    In any case, the Notifying Party holds359 that there is no evidence that had UTC
         entered any commercial bundling practices, based on its already broad product
         portfolio pre-Transaction, they ever had any anti-competitive effect. The
         Notifying Party believes that airframers possess both the power and the
         incentive to reject any attempt at anti-competitive bundling or tying by suppliers
         because they would be directly harmed by any resulting reduction in
         competition.
(439)    Respondents to the market investigation in general confirmed that commercial
         bundling of different components is relatively rare in the industry, and that
         tenders are usually organised for each component separately, although replies
         were split and indicated that the presence of bundling was dependent on a
         variety of different factors: Market participants mentioned for instance that there
         could be a difference in the procurement strategies between the manufacturers of
         large commercial aircraft and of the regional and business jet segment, as the
         latter may not have the same level of integration capacity and are more inclined
         to tender or accept packaged solutions. They also added that it is difficult to
         generalise and bundling depends also on the functional or technical closeness of
         the products involved, e.g., an engine is more likely to be bundled with a
358
    See the Notifying Party's reply to the question 25 'Conglomerate' of the Commission RFI#1 as of
    11 January, 2018.
359
    Form CO, General Section, para 7.8.
                                                     88
 ---pagebreak---          nacelle360 than with a landing gear361, thereby largely confirming the Notifying
         Party's general arguments.
(440)    Airframers' practice of braking up previously tendered packages, as reported by
         the Parties, has been confirmed by over half of the responding airfamers,362 and
         this was also reflected in some of the bidding data analysed by the Commission,
         as described for instance in paragraph (295).
(441)    Respondents to the Commission's market investigation generally could not
         recall specific examples of the Parties' commercial bundling or tying in the past
         although each of the Parties, and in particular UTC, already supplied a range of
         aircraft components to the same customer base before the Transaction. In
         particular, the respondents did not report any instances where actual foreclosure
         effects occurred by reducing actual or potential competitors' ability and
         incentives to compete, including by making it harder for specific market entrants
         to win business, thus causing harm to competition.363
(442)    Rather, the responses reflect that as a general rule, the airframers, some of which
         may hold significant buyer power due to the concentrated structure of the
         market, are in the driving seat to formulate the scope of the tenders:364 "This
         practice is sometimes encountered, and is typically a strategic sourcing choice
         of each customer. It seems to be more common where a customer has a strategic
         preference for a small number of suppliers on a given program or for a given
         commodity. Such sourcing strategies vary from customer to customer and
         program to program."365 and: "This happens frequently (787, A350) where it
         benefits the customer, although aircraft manufacturers (primes) seem to be
         moving away from this"366.
(443)    The airframers' control over this process is further highlighted through the
         replies of competing equipment manufacturers, who confirmed having
         concluded all their supply contracts in the past 10 years as a result of a
         competitive selection process.367
(444)    Airframers in their replies seemed to be rather agnostic towards commercial
         bundling and maintained that there was generally no particular strategy with
         respect to commercial bundles, even if this was to reduce the purchase price of
         the equipment: According to these replies, the selection of any product
         depended on a number of several additional criteria built into the procurement
         process, not necessarily less important than price, such as the technical
         compliance, support arrangements or company experience.368 As a large
         airframer puts it: "[Airframer's] priority is to run a fair and equal tender
360
    Nacelles are aerodynamic structures that surround jet engines, anchoring them to the airframe, and
    provide thrust for the flight.
361
    See replies to questions 12 and 13 of Questionnaire 1 - Competitors; overall one third of competitors
    reported having ever made bundled offers.
362
    See replies to question 21 of Questionnaire 2 – Ariframers.
363
    See replies to question 14 of Questionnaire 1 - Competitors.
364
    See replies to question 24 of Questionnaire 1 - Competitors.
365
    A competitor's reply to question 12 of Questionnaire 1 - Competitors.
366
    A competitor's reply to question 12 of Q1 - Questionnaire to Competitors.
367
    See replies to question 6 of Questionnaire 1 - Competitors.
368
    See replies to questions 15, 16 and 26 of Questionnaire 2 – Airframers.
                                                       89
 ---pagebreak---          process. Such strategies will only be successful where all bidders have an equal
         chance to offer such multi-products packages."369
(445)    Many responding airframers therefore prefer to tender individual equipment but
         reportedly remain open to commercial bundles to be evaluated on a case-by-case
         basis. Even with a broader portfolio and an increased ability of UTC to offer
         bundled packages, airframers held that this alone was not sufficient to enable
         UTC to sell those packages to the airframers.370
(446)    Regarding technical tying, the Notifying Party submits371 that the aerospace
         industry uses standard communications protocols that allow the various aircraft
         systems to interoperate, and independent third parties establish these protocols.
         Components are connected via gateways using industry-standard
         communications protocols specified by the airframer. Any systems that used
         different (proprietary) communications protocols and thus would not
         interoperate with other suppliers’ systems would not meet airframer
         specifications and would be rejected by the airframers,
(447)    This was largely confirmed by the parties' competitors that held that airframers
         are conscious of the effect that accepting tied offers could have on the number
         of competitors they will be able to consider in current and future bids.372 Market
         participants also explained373 that airframers use very standard interfaces
         precisely in order to avoid the technical tying of systems. Technical tying
         increases their dependence on the supplier, decreases transparency and can
         significantly inflate the cost of maintenance as any replacement requirement will
         affect the entire system instead of a modular approach.374 As one competitor
         puts it with respect to tying for buyer furnished equipment; "a threat for their
         supply chain".
(448)    Some respondents were of the view that technical tying exists, in particular in
         case of regional or business jets; however, almost all added the caveat of the
         countervailing buyer power "as long as it is accepted by the aircraft
         manufacturer"375.
(449)    Furthermore, only a fraction of respondents to the Commission's market
         investigation identified products of the merged entity, which they considered to
         be unique, a 'must-have' or impossible to source from alternative suppliers376,
         which could help rendering a tying or commercial bundling scenario sufficiently
         successful.
369
    See a large airframer's reply to question 19 of Questionnaire 2 – Airframers.
370
    See a large airfmaer's reply to question 23 of Questionnaire 2 – Airframers.
371
    Form CO, General Section, para 7.89 ff.
372
    See replies to question 14 of Questionnaire 1 - Competitors.
373
    See replies to question 15 of Questionnaire 1 - Competitors.
374
    See replies to question 15 of Questionnaire 1 – Competitors and also minutes of a call with
    competitors on 11 April, 2018.
375
    See a competitor's reply to question 15 of Questionnaire 1 - Competitors.
376
    See replies to question 18 of Questionnaire 1 – Competitors, replies to question 22 of Q2 -
    Questionnaire 2 – Airframers.
                                                        90
 ---pagebreak--- (450)      Finally, competitors largely agreed that UTC will become by far the largest
           competitor but companies of large size and similar portfolio, namely Safran
           Group, GE and Honeywell would compete on par with the merged entity.377
8.3.4.     Aircraft engines and avionics
8.3.4.1. Complaints from market participants
(451)      A market player active in the avionics market expressed the concern that the
           combination of UTC's strength in engines and Rockwell Collins strong position
           in avionics would create an industry giant with an almost nose-to-tail offering
           across avionics and mechanical systems. The combined entity would gain an
           unrivalled ability to negotiate aggressively with airframers given its size,
           economic strength and strong portfolio, making it an almost unavoidable trading
           partner.378
(452)      According to this complainant, the combined UTC/Rockwell Collins will have
           significantly enhanced scale, bringing together UTC and RC's generally
           complementary portfolios. In particular, UTC would be able to combine its
           strength in propulsion (in relation to which it supplies engines for the range of
           thrust classes, including air transport at the highest end) and other areas,
           together with RC's strong suite of avionics products.379
(453)      From an economic perspective, the combined entity will have an increased
           incentive to seek to leverage its air transport propulsion offering in particular to
           bundle together engines with APUs, avionics safety systems, cockpit systems,
           and potentially other components at a discounted price. Offering engines and
           avionics products commercial bundles together with a limited discount on the
           engine (by far the largest cost item on the plane) would incentivize the
           customers to choose the merged entity's bundle with avionics. It would also be
           economically viable to do so, given that loss of margin on avionics products
           provided at low price or at cost can be recouped by securing sale of its
           propulsion products (being the vast majority of the value of the aircraft). Other
           avionics players have expressed the concerns regarding risks of commercial
           bundling of engines and avionics and how such a practice would impact their
           activities as a pure avionics supplier.380
377
     See replies to question 160 of Questionnaire 1 - Competitors.
378
     Responses to the European Commission’s follow-up questions dated 26 March 2018.
379
     The complainant also argues that their concerns are heightened given that UTC and Rockwell Collins
     reached on 16 March 2018a commercial agreement, with Boeing which according to public sources,
     are "win win agreements win-win agreements with each of them that bring value to our customers and
     support our companies’ competitiveness "The complainant believes that this agreement could
     negatively affect its ability (as well as other suppliers’ ability) to compete for Boeing’s business and
     is indicative of the combined entity’s market power which allows it to lock-in key customers to the
     exclusion of key competitors. More specifically, the complainant argues that the deal with Boeing is
     cross products and allegedly helps Boeing with its cost cutting objectives. The Commission has
     analysed these agreements and has not found any evidence that these agreements enable UTC and
     Rockwell Collins to bundle or tie products of their portfolio to foreclose rivals with a narrower
     portfolio.
380
     See replies to questions 19 and 161 of Questionnaire 1 - Competitors.
                                                          91
 ---pagebreak--- (454)   Another potential anticompetitive effect of the merger would be technical tying
        between engines and avionics. This complainant has explained that there is a
        possibility that the merged UTC/Rockwell Collins would develop an integrated
        solution of engines and avionics, based on data exchange between the two
        components that would improve the performance of the engine. The more data
        that can be shared between systems will improve the fuel efficiency, operating
        cost and maintenance requirement of the engine. For instance, the avionics
        products collect information about the weather, the flight path and the weight of
        the plane that could be used to optimize the performance of the engine. Data-
        sharing and a deeper understanding of how the two sub-systems work could
        significantly improve engine performance.
(455)   In particular, the complainant has expressed a specific concern with respect to
        the degradation of compatibility between UTC engines with competitors’
        avionics products. The improved integrated offer of engines and avionics could
        be designed in such a way that the engine of UTC would not work at all or
        would work less well when combined with a competitor’s avionics products.
        This could lead to foreclosure of avionics competitors.
(456)   The engine and the avionics interact already today. However, that interaction is
        limited to command/control and not much information is actually shared
        between the components. Increased information sharing through proprietary
        interconnectivity standards could favour avionics system that interact more in
        depth with UTC engines and lock out other avionics suppliers.381
(457)   Finally, the complainant has explained that the Transaction and the combination
        of engines and avionics would provide the merged entity with a timing
        advantage. In general, the airframer will set the schedule for tenders of
        components. The engine is usually chosen first and many parts of an aircraft will
        fundamentally be connected to this engine once it is chosen. Therefore the
        engine defines much of the architecture of an aircraft from the very first day.
        The risk would be that this early procurement of UTC engines would either
        (i) allow the merged entity to understand the requirements/architecture required
        by the airframer for its other components earlier than other firms, and therefore
        be able to use this insight to develop better offerings for the customer before
        other competitors, or (ii) enable the customer to default towards an
        engine/avionics bundle without going to tender at all to save time in the
        procurement process.382
(458)   In terms of effects on competition in avionics, assuming the complainant is
        locked out from winning business in avionics because of these practices, it will
        be difficult for the complainant to stay in the market. Since bids for new
        platforms are rare, the complainant would not have to lose out on many bids to
        feel an effect. The long-term nature of the industry requires that investment in
        research and development takes place far ahead of aircraft programmes, and
        there is a certain level of foresight required.
381
    Non confidential minutes of a call with the complainant on 4 April 2018.
382
    Non confidential minutes of a call with the complainant on 4 April 2018.
                                                      92
 ---pagebreak---  ---pagebreak---           models, the Boeing 787 Dreamliner, the Boeing 747-8, and the Airbus A380.
          CFMI sells the CFM56 engine that powers the Airbus A340, Airbus A320
          (classic) family as an option and the Boeing 737 (classic), as well as the LEAP-
          engine that powers the Airbus A320neo as an option, the Boeing 737 MAX on
          an exclusive basis, and the COMAC C919 on an exclusive basis.
(462)     Rolls- Royce is also active in this market for large commercial aircraft, with a
          portfolio covering the Airbus A330neo, the Airbus A350, the Boeing 787
          Dreamliner family (as an option), and the Airbus A380 (as an option).
(463)     For large commercial aircraft, Rockwell Collins holds a market share of
          [30-40]% in avionics, on par with Honeywell ([30-40]%) and ahead of Thalès
          ([10-20]%). Other suppliers (GE avionics, L3, Teledyne) have shares [0-5]%. A
          segmentation by avionics component would not dramatically change the picture,
          with Rockwell Collins being […] in satellite communications, communications,
          navigation, multi-mode receiver GPS and weather systems, and Honeywell […]
          in collusion avoidance, flight management systems and flight control electronics
          (where Rockwell Collins […]), information management and communications
          management units
          (A.ii)       Regional and business jets
(464)     In engines for regional and business jets, UTC has a stronger position in engines
          with a combined share of [20-30]% in value and [50-60]% in volumes for both
          engines in service and backlog orders. UTC supplies several types of engines for
          regional aircraft and business jets which are available on various platforms of
          Bombardier, Gulfstream, Embraer, Cessna and Mitsubishi. This share also
          reflects the fact that UTC [information on UTC's participation in recent tenders].
          For these three platforms, the avionics supplier has already been selected
          (Honeywell for the Embraer platform, Rockwell Collins for the Mitsubishi and
          Bombardier platforms).
(465)     For regional and business jets, Rockwell Collins holds a market share of
          [40-50]% in avionics, ahead of Honeywell ([30-40]%), Thalès ([10-20]%) and
          Garmin ([5-10]%). A segmentation by avionics component would not lead to
          significantly differences in market shares.
(466)     One area of regional/business jets where UTC is particularly strong is turboprop
          engines where they would hold a share of [70-80]% for regional turboprop and
          more than [90-100]% for business turboprop. These shares are high because
          UTC has won competitions for old platforms (ATR 42, ATR 72 and Bombardier
          400) years ago. There are therefore not necessarily indicative of UTC's capacity
          to win any new business for a new turboprop platform, should an airframer
          decide to committing to launch one (which is not the case for the moment). In
          the event that a new platform is launched, it is likely that new suppliers would
          emerge as engines manufacturers such as GE which has announced working on
          a new generation turboprop engine.384
384
    See for example Flight Global 27 December 2017 GE completes first ground test of Advanced
    Turboprop engine available at https://www flightglobal.com/news/articles/ge-completes-first-ground-
    test-of-advanced-turboprop-444489/.
                                                     94
 ---pagebreak--- (467)    In any case, the Commission has not defined in the past avionics market in
         relation to the types of engines that power the aircraft (turboprop or turbofan)
         but rather pursuant to the mission profile of the aircraft. Moreover, the
         Commission has not found that avionics for aircraft powered by turboprop
         engines would be significantly different from avionics for aircraft powered by
         turbofan engines, assuming that the mission profile is the same. There is thus no
         market for avionics used in aircraft powered by turboprop engines, in which the
         merged entity could try to leverage potential market power in turboprop engines.
         Rather, any effect of potential foreclosure practices needs to be assessed on the
         relevant markets for avionics in business/regional aircraft where the merged
         entity's market power is insufficient for such strategies to succeed and result in
         foreclosure of competitors. Furthermore, making it more difficult for
         competitors to sell avionics products on regional or business aircraft powered by
         turboprop engines is unlikely to lead to any foreclosure effects on the markets
         for avionics for regional and business aircraft as a whole (taking also into
         account that research and development efforts are not tailored or focused
         specifically on avionics sold on aircraft powered by turboprop engines).
(468)    The Notifying party has explained that all the regional jet procurements for
         aircraft systems have already taken place, notably those won by UTC such as
         the Embraer E2 family, the Bombardier C Series, the Mitsubishi MRJ, and the
         Irkut MC-21. There are no plans by any airframer to build a new regional jet in
         the foreseeable future. All the platforms identified paragraph (464) are still
         forthcoming or very recently introduced. Successful airframe programs have a
         useful production life-span of 15-20 or more years. No airframer will introduce
         a new jet into this extremely crowded market for at least that much time. As a
         result, even if UTC had market power in regional jet engines, it would have no
         opportunity to leverage this position to sell other products for many years.385
(469)    There are other players active in this market for engines for regional and
         business jets, such as GE (active in regional and business jets), Honeywell
         (active in regional and business jets), Rolls-Royce (active in regional and
         business jets with a strong presence in large business jets) and Williams
         International (active mainly in small business jets). Two of these players are
         already active in engines and avionics and could provide alternatives to the
         combination of the merged entity.
(470)    Moreover, the avionics market for regional and business jets, on which UTC
         enjoys a market share of [50-60]% represents ¼ of the overall avionics market
         ([…] out of […] overall), avionics for LCAs accounting for the remainder.
         Avionics for regional jets, in which UTC has recently won bids for engines,
         account for less than one third of the overall regional/business jets avionics
         market ([…]). Therefore the incentives of UTC to engage into foreclosure
         practices are restricted by the fact that its market power, if any, is limited to a
         minor part of the overall avionics market.
385
    See "Response to EC state of play meeting - Potential concern engines /avionics" April 10, 2018.
                                                      95
 ---pagebreak---          (B)            Commercial bundling is not a regular feature of the industry and
                        timing of the procurement process is in the hands of the airframer
(471)    The Notifying Party has explained that airframers control every aspect of the
         systems procurement process, often driven by the cadence of engineering
         decisions inherent in aircraft design: they establish the specifications of each
         component and system being procured, set the bidding timing and process, and
         invite the suppliers who can participate in any procurement opportunity.
         Airframers are sophisticated purchasers who have every incentive to maintain a
         competitive supplier base and the means to ensure this. These realities prevent
         any effort by aerospace system suppliers to engage in anticompetitive
         bundling/foreclosure strategies.
(472)    This control of airframers has been confirmed by respondents to the market
         investigation, as explained in section 8.3.3. In general, airframers are reluctant
         to source bundled offers and prefer to select different suppliers to ensure a high
         level of competition. Bundled offer are sometimes proposed but they are in
         general unsolicited and the airframer would consider if only it matches its
         objectives in terms of cost efficiency and system integration. Airframers also
         control the timing of the procurement process in full and are unlikely to be
         influenced by the capacity of a supplier to propose engines and avionics at the
         same time.
(473)    Even when airframers request offers for bundles of related systems (as described
         in more detail below for the Embraer example), they remain free to and
         routinely do break up such packages. The current trend is toward airframers
         procuring more systems individually from more different suppliers, not the
         opposite. Bundled offers also often require the supplier to also be the systems
         integrator, responsible for all testing and simulation of aircraft performance.386
(474)    The Commission's investigation has not brought up evidence on relevant
         examples of commercial bundling of engines and other products in the last
         years, neither from the Parties nor from other suppliers active in engines and
         avionics such as Honeywell and to a lesser extent GE (and accordingly has not
         brought up evidence of any actual foreclosure effects). An example which was
         mentioned by the complainant was the procurement decision of Embraer for its
         E-Jet series. According to the complainant, UTC was selected to provide a
         bundle comprising Pratt & Whitney engines and APU, primary and secondary
         electrical distribution systems, emergency electrical generation systems,
         batteries and converters and wheels and carbon brakes. However, UTC has
         explained that [details of UTC's supply agreement].387
(475)    The fact that bundling is an uncommon feature of the aerospace industry is
         further confirmed by the situation of Honeywell in business jets. Honeywell is
         one of the suppliers of business jets engines and also competes with Rockwell
         Collins in avionics. Should customers require and obtain bundled discounted
         offers combining engines and avionics, one would expect Honeywell to be
         present in the same platforms for engines and avionics. The reality is that, as
386
    See replies to question 17 of Questionnaire 2 - Airframers.
387
    Fom CO, General section, para 7.57.
                                                        96
 ---pagebreak---          shown in the table below Honeywell supplies engines and avionics systems for
         several corporate jet platforms, but it almost never supplies both products for the
         same platform.
                 Table 3 - Engines and avionic supplier by business jets platform
(476)    In terms of future plans, [reference to the Parties' internal documents].
         (C)           As regards technical tying, it is highly speculative that industry will
                       move towards technical integration of engines/avionics
(477)    The Commission's investigation has not brought up specific evidence that the
         aerospace industry is moving towards tighter integration between engines and
         avionics.
(478)    An engine supplier has put forward that the engines and avionics systems are
         currently rather isolated from each other. In particular certification for each of
         these systems takes place separately. This is the case for strict safety reasons.
         The engine must be able to control itself in normal operation in all modes of
         failure, and must work independently to run or shut itself down safely.
(479)    The engine has its own 'computer', known as the FADEC. Only the FADEC is in
         complete control of the engine. The data that this outputs includes for instance
         temperature and RPM, but not linked to any avionics.
(480)    The potential advantage of linking the engines and avionics systems is that the
         FADEC footprint would be substantially reduced. The FADEC is currently quite
         a large box whose weight and size must be accounted for, materially affecting
         the operation of the aircraft.
(481)    In order to link more closely the engine with the avionics, however, the
         certification process would need to change, and the company proposing this
         would need to work with regulators to rewrite the regulation behind this. The
         substantial amount of investment that would be required and the above
         mentioned technical barriers to certification represent significant obstacles to
         achieve this closer integration.388
(482)    There is an ever-increasing breadth of frequency and number of sensors on the
         engine, and hence the amount of data being transmitted is also increasing. Over
         time, the process has evolved from capturing a few data points to more
         automated, rule-based capture of a much larger data set. This does not mean,
         however, that avionics are more deeply integrated with engines as there might
         be interferences with safety-critical functions of the engine.389
(483)    The Parties [details of the Parties’ current and future R&D programs].390
388
    See minutes of a call with an engine manufacturer on 20 April 2018.
389
    See minutes of a call with an engine manufacturer on 20 April 2018.
390
    See reply to RFI 18 submitted on 23 April 2018.
                                                      97
 ---pagebreak--- (484)    In terms of future plans, [reference to the Parties’ internal documents].
         (D)           Customers are likely to oppose any proprietary communication
                       systems that would more closely connect engines and avionics
(485)    Currently, the ARINC 429 communication protocol applies to bidirectional
         communications between the FADEC (on the engine) and the avionics Data
         Management Cabinet ("DMC") for the following functions: (i) autoflight;
         (ii) autothrottle; and (iii) thrust management / flight management, to support
         coordinated flight manoeuvres. The FADEC communicates with the avionics
         displays for display indications such as turbine speed. ARINC 429 is the
         standard protocol for communication between engines and avionics.
(486)    The Notifying Party has explained that the engine interoperates with different
         parts of the avionics system through these industry-standard communication
         protocols that are specified by the airframer. This precludes according to the
         Notifying party any possibility of technical tying – systems (including engines
         and avionics) that do not meet airframers’ specifications for the communications
         interface with the rest of the aircraft, and in particular with major systems such
         as engines and avionics, would never be selected by an airframer. Airframers
         would not allow their freedom to select and change suppliers to be limited by
         suppliers’ using non-standard or proprietary communications protocols.391
(487)    Other engines manufacturers have confirmed during the market investigation
         that airframers seek to maintain standard protocols between engines and
         avionics. One engine manufacturer has put forward that the ultimate arbiter of
         the relationship between the engine and avionics will be the airframer, who will
         likely prefer more adapted communications systems over more closed systems.
         The airframer will have a strategy according to which they will place
         requirements on the components manufacturer to comply with and the merged
         entity is not in a position to influence this choice.392
(488)    Another engine manufacturer has explained that airframers exert a lot of control
         in this market and tend to prefer a greater range of options and more openness.
         This supplier airframers are the driving force behind openness in the market.
         They expect airframers to continue to play this role in the future, as if they do
         not they will be at a disadvantage, having to pay higher prices and potentially
         getting locked in to supply from a single provider. If costs increase because of
         proprietary standards, airframers will not be interested in engaging and will
         continue to prefer open standards for communication.393
         (E)           Overall conclusion on conglomerate effects engines/avionics
(489)    The Commission therefore consider that the Transaction does not raise serious
         doubts as regards conglomerate effects resulting from the combination of UTC's
         engines and Rockwell Collins 'avionics.
391
    See reply to RFI 14.
392
    Non confidential minutes of a call with an engine manufacturer on 20 April 2018.
393
    Non confidential minutes of a call with an engine manufacturer on 20 April 2018.
                                                       98
 ---pagebreak--- 8.3.5.    Environmental control systems and galley cooling
(490)     UTC is active in environmental control systems (“ECS”), which manage the
          flow of air within the aircraft, which helps to regulate cabin temperature and
          cabin pressure, as well as to prevent ice from forming on flight surfaces and
          components.
(491)     UTC has market share of circa [30-40]% in an overall market. If a segmentation
          by aircraft type is retained, UTC's market share varies between [40-50]% in
          large and regional jets and [20-30]% in military aircraft. UTC's present in
          helicopters and in business jets is not significant with a market share of [0-5]%
          and below [0-5]%, respectively. If a segmentation by type of system function is
          retained, UTC's market shares vary from almost [60-70]% in cabin pressure to
          [10-20]% in bleed air systems. UTC has a market share of circa [40-50]% in air
          conditioning and circa [30-40]% in ventilation systems.
(492)     Rockwell Collins is active in food and beverage preparation and storage
          equipment (“FBPSE”) with a [70-80]% market share. FBPSE includes products
          such as ovens, refrigerators, and coffee machines for installation in aircraft
          galleys. One type of such inserts is aircraft galley air chillers.
(493)     Although ECS and cooling galley system are totally unrelated in terms of
          manufacturing process, the cooling of food or beverages can be done by the
          ECS directly, via the ventilation system394 (in which case supplemental galley
          chillers are not required). When the cooling of food or beverages is done by the
          cooling galleys the interaction between the ECS and the supplemental cooling is
          limited to the ducting of the exhaust of the latter into the exhaust of the
          former395.
(494)     An ECS competitor of UTC expressed the concerned that the merged entity
          could harm its competitors in the ECS market by bundling these products.
(495)     It is not likely that the merged entity will have the ability or incentive to
           significantly impede competition in the ECS market by offering commercial
           bundles of ECS and galley cooling for the following reasons.
               (a)    First, UTC has a market share of around [30-40]% in the ventilation
                      system (and in the overall ECS market) and there are several other
                      suppliers, one of them with market share around [20-30]% in the
                      ventilation system (and two others with market shares of around
                      [20-30]% in the overall ECS market).
               (b)    Second, while ECS is a SFE, galley cooling is a BFE, so each product
                      is sold to a different customer.
               (c)    Third, already today UTC offers an ECS with a food and beverage
                      trolley cooling function and can thus offer this functionality without
                      Rockwell Collins’ aircraft galley air chillers. Zodiac also supplies ECS
394
     See Form CO, section ECS, para. 6.3.
395
     Parties reply to RFI no. 17.
                                                    99
 ---pagebreak---                       and FBPSE, including aircraft galley air chillers 396. Liebherr offers an
                      addition on-board cooling system for food storage or avionics thermal
                      management in addition to its air conditioning system397.
8.3.6.    Pilot controls, flight controls and actuation
(496)     Some market participants saw UTC strong in actuation, especially in THSAs,
          and in pilot controls, while they saw Rockwell Collins strong in flight control
          electronics, THSAs and pilot controls. Therefore, some market participants
          argues, the merged entity could offer the entire flight control system to
          customers.398 According to some respondents to the Commission's market
          investigation, combining pilot controls, flight control electronics and actuation
          products would provide the merged entity with a competitive advantage399. To
          the extent that the OEM would be willing to contract for an entire system
          solution, that combination could become a natural bundle according to some
          market participants.400
(497)     Most of the responses remained vague in terms of potential harmful effects on
          competition however, The Commission notes in particular that few competitors
          thought this bundled offer of UTC could harm competition, notably by
          rendering smaller competitors' single product offers less attractive thereby
          depriving them of the necessary cash flows for continued viability and making it
          more difficult for them to compete.401 Most competitors mentioned rather that
          the complementarity of its product offering would enable the merged entity to
          design a better product offering, with optimised and more efficient performance
          together with higher discounts, which would translate into a competitive
          advantage.402
(498)     Taking into account the divestments under the commitments discussed in
          section 9 according to which all of Rockwell Collins' activities in pilot controls
          and actuation (THSAs) will be divested, the Transaction would be limited to
          leading to a new combination of Rockwell Collins' activities in flight control
          electronics on the one hand and UTC's activities in pilot controls and actuation,
          including THSAs, on the other hand.
(499)     The Commission finds, however, that the merged entity would have insufficient
           market power and therefore no ability to foreclose competitors through the use
           of bundling or tying in pilot controls, actuation and flight control electronics.
           The commitments offered by UTC divesting the entire product overlap in
           THSAs and pilot controls would in any case prevent the merged entity from
396
     Parties reply to RFI no. 17.
397
     See     Liebherr's    site:   https://www.liebherr.com/en/deu/products/aerospace-and-transportation-
     systems/aerospace/products-and-solutions/air-management-systems/air-management-
     systems.html#!/accordion-start-module=supp-cooling-acc-item-start-module.
398
     See replies to questions 19 and 40 of Q1- Questionnaire to Competitors.
399
     See minutes of a call with a competitor on 19 December, 2017. See minutes of a call with a
     competitor on 4 January, 2018.
400
     See reply of a competitor to question 39 of Questionnaire 1 – Competitors and replies to question 63
     of Questionnaire 1 - Competitors.
401
     See reply of a competitor to question 19 of Questionnaire 1 - Competitors.
402
     See replies to questions 40 and 41 of Questionnaire 1 - Competitors.
                                                        100
 ---pagebreak---          developing significant market power in any of the products involved a potential
         bundle:
         (a)       Rockwell Collins' market share in flight control electronics was
                   [50-60]% in regional and business aircraft while its market share was
                   [0-5]% in large commercial aircraft in 2016. Rockwell Collins' strongest
                   competitor in flight control electronics is Honeywell with a market share
                   in flight control electronics of [30-40]% in large commercial aircraft and
                   of [20-30]% in regional and business aircraft in 2016. Other competitors
                   include Garmin, GE, Universal and Teledyne.403
         (b)       Taking into account the divestment of Rockwell Collins' entire activities
                   in pilot controls under the commitments (see section 9), the merged
                   entity's market share was [20-30]% in all types of pilot controls in LCA
                   and less than [5-10]% in each of regional, business and military aircraft
                   in 2016 (including, among others, a market share of [0-5]% in RBPS,
                   [10-20]% in TQAs and [40-50]% in side sticks and [0-5]% centre yokes
                   in 2016 as set out in section 8.1.3).
         (c)       Taking into account the divestment of Rockwell Collins' entire activities
                   in THSAs under the commitments (see section 9), the merged entity's
                   market share was [40-50]-[60-70]% in THSAs in 2016. As regards other
                   actuation products, the merged entity' market share was [20-30]% in
                   primary flight control actuation (equal in size to competitors Moog and
                   Parker), and [30-40]% in secondary flight control actuation in 2016.404
(500)    Those market shares are not indicative of the significant degree of market power
         required to have the ability to foreclose competitors through bundling or tying
         strategies. (i) As regards large commercial aircraft, the situation would hardly
         change compared to the situation before the Transaction since no current
         Rockwell Collins business in flight control electronics would be added to UTC's
         activities in pilot controls and actuation. (ii) As regards regional, business and
         military aircraft, the merged entity's capabilities in pilot controls are […] limited
         at less than [5-10]% while it will continue to face at least one strong competitor,
         Honeywell, in the sale of flight control electronics and a number of competitors,
         including the Divestment Business, in the sale of pilot controls and THSA.
         Furthermore, those products from Rockwell Collins on the one hand (flight
         control electronics) and UTC on the other hand (pilot controls and actuation)
         were generally not singled out by market participants as unique products or
         'must-have' products or as products for which no alternatives could be found in
         the market (also taking into account the divestments under the commitments).405
(501)    Furthermore, as set out earlier in sections 8.3.3 and 8.3.4, airframers' control of
         the procurement process make successful foreclosure strategies unlikely.
(502)    Moreover, Rockwell Collins already had capabilities in flight control
         electronics, THSAs and pilot controls before the Transaction […]. Similarly,
403
    Form CO, Annex RFI2 [Avionics] – Q5.
404
    Form CO, Other Products, page 231.
405
    See replies to question 18 of Questionnaire 1 - Competitors., replies to question 22 of Questionnaire 2
    – Airframers.
                                                      101
 ---pagebreak---           none of Rockwell Collins' potential past strategies has resulted in foreclosure of
          competitors in either of flight control electronics, THSAs or pilot controls. This
          indicates that the merged entity would not have incentives to engage in
          foreclosure after the Transaction.
(503)     As an answer to a potential commercial bundling strategy by the merged entity
          on the other hand, a number of competitors indicated that they would resort to
          finding partners for developing similar packages and engage in joint bidding.406
9.        PROPOSED REMEDIES
9.1.      Analytical Framework
(504)     The following principles from the Remedies Notice407 apply where parties to a
          merger choose to offer commitments in order to restore effective competition.
(505)     Where a concentration raises competition concerns in that it could significantly
          impede effective competition, in particular as a result of the creation or
          strengthening of a dominant position, the parties may seek to modify the
          concentration in order to resolve the competition concerns and thereby gain
          clearance of their merger408.
(506)     The Commission only has power to accept commitments that are capable of
          rendering the concentration compatible with the internal market in that they will
          prevent a significant impediment to effective competition in all relevant markets
          where competition concerns were identified409. To that end, the commitments
          have to eliminate the competition concerns entirely410 and have to be
          comprehensive and effective from all points of view411.
(507)     In assessing whether proposed commitments are likely to eliminate its
          competition concerns, the Commission considers all relevant factors including
          inter alia the type, scale and scope of the commitments, judged by reference to
          the structure and particular characteristics of the market in which those concerns
          arise, including the position of the parties and other participants on the
          market412. Moreover, commitments must be capable of being implemented
          effectively within a short period of time413.
406
     See replies to questions 21, 23 and 44 of Questionnaire 1 - Competitors.
407
     Commission's Notice on Remedies acceptable under Council Regulation (EC) No 139/2004 and under
     Commission Regulation (EC) No 802/2004 ("Remedies Notice"), OJ C 267, 22.10.2008, p. 1.
408
     Remedies Notice, paragraph 5.
409
     Remedies Notice, paragraph 9.
410
     Case C-202/06 P Cementbouw Handel & Industrie v Commission [2007] ECR 2007 I-12129,
     paragraph 54: “it is necessary, when reviewing the proportionality of conditions or obligations which
     the Commission may, by virtue of Article 8(2) of Regulation No 4064/89, impose on the parties to a
     concentration, not to determine whether the concentration still has a Community dimension after
     those conditions or obligations have been complied with, but to be satisfied that those conditions and
     those obligations are proportionate to and would entirely eliminate the competition problem that has
     been identified”.
411
     Remedies Notice, paragraph 9 and 61.
412
     Remedies Notice, paragraph 12.
413
     Remedies Notice, paragraph 9.
                                                       102
 ---pagebreak--- (508)    Where a proposed concentration threatens to significantly impede effective
         competition the most effective way to maintain effective competition, apart from
         prohibition, is to create the conditions for the emergence of a new competitive
         entity or for the strengthening of existing competitors via divestiture by the
         merging parties414.
(509)    The divested activities must consist of a viable business that, if operated by a
         suitable purchaser (hereinafter referred to as 'Purchaser'), can compete
         effectively with the merged entity on a lasting basis and that is divested as a
         going concern. The business must include all the assets which contribute to its
         current operation or which are necessary to ensure its viability and
         competitiveness and all personnel which are currently employed or which are
         necessary to ensure the business' viability and competitiveness415.
(510)    Personnel and assets which are currently shared between the business to be
         divested and other businesses of the parties, but which contribute to the
         operation of the business or which are necessary to ensure its viability and
         competitiveness, must also be included. Otherwise, the viability and
         competitiveness of the business to be divested would be endangered. Therefore,
         the divested business must contain the personnel providing essential functions
         for the business such as, for instance, group R&D and information technology
         staff even where such personnel are currently employed by another business unit
         of the parties —at least in a sufficient proportion to meet the on-going needs of
         the divested business416.
(511)    Normally, a viable business is a business that can operate on a stand-alone-basis,
         which means independently of the merging parties as regards the supply of input
         materials or other forms of cooperation other than during a transitory period417.
(512)    The intended effect of the divestiture will only be achieved if and once the
         business is transferred to a suitable Purchaser in whose hands it will become an
         active competitive force in the market. The potential of a business to attract a
         suitable Purchaser is an important element already of the Commission's
         assessment of the appropriateness of the proposed commitment. In order to
         ensure that the business is divested to a suitable Purchaser, the commitments
         must include criteria to define the suitability of potential Purchasers. This will
         allow the Commission to conclude that the divestiture of the business to such a
         Purchaser will likely remove the competition concerns identified418.
9.2.     Description of the proposed remedies
(513)    In order to render the concentration compatible with the internal market, the
         undertakings concerned have modified the notified concentration by entering
         into the following three packages of commitments, which are annexed to this
         decision and form an integral part thereof.
414
     Remedies Notice, paragraph 22.
415
     Remedies Notice, paragraph 23-25.
416
     Remedies Notice, paragraph 26.
417
     Remedies Notice, paragraph 32.
418
     Remedies Notice, paragraph 47.
                                                103
 ---pagebreak--- (514)    The Notifying Party submitted commitments pursuant to Article 8(2) of the
         Merger Regulation on 12 April 2018 ('the Commitments of 12 April 2018'). The
         Commission subjected these commitments to a market test. The market test
         indicated that the Commitments of 12 April 2018 needed to be completed to
         entirely eliminate the concerns raised by the Transaction.
(515)    In order to address the issues raised in the market test, the Notifying Party
         submitted a final set of commitments on 26 (for oxygen) and 30 April 2018 (for
         THSA PC as well as IP, together with oxygen 'the Final Commitments').
9.2.1.   THSA and pilot controls
(516)    The remedies contain the divestment of Rockwell Collins' ('the THSA-PC
         Divestment Business'):419
            (a)    Trimmable Horizontal Stabilizer Actuators business, which includes
                   THSAs, legacy flap actuation, and nose wheel steering gear boxes;
            (b)    Pilot control systems business, which includes center yokes, rudder
                   brake pedal units, throttle quadrant assemblies, auto-throttles and
                   control stand modules; and
            (c)    'Special Products' business, which includes inter alia fuel sticks, waste
                   water drain valves, aircraft ground support couplings, and ground
                   service couplings.
(517)    Relating to these product businesses, the Commitments further contain all
         tangible and intangible assets and personnel.
(518)    The THSA-PC Divestment Business is currently spread over eight sites in the
         United States, Mexico, India and France420. For the purpose of the divestment, it
         will be concentrated on three sites (Irvine, Melbourne (both United States) and
         Mexicali (Mexico)), whereas all other Rockwell Collins' activity relating to this
         business will be transferred to these three sites or replaced accordingly421.
         Conversely, the activities carried out on these sites and that are unrelated to the
         THSA PC Divestment Business will be extracted from these sites by way of a
         reverse carve-out. The exact implementation of the measures is partly at the
         discretion of the Purchaser.
9.2.2.   Ice protection systems
(519)    The remedies contain the divestment of Rockwell Collins' SMR Technologies
         business, ('the IP Divestment Business') which manufactures Rockwell Collins'
         pneumatic ice protection systems and other ice protection products, along with
         inter alia fuelling systems and other industrial products, hovercraft skirts,
         composites and commercial aviation products422.
419
     Commitments of 12 April 2018 – THSA/Pilot Controls/Special Products – Schedule, para. 1.
420
     Form RM – THSA/Pilot Controls/Special Products - para.27.
421
     Commitments of 12 April 2018 – THSA/Pilot Controls/Special Products – Schedule, para. 2.
422
     Commitments of 12 April 2018 – Ice Protection – Schedule, para. 1.
                                                     104
 ---pagebreak--- (520)    Relating to these product businesses, the Commitments further contain all
         tangible and intangible assets and personnel.
(521)    The only site of SMR Technologies is located in Fenwick (West Virginia,
         United States) that will be completely divested, except for the WEMAC product
         line (e.g., air gasper valves, interior signage components, etc.) and related
         equipment and machinery. The WEMAC product line is not related to other
         activities carried out in Fenwick […]. It will be carved out and retained by
         Rockwell Collins423.
9.2.3.   Oxygen Systems
(522)    The remedies contain the divestment of UTC's oxygen research ('the Oxygen
         Divestment Business') and development programs, including all intangible
         assets, such as intellectual property rights; all research and development
         contracts of the research and development programs concerning the "[…]
         Oxygen Program" and the "[…] Oxygen Program" as well as the personnel
         ([…])424.
(523)    Moreover, the Parties agreed not to close the Transaction before they have found
         a buyer for the oxygen programme (upfront buyer clause).
9.3.     Assessment of the proposed remedies of 12 April 2018
9.3.1.   THSA and pilot controls
9.3.1.1. The Notifying Party's arguments
(524)    In the Parties' view, the Commitments of 12 April 2018 are sufficient to remove
         the competition concerns identified by the Commission.
(525)    The Parties maintain that the THSA-PC Divestment Business creates the
         conditions for the emergence of a new competitive entity, or the strengthening
         of an existing competitor, in the area of THSA, pilot controls and Special
         Products. In their view, the aforementioned competitor will be capable, at the
         minimum, of replicating the current competitive interaction (to the extent
         applicable) between Rockwell Collins and UTC425, as the THSA-PC Divestment
         Business comprises the entire (global) business of Rockwell Collins relating to
         THSA, pilot controls and Special Products. The Parties consider that the
         Divestment Business goes beyond the concerns identified by the Commission426.
(526)    The Parties offer to enter into transitional agreements with the Purchaser where
         necessary to implement the transfer of the Divestment Business assets as quickly
         as possible427.
423
     Commitments of 12 April 2018 – Ice Protection – Schedule, paras. 2 and 4.
424
     Commitments of 12 April 2018 – Oxygen Systems – Schedule, paras. 1 and 2.
425
     Form RM – THSA/Pilot Controls/Special Products - para.14.
426
     Form RM – THSA/Pilot Controls/Special Products – paras. 15 and 16.
427
     Form RM – THSA/Pilot Controls/Special Products – para. 9.
                                                     105
 ---pagebreak--- 9.3.1.2. The Commission's Assessment
(527)     The Commission's assessment focused on (i) whether the Commitments of
          12 April 2018 were sufficient to remove the competition concerns caused by the
          Transaction in terms of horizontal overlaps; (ii) whether the Divestment
          Business of 12 April 2018 constituted a viable business able to compete
          effectively with the merged entity a lasting basis; (iii) whether there were
          specific conditions that a potential purchaser should fulfil and (iv) whether the
          Divestment Business of 12 April 2018 was sufficiently attractive to find a
          suitable purchaser.
(528)     On 17 April 2018, the Commission launched a market test regarding the
          Commitments of 12 April 2018 covering all of the questions outlined in
          paragraph (527). The results of the market test showed that the Commitments of
          12 April 2018 were in principle deemed a suitable solution to resolve the
          competition concerns identified by the Commission. Remaining issues were
          addressed by the Notifying Party through improvements made to the
          Commitments of 12 April 2018.
          (A)            Removal of competition concerns
(529)     The Parties propose to divest Rockwell Collins' entire global THSA and entire
          pilot controls business. Considering that the Commission raised serious doubts
          for the overlap in THSA (see section 8.1.2) and for the overlaps in certain pilot
          controls (see sections 8.1.3.2 for RBPS and 8.1.3.3 for TQA) the scope of the
          Divestment Business is suitable to remove competition concerns in principle.
(530)     This is in line with the results of the market test, where the majority of
          respondents stated that they consider the Commitments of 12 April 2018 as
          suitable to effectively remove any competition concerns raised by the
          Transaction in THSA428 and in pilot controls429.
          (B)            Viability and competitiveness of the Divestment Business according
                         to Commitments of 12 April 2018
(531)     The Commission considers that the THSA-PC Divestment Business includes all
          the essential functions and personnel to be viable and competitive from the
          perspective of research and development, production, marketing and sales,
          logistics and relations with suppliers and customers. Notably the activities which
          will be extracted from […] are unrelated to the THSA PC Divestment Business.
(532)     From a financial perspective, although the THSA PC Divestment Business has
          […] in the last two years (2016 and 2017), its financial performances are
          scheduled to improve […].
428
     See replies to question 3 of Questionnaire on Commitments.
429
     See replies to question 4 of Questionnaire on Commitments.
                                                      106
 ---pagebreak--- (533)     The market test resulted in the majority of respondents stating that the THSA PC
          Divestment Business would be viable and competitive both immediately as well
          as in the next five years430. No specific comments have been expressed
          regarding the reverse carve-out planned by Rockwell Collins.
(534)     Apart of the need to clarify certain aspects of the scope of the THSA PC
          Divestment Business proposed on 12 April 2018 – that clarification was
          subsequently provided by the Parties431 - the market test revealed that
          respondents stress the importance of sufficient transitional support from
          Rockwell Collins for the potential Purchaser, namely as regards the IT structure,
          sales channels as well as aftermarket business432.
(535)     The aspects raised by the respondents were subsequently addressed by the
          Parties in the Final Commitments of 30 April 2018 according to which the
          Parties are prepared to enter into transitional agreements, notably as regards
          aftermarket and spare parts when needed, to ensure the viability and
          competitiveness of the THSA PC Divestment Business433.
          (C)           Purchaser criteria
(536)     Rockwell Collins is confident that there will be numerous candidate Purchasers
          interested in the Divestment Business. To date, Rockwell Collins has received
          expressions of interest from a number of potential purchasers, that all have
          expressed interest in attending management presentations.434 These expressions
          of interest have been confirmed during the market test.435
(537)     Market test respondents stressed that the more experience the potential
          Purchaser has in the aerospace industry, including established relationships with
          established aircraft manufacturers, the more it would foster the viability and
          competitiveness of the Divestment Business436.
(538)     The Parties took this into account by adjusting the Commitments of
          12 April 2018 as set out in paragraph (539)437.
430
    See replies to question 5 and 6 of Questionnaire on Commitments.
431
    These aspects related in particular to certain tangible assets and activities that are to be transferred as
    part of the Divestment Business […].
432
    See replies to question 3 to 24 of Questionnaire on Commitments.
433
    Form RM – THSA/Pilot Controls/Special Products - para.102; Commitments of 30 April 2018 – Ice
    Protection – Schedule, para. 5.
434
    Form RM – THSA/Pilot Controls/Special Products - para.20.
435
    See replies to question 21 of Questionnaire on Commitments.
436
    See replies to questions 18 – 20 of Questionnaire on Commitments.
437
    Final Commitments of 30 April 2018 – THSA/Pilot Controls/Special Products – para. 16.
                                                        107
 ---pagebreak--- 9.3.1.3. Description of the Final Commitments of 30 April 2018
(539)    The Final Commitments of 30 April 2018 address the comments stemming from
         the market test by inserting:
         (a)    A further Purchaser criterion to ensure that the potential Purchaser has
                sufficient experience in the aerospace industry as well as commercial
                relationships with major airframers;
         (b)    A clause clarifying that the scope of any transition agreements will cover
                all necessary aspects of the Divestment Business, notably in relation to
                aftermarket and spare parts.
9.3.1.4. Assessment of the Final Commitments of 30 April 2018
(540)    The Commission considers that the Final Commitments fully address comments
         with respect to the Commitments of 12 April 2018.
9.3.2.   Ice protection systems
9.3.2.1. The Notifying Party's arguments
(541)    In the Parties' view, the Commitments of 12 April 2018 are sufficient to remove
         the competition concerns identified by the Commission.
(542)    The Parties bring forward that the IP Divestment Business encompasses the
         entirety of Rockwell Collins' global ice protection systems, and that the
         Commitments will, therefore, remove the overlap between the Parties in this
         product area in its entirety438.
(543)    In the Parties' opinion, the acquisition of the IP Divestment Business, will
         provide the potential Purchaser with all tangible and intangible assets (including
         intellectual property rights), sales, sourcing and supply arrangements and
         distributor lists and records, to enable the Purchaser to compete in the supply of
         ice protection systems and other products manufactured by the Divestment
         Business.439
9.3.2.2. The Commission's Assessment
         (A)           Removal of competition concerns
(544)    The Parties propose to divest Rockwell Collins' entire global ice protection
         business. Considering that the Commission raised serious doubts for the overlap
         only in the pneumatic ice protection (see section 8.1.4) the scope of the IP
         Divestment Business is suitable to remove competition concerns in principle.
438
     Form RM – Ice Protection - para.16.
439
     Form RM – Ice Protection – paras. 18 and 19.
                                                  108
 ---pagebreak--- (545)    This is in line with the results of the market test, where the majority of
         respondents stated that they consider the Commitments of 12 April 2018 as
         suitable to effectively remove any competition concerns raised by the
         Transaction in pneumatic ice protection440.
         (B)            Viability and competitiveness of the IP Divestment Business of
                        12 April 2018
(546)    The Commission considers that the IP Divestment Business is a stand-alone
         business including all the essential functions and personnel to be viable and
         competitive from the perspective of research and development, production,
         marketing and sales, logistics and relations with suppliers and customers. SMR
         Technologies was a stand-alone business until its acquisition by B/E Aerospace
         in 1998 and it continued to operate as such within B/E Aerospace and now
         within Rockwell Collins since B/E Aerospace's acquisition by Rockwell Collins
         in 2017.
(547)    Notably the Commission considers that the carve-out of the WEMAC
         production line has no negative impact on the viability of the Divestment
         Business. As explained in paragraph (521), the WEMAC product line is
         unrelated to ice protection systems.
(548)    From a financial perspective, the IP Divestment Business generated a turnover
         of […] in 2017 and achieved an EBITDA of USD […] in 2017. In 2017, the
         EBITDA margin was […]%. In 2017, SMR Technologies with the inclusion of
         the WEMAC product line generated a turnover of […] in 2017 and achieved an
         EBITDA of […], representing a margin of […]%. The exclusion of the
         WEMAC product line therefore has a […] impact on the viability of the
         Divestment Business. […].
(549)    The market test resulted in the majority of respondents stating that the
         Divestment Business would be viable and competitive both immediately as well
         as in the next five years441. No specific comments have been expressed
         regarding the carve-out of the WEMAC product line planned by Rockwell
         Collins
(550)    Apart of the need to clarify certain aspects of the scope of the Divestment
         Business proposed on 12 April 2018 – that clarification was subsequently
         provided by the Parties442 - the market test revealed that respondents stress the
         importance of the distribution network for the Divestment Business' products443.
(551)    The aspects raised by the respondents were subsequently addressed by the
         Parties in further submissions according to which all elements of the distribution
         network being owned by Rockwell Collins shall be sold to the potential
         Purchaser. The Parties further explained that the distribution network is widely
440
    See replies to question 25 of Questionnaire on Commitments.
441
    See replies to question 26 and 27 of Questionnaire on Commitments.
442
    These aspects related in to re-qualification and re-certification.
443
    See replies to question 26 and 27 of Questionnaire on Commitments.
                                                        109
 ---pagebreak---           independent from Rockwell Collins and that also all related distribution
          agreements will be transferred to the potential Purchaser444.
          (C)            Purchaser criteria
(552)     Market test respondents stressed that the stronger the existing presence of the
          potential Purchaser is in the aerospace industry, the more it would foster the
          viability and competitiveness of the Divestment Business445. Several
          respondents already active in the aerospace industry have expressed interest in
          purchasing the IP Divestment Business.446
(553)     The Parties took this into account by adjusting the Commitments of
          12 April 2018 as described in paragraph (554)447.
9.3.2.3. Description of the Final Commitments of 30 April 2018
(554)     The Final Commitments of 30 April 2018 address the comments stemming from
          the market test by inserting a further Purchaser criterion to ensure that the
          potential Purchaser has an existing presence in the aerospace industry.
9.3.2.4. Assessment of the Final Commitments of 30 April 2018
(555)     The Commission considers that the Final Commitments fully address the
          comments with respect to the Commitments of 12 April 2018.
9.3.3.    Oxygen Systems
(556)     The Parties propose to divest UTC's entire research programme in oxygen
          systems. Considering that the Commission raised serious doubts for the removal
          of potential competition on Rockwell Collins's oxygen systems from UTC, the
          scope of the Divestment Business is suitable to remove competition concerns in
          principle.
(557)     This was confirmed in the market test where a majority of respondents
          mentioned that a divestment of the oxygen programmes would enable a
          purchaser to take advantage of the proposed R&D projects to enter or expand its
          role in the market for oxygen systems.
(558)     The Commission considers that the Oxygen Divestment Business is likely to
          provide a suitable platform to run a viable oxygen business. The Net Product
          Value (difference between the present value of cash inflows and the present
          value of cash outflows over a period of time) until […] is […] at USD […] for
          both […] programmes.448
(559)     In terms of viability, the majority of respondents considered the Divestment
          business as viable to enable a suitable purchaser to enter or increase its market
          presence in oxygen systems, considering that it includes the IP necessary to pass
444
     Form RM – Ice Protection – (new) para. 52.
445
     See replies to questions 40 and 40.1 of Questionnaire on Commitments.
446
     See replies to question 41 of Questionnaire on Commitments.
447
     Final Commitments of 30 April 2018 – Ice Protection – para. 16.
448
     See […], slide 20.
                                                       110
 ---pagebreak---           the extensive qualification procedures in this area, as well as the […] having
          worked on the project.449
(560)     Respondents to the market test have indicated a suitable purchaser should have
          customer credibility, financial and human capacity to develop a research
          programme and industrial and engineering capabilities, in order to have proper
          incentives to bring the project forward in the same way as UTC. Some
          companies have expressed a preliminary interest in exploring acquisition of the
          Oxygen divestment business.450
(561)     The inclusion of the upfront buyer clause in the remedies for oxygen systems
          enables the Commission to conclude with a high degree of certainty that the
          divestment will be implemented and will remove any concern with regard to the
          identity of the potential purchaser and the effective disposal of the Oxygen
          Divestment Business.
9.3.4.    Conclusion on the assessment of the proposed remedies
(562)     For the reasons outlined above, the commitments entered into by the
          undertakings concerned are sufficient to eliminate the serious doubts as to the
          compatibility of the Transaction with the internal market.
(563)     The commitments in sections B of the Annexes 2, 3 and 4 constitute conditions
          attached to this decision, as only through full compliance therewith can the
          structural changes in the relevant markets be achieved. The other commitments
          set out in the Annexes 2, 3 and 4 constitute obligations, as they concern the
          implementing steps which are necessary to achieve the modifications sought in a
          manner compatible with the internal market.
(564)     In accordance with the distinction described in paragraph (563) as regards
          conditions and obligations, this Decision should be made conditional on the full
          compliance by the Parties with Section B of the THSA PC SP Final
          Commitments (including the Schedule of the THSA PC SP Final
          Commitments), Section B of the IP Final Commitments (including the Schedule
          of the IP Final Commitments) and Section B of the Oxygen Final Commitments
          (including the Schedule of the Oxygen Final Commitments. All other sections of
          the THSA PC SP Final Commitments, the IP Final Commitments and the
          Oxygen Final Commitments should be obligations within the meaning of the
          merger Regulation. The full text of the Commitments is attached as an annex to
          this Decision and forms an integral part thereof.
449
     See replies to question 46 of Questionnaire on Commitments.
450
     See replies to question 56 of Questionnaire on Commitments.
                                                      111
 ---pagebreak--- 10.   CONCLUSION
(565) For the above reasons, the Commission has decided not to oppose the notified
      operation as modified by the commitments and to declare it compatible with the
      internal market and with the functioning of the EEA Agreement, subject to full
      compliance with the conditions in section B of Annex 2 (including schedule),
      section B of Annex 3 (including Schedule) and Section B of Annex 4 (including
      schedule) and with the obligations contained in the other sections of the said
      annexes. This decision is adopted in application of Article 6(1)(b) in conjunction
      with Article 6(2) of the Merger Regulation and Article 57 of the EEA
      Agreement.
                                                  For the Commission
                                                  (Signed)
                                                  Margrethe VESTAGER
                                                  Member of the Commission
                                            112
 ---pagebreak---                      CASE M.8658 — UTC/ROCKWELL COLLINS
                                       ANNEX 1
    SHARES IN MARKETS AFFECTED DUE TO CONGLOMERATE LINKS
Products where either of the parties has a market    UTC    Rockwell BFE/
share above 30%                                              Collins SFE
SAASM GPS Receivers for Non-Aircraft Applications           [70-80]% SFE
Cabin Management Systems                                    [40-50]% SFE
                                                                     SFE/
Avionics (LCA)                                              [30-40]% BFE
                                                                     SFE/
Avionics (Business and regional jets)                       [40-50]% BFE
Commercial Seats                                            [20-30]% BFE
   First class seats                                        [80-90]% BFE
Datalink (ARINC)                                            [40-50]% BFE
Oxygen systems                                              [50-60]% SFE
                                                                     BFE/
Food and Beverage                                           [70-80]% SFE
Tactical IMU                                       [30-40]%          SFE
Electrical generation                              [60-70]%          SFE
    On large commercial aircraft                   [80-90]%          SFE
Evacuation systems                                 [30-40]%          SFE
Ice detection                                      [80-90]%          SFE
Air data probes                                    [60-70]%          SFE
Air data Integrated System (Smartprobes)          [90-100]%          SFE
Propeller systems                                  [50-60]%          SFE
Helicopter engines                                 [40-50]%          SFE
Regional/corporate jets engines                    [50-60]%          SFE
APU (overall)                                      [30-40]%          SFE
APU (regional jet)                                 [60-70]%          SFE
Nacelles                                           [40-50]%          SFE
Helicopter actuation                               [30-40]%          SFE
                                                                     BFE/
Landing gears (only wheels and brakes)             [30-40]%          SFE
Cargo systems                                      [30-40]%          SFE
                                             1
 ---pagebreak---                                           Annex 2
                                                                          April 30, 2018
                     Case COMP/M.8658 – UTC / Rockwell Collins
              COMMITMENTS TO THE EUROPEAN COMMISSION
Pursuant to Article 6(2) of Council Regulation (EC) No 139/2004 (the “Merger
Regulation”), Rockwell Collins (including its Affiliated Undertakings, “Rockwell
Collins”) and United Technologies Corporation (including its Affiliated Undertakings,
“UTC”, and together with Rockwell Collins, the “Parties”) hereby enter into the
following Commitments (the “Commitments”) vis-à-vis the European Commission (the
“Commission”) with a view to rendering Rockwell Collins' acquisition by UTC (the
“Transaction”) compatible with the internal market and the functioning of the EEA
Agreement.
This text shall be interpreted in light of the Commission's decision pursuant to
Article 6(1)(b) of the Merger Regulation to declare the Transaction compatible with the
internal market and the functioning of the EEA Agreement (the “Decision”), in the
general framework of European Union law, in particular in light of the Merger
Regulation, and by reference to the Commission Notice on remedies acceptable under
Council Regulation (EC) No 139/2004 and under Commission Regulation (EC)
No 802/2004 (the “Remedies Notice”).
The Schedule and its Appendices form an integral part of the Commitments.
Section A.      Definitions
1.      For the purposes of these Commitments, the following terms shall have the
        following meaning:
           Affiliated Undertakings: undertakings controlled by the Parties, whereby the
            notion of control shall be interpreted pursuant to Article 3 of the Merger
            Regulation and in light of the Commission Consolidated Jurisdictional Notice
            under Council Regulation (EC) No 139/2004 on the control of concentrations
            between undertakings (the “Consolidated Jurisdictional Notice”).
           Assets: the assets that are necessary to ensure the viability and
            competitiveness of the Divestment Business, and insofar as they are not
            specifically mentioned in the Schedule taking into account the identity and
            capabilities of the Purchaser, as indicated in Section B, paragraph 6 and as
            described in more detail in the Schedule.
 ---pagebreak---  Closing: the transfer of the legal title to the Divestment Business to the
  Purchaser.
 Closing Period: the later of the period of […] from the approval of the
  Purchaser and the terms of sale by the Commission or the obtaining of all
  required regulatory approvals prior to Closing.
 Confidential Information: any business secrets, know-how, commercial
  information, or any other information of a proprietary nature that is not in the
  public domain.
 Conflict of Interest: any conflict of interest that impairs the Trustee's
  objectivity and independence in discharging its duties under the
  Commitments.
 Divestment Business: the assets as defined in Section B and in the Schedule
  which UTC and Rockwell Collins commit to divest.
 Divestiture Trustee: one or more natural or legal person(s) who is / are
  approved by the Commission and appointed by Rockwell Collins and who has
  / have received from Rockwell Collins the exclusive Trustee Mandate to sell
  the Divestment Business to a Purchaser at no minimum price.
 Effective Date: the date of adoption of the Decision.
 First Divestiture Period: the period of […] from the Effective Date.
 Hold Separate Manager: the person appointed by Rockwell Collins to
  manage the day-to-day operation of the Divestment Business under the
  supervision of the Monitoring Trustee.
 Key Personnel: all personnel necessary to maintain the viability and
  competitiveness of the Divestment Business, as listed in the Schedule,
  including the Hold Separate Manager.
 Monitoring Trustee: one or more natural or legal person(s) who is / are
  approved by the Commission and appointed by Rockwell Collins, and who
  has / have the duty to monitor Rockwell Collins' compliance with the
  conditions and obligations attached to the Decision.
 Parties: Rockwell Collins and UTC.
                                       2
 ---pagebreak---  Personnel: all staff currently employed by the Divestment Business,
  including staff seconded to the Divestment Business, shared personnel as well
  as the additional personnel listed in the Schedule.
 Purchaser: the entity approved by the Commission as acquirer of the
  Divestment Business in accordance with the criteria set out in Section D.
 Purchaser Criteria: the criteria laid down in paragraph 16 of these
  Commitments that the Purchaser must fulfil in order to be approved by the
  Commission.
 Rockwell Collins: Rockwell Collins, Inc., incorporated under the laws of the
  State of Delaware (U.S.), with its registered office at 400 Collins Road N.E.,
  Cedar Rapids, Iowa 52498, U.S., and its Affiliated Undertakings.
 Schedule: the schedule to these Commitments describing more in detail the
  Divestment Business.
 Trustee(s): the Monitoring Trustee and / or the Divestiture Trustee as the case
  may be.
 Trustee Divestiture Period: the period of […] from the end of the First
  Divestiture Period.
 UTC: United Technologies Corporation, incorporated under the laws of the
  State of Delaware, United States, with its registered office at Corporation
  Trust Center, 1209 Orange Street, in the City of Wilmington, County of New
  Castle, Delaware, 19801, United States.
                                        3
 ---pagebreak--- Section B.     The commitment to divest and the Divestment Business
       Commitment to divest
2.     In order to maintain effective competition, the Parties commit to divest, or
       procure the divestiture of, the Divestment Business by the end of the Trustee
       Divestiture Period to a Purchaser and on terms of sale approved by the
       Commission in accordance with the procedure described in paragraph 17 of these
       Commitments. To carry out the divestiture, the Parties commit to find a
       Purchaser and to enter into a final binding sale and purchase agreement for the
       sale of the Divestment Business within the First Divestiture Period. If the Parties
       have not entered into such an agreement at the end of the First Divestiture Period,
       the Parties shall grant the Divestiture Trustee an exclusive mandate to sell the
       Divestment Business in accordance with the procedure described in paragraph 29
       in the Trustee Divestiture Period.
3.     The Parties shall be deemed to have complied with this commitment if:
       (a) by the end of the Trustee Divestiture Period, Rockwell Collins or the
           Divestiture Trustee has entered into a final binding sale and purchase
           agreement and the Commission approves the proposed purchaser and the
           terms of sale as being consistent with the Commitments in accordance with
           the procedure described in paragraph 16; and
       (b) the Closing of the sale of the Divestment Business to the Purchaser takes
           place within the Closing Period.
4.     In order to maintain the structural effect of the Commitments, the Parties shall,
       for a period of ten (10) years after Closing, not acquire, whether directly or
       indirectly, the possibility of exercising influence (as defined in paragraph 43 of
       the Remedies Notice, footnote 3) over the whole or part of the Divestment
       Business, unless, following the submission of a reasoned request from the Parties
       showing good cause and accompanied by a report from the Monitoring Trustee
       (as provided in paragraph 43 of these Commitments), the Commission finds that
       the structure of the market has changed to such an extent that the absence of
       influence over the Divestment Business is no longer necessary to render the
       Transaction compatible with the internal market.
       Structure and definition of the Divestment Business
5.     The Divestment Business consists of the following Rockwell Collins' businesses:
              The Trimmable Horizontal Stabilizer Actuators ("THSA") business,
               which includes THSAs, legacy flap actuation, and nose wheel steering
               gear boxes;
                                                4
 ---pagebreak---                The Pilot Control Systems ("PCS") business, which includes center yokes,
                rudder brake pedal units, throttle quadrant assemblies, auto-throttles and
                control stand modules; and
               The Special Products business, which includes inter alia fuel sticks, waste
                water drain valves, aircraft ground support couplings, and ground service
                couplings.
6.     The Divestment Business consists of Rockwell Collins' global THSA, PCS, and
       Special Products businesses. The legal and functional structure of the Divestment
       Business as operated to date is described in the Schedule. The Divestment
       Business, described in more detail in the Schedule, includes all assets and staff
       that contribute to the current operation or are necessary to ensure the viability and
       competitiveness of the Divestment Business, in particular:
       (a) all tangible and intangible assets (including intellectual property rights);
       (b) all licenses, permits and authorizations issued by any governmental
           organisation for the benefit of the Divestment Business;
       (c) all contracts, leases, commitments and customer orders of the Divestment
           Business; all customer, credit and other records of the Divestment Business;
           and
       (d) the Personnel.
7.     For the avoidance of doubt, the Divestment Business will not include any
       tangible or intangible assets that are used either exclusively or predominantly for
       activities other than those related to, and that are not necessary for the viability
       and competitiveness of, Rockwell Collins' THSA, PCS, and Special Products
       businesses.
Section C.       Related commitments
       Preservation of viability, marketability and competitiveness
8.     From the Effective Date until Closing, Rockwell Collins shall preserve or procure
       the preservation of the economic viability, marketability and competitiveness of
       the Divestment Business, in accordance with good business practice, and shall
       minimise as far as possible any risk of loss of competitive potential of the
       Divestment Business. In particular Rockwell Collins undertakes:
       (a) not to carry out any action that might have a significant adverse impact on the
           value, management or competitiveness of the Divestment Business or that
           might alter the nature and scope of activity, or the industrial or commercial
           strategy or the investment policy of the Divestment Business;
                                                 5
 ---pagebreak---     (b) to make available, or procure to make available, sufficient resources for the
        development of the Divestment Business, on the basis and continuation of the
        existing business plans;
    (c) to take all reasonable steps, or procure that all reasonable steps are being
        taken, including appropriate incentive schemes (based on industry practice),
        to encourage all Key Personnel to remain with the Divestment Business, and
        not to solicit or move any Key Personnel to Rockwell Collins' remaining
        businesses. Where, nevertheless, individual members of the Key Personnel
        exceptionally leave the Divestment Business, Rockwell Collins shall provide
        a reasoned proposal to replace the person or persons concerned to the
        Commission and the Monitoring Trustee. Rockwell Collins must be able to
        demonstrate to the Commission that the replacement is well suited to carry
        out the functions exercised by those individual members of the Key
        Personnel. The replacement shall take place under the supervision of the
        Monitoring Trustee, who shall report to the Commission.
    Hold-separate obligations
9.  The Parties commit, from the Effective Date until Closing, to keep the
    Divestment Business separate from the business(es) they are retaining and to
    ensure that unless explicitly permitted under these Commitments: (i) management
    and staff of the business(es) retained by the Parties have no involvement in the
    Divestment Business; (ii) the Key Personnel and Personnel of the Divestment
    Business have no involvement in any business retained by the Parties and do not
    report to any individual outside the Divestment Business.
10. Until Closing, Rockwell Collins shall assist the Monitoring Trustee in ensuring
    that the Divestment Business is managed as a distinct and saleable entity separate
    from the businesses which Rockwell Collins is retaining. Immediately after the
    adoption of the Decision, Rockwell Collins shall appoint a Hold Separate
    Manager. The Hold Separate Manager, who shall be part of the Key Personnel,
    shall manage the Divestment Business independently and in the best interest of
    the business with a view to ensuring its continued economic viability,
    marketability and competitiveness and its independence from the businesses
    retained by Rockwell Collins. The Hold Separate Manager shall closely
    cooperate with and report to the Monitoring Trustee and, if applicable, the
    Divestiture Trustee. Any replacement of the Hold Separate Manager shall be
    subject to the procedure laid down in paragraph 8(c) of these Commitments. The
    Commission may, after having heard Rockwell Collins, require Rockwell Collins
    to replace the Hold Separate Manager.
    Ring-fencing
11. Rockwell Collins shall implement, or procure to implement, all necessary
    measures to ensure that it does not, after the Effective Date, obtain any
                                             6
 ---pagebreak---     Confidential Information relating to the Divestment Business. Any such
    Confidential Information obtained by Rockwell Collins before the Effective Date
    will be eliminated and not be used by Rockwell Collins. This includes measures
    vis-à-vis Rockwell Collins' appointees on the supervisory board and/or board of
    directors of the Divestment Business. In particular, the participation of the
    Divestment Business in any central information technology network shall be
    severed to the extent possible, without compromising the viability of the
    Divestment Business. Rockwell Collins may obtain or keep information relating
    to the Divestment Business which is reasonably necessary for the divestiture of
    the Divestment Business or the disclosure of which to Rockwell Collins is
    required by law.
    Non-solicitation clause
12. The Parties undertake, subject to customary limitations, not to solicit, and to
    procure that Affiliated Undertakings do not solicit, the Key Personnel transferred
    with the Divestment Business for a period of […] after Closing.
    Due diligence
13. In order to enable potential purchasers to carry out a reasonable due diligence of
    the Divestment Business, Rockwell Collins shall, subject to customary
    confidentiality assurances and dependent on the stage of the divestiture process:
    (a) provide to potential purchasers sufficient information as regards the
        Divestment Business; and
    (b) provide to potential purchasers sufficient information relating to the Personnel
        and allow them reasonable access to the Personnel.
    Reporting
14. Rockwell Collins shall submit written reports in English on potential purchasers
    of the Divestment Business and developments in the negotiations with such
    potential purchasers to the Commission and the Monitoring Trustee no later than
    ten (10) days after the end of every month following the Effective Date (or
    otherwise at the Commission's request). Rockwell Collins shall submit a list of
    all potential purchasers having expressed interest in acquiring the Divestment
    Business to the Commission at each and every stage of the divestiture process, as
    well as a copy of all the offers made by potential purchasers within five days of
    their receipt.
15. Rockwell Collins shall inform the Commission and the Monitoring Trustee on the
    preparation of the data room documentation and the due diligence procedure and
    shall submit a copy of any information memorandum to the Commission and the
    Monitoring Trustee before sending the memorandum out to potential purchasers.
                                             7
 ---pagebreak--- Section D.      The Purchaser
16.    In order to be approved by the Commission, the Purchaser must fulfil the
       following criteria:
       (a) The Purchaser shall be independent of and unconnected to the Parties and
           their Affiliated Undertakings (this being assessed having regard to the
           situation following the divestiture);
       (b) The Purchaser shall have the financial resources, proven expertise and
           incentive to maintain and develop the Divestment Business as a viable and
           active competitive force in competition with the Parties and other
           competitors;
       (c) The Purchaser shall have an existing presence in the aerospace industry, and
           shall have existing relationships with major aircraft manufacturers;
       (d) The acquisition of the Divestment Business by the Purchaser must neither be
           likely to create, in light of the information available to the Commission, prima
           facie competition concerns nor give rise to a risk that the implementation of
           the Commitments will be delayed. In particular, the Purchaser must
           reasonably be expected to obtain all necessary approvals from the relevant
           regulatory authorities for the acquisition of the Divestment Business.
17.    The final binding sale and purchase agreement (as well as ancillary agreements)
       relating to the divestment of the Divestment Business shall be conditional on the
       Commission's approval. When Rockwell Collins has reached an agreement with
       a purchaser, it shall submit a fully documented and reasoned proposal, including a
       copy of the final agreement(s), within one (1) week to the Commission and the
       Monitoring Trustee. Rockwell Collins must be able to demonstrate to the
       Commission that the purchaser fulfils the Purchaser Criteria and that the
       Divestment Business is being sold in a manner consistent with the Commission's
       Decision and the Commitments. For the approval, the Commission shall verify
       that the purchaser fulfils the Purchaser Criteria and that the Divestment Business
       is being sold in a manner consistent with the Commitments including their
       objective to bring about a lasting structural change in the market. The
       Commission may approve the sale of the Divestment Business without one or
       more Assets or parts of the Personnel, or by substituting one or more Assets or
       parts of the Personnel with one or more different assets or different personnel, if
       this does not affect the viability and competitiveness of the Divestment Business
       after the sale, taking account of the proposed purchaser.
                                                   8
 ---pagebreak--- Section E.       Trustee
I.     Appointment procedure
18.    Rockwell Collins shall appoint a Monitoring Trustee to carry out the functions
       specified in these Commitments for a Monitoring Trustee. Rockwell Collins
       commits not to close the Transaction before the appointment of a Monitoring
       Trustee.
19.    If Rockwell Collins has not entered into a binding sale and purchase agreement
       regarding the Divestment Business one (1) month before the end of the First
       Divestiture Period or if the Commission has rejected a purchaser proposed by
       Rockwell Collins at that time or thereafter, Rockwell Collins shall appoint a
       Divestiture Trustee. The appointment of the Divestiture Trustee shall take effect
       upon the commencement of the Trustee Divestiture Period.
20.    The Trustee shall:
       (i) at the time of appointment, be independent of the Parties;
       (ii) possess the necessary qualifications to carry out its mandate, for example
             have sufficient relevant experience as an investment banker or consultant or
             auditor; and
       (iii) neither have nor become exposed to a Conflict of Interest.
21.    The Trustee shall be remunerated by Rockwell Collins in a way that does not
       impede the independent and effective fulfilment of its mandate. In particular,
       where the remuneration package of a Divestiture Trustee includes a success
       premium linked to the final sale value of the Divestment Business, such success
       premium may only be earned if the divestiture takes place within the Trustee
       Divestiture Period.
                                                9
 ---pagebreak---     Proposal by Rockwell Collins
22. No later than two (2) weeks after the Effective Date, Rockwell Collins shall
    submit the name or names of one or more natural or legal persons whom
    Rockwell Collins proposes to appoint as the Monitoring Trustee to the
    Commission for approval. No later than one (1) month before the end of the First
    Divestiture Period or on request by the Commission, Rockwell Collins shall
    submit a list of one (1) or more persons whom Rockwell Collins proposes to
    appoint as Divestiture Trustee to the Commission for approval. The proposal
    shall contain sufficient information for the Commission to verify that the person
    or persons proposed as Trustee fulfil the requirements set out in paragraph 20 and
    shall include:
    (a) the full terms of the proposed mandate, which shall include all provisions
        necessary to enable the Trustee to fulfil its duties under these Commitments;
    (b) the outline of a work plan which describes how the Trustee intends to carry
        out its assigned tasks; and
    (c) an indication whether the proposed Trustee is to act as both Monitoring
        Trustee and Divestiture Trustee or whether different trustees are proposed for
        the two functions.
    Approval or rejection by the Commission
23. The Commission shall have the discretion to approve or reject the proposed
    Trustee(s) and to approve the proposed mandate subject to any modifications it
    deems necessary for the Trustee to fulfil its obligations. If only one (1) name is
    approved, Rockwell Collins shall appoint or cause to be appointed the person or
    persons concerned as Trustee, in accordance with the mandate approved by the
    Commission. If more than one (1) name is approved, Rockwell Collins shall be
    free to choose the Trustee to be appointed from among the names approved. The
    Trustee shall be appointed within one (1) week of the Commission’s approval, in
    accordance with the mandate approved by the Commission.
    New proposal by Rockwell Collins
24. If all the proposed Trustees are rejected, Rockwell Collins shall submit the names
    of at least two (2) more natural or legal persons within one (1) week of being
    informed of the rejection, in accordance with paragraphs 18 and 23 of these
    Commitments.
    Trustee nominated by the Commission
25. If all further proposed Trustees are rejected by the Commission, the Commission
    shall nominate a Trustee, whom Rockwell Collins shall appoint, or cause to be
    appointed, in accordance with a Trustee mandate approved by the Commission.
                                             10
 ---pagebreak--- II.      Functions of the Trustee
26.      The Trustee shall assume its specified duties and obligations in order to ensure
         compliance with the Commitments. The Commission may, on its own initiative
         or at the request of the Trustee or Rockwell Collins, give any orders or
         instructions to the Trustee in order to ensure compliance with the conditions and
         obligations attached to the Decision.
         Duties and obligations of the Monitoring Trustee
27.      The Monitoring Trustee shall:
    (i) propose in its first report to the Commission a detailed work plan describing how
         it intends to monitor compliance with the obligations and conditions attached to
         the Decision.
    (ii) oversee, in close co-operation with the Hold Separate Manager, the on-going
         management of the Divestment Business with a view to ensuring its continued
         economic viability, marketability and competitiveness and monitor compliance by
         Rockwell Collins with the conditions and obligations attached to the Decision.
         To that end the Monitoring Trustee shall:
         (a) monitor the preservation of the economic viability, marketability and
              competitiveness of the Divestment Business, and the keeping separate of the
              Divestment Business from the businesses retained by Rockwell Collins, in
              accordance with paragraphs 8 and 9 of these Commitments;
         (b) supervise the management of the Divestment Business, in accordance with
              paragraph 10 of these Commitments;
         (c) with respect to Confidential Information:
                  determine all necessary measures to ensure that Rockwell Collins does
                   not after the Effective Date obtain any Confidential Information relating
                   to the Divestment Business,
                  in particular strive for the severing of the Divestment Business'
                   participation in a central information technology network to the extent
                   possible, without compromising the viability of the Divestment
                   Business,
                  make sure that any Confidential Information relating to the Divestment
                   Business obtained by Rockwell Collins before the Effective Date is
                   eliminated and will not be used by Rockwell Collins, and
                                                  11
 ---pagebreak---               decide whether such information may be disclosed to or kept by
               Rockwell Collins as the disclosure is reasonably necessary to allow
               Rockwell Collins to carry out the divestiture or as the disclosure is
               required by law;
     (d) monitor the splitting of assets and the allocation of Personnel between the
         Divestment Business and Rockwell Collins;
(iii)propose to Rockwell Collins such measures as the Monitoring Trustee considers
     necessary to ensure Rockwell Collins' compliance with the conditions and
     obligations attached to the Decision, in particular the maintenance of the full
     economic viability, marketability or competitiveness of the Divestment Business,
     the holding separate of the Divestment Business and the non-disclosure of
     competitively sensitive information;
(iv) review and assess potential purchasers as well as the progress of the divestiture
     process and verify that, dependent on the stage of the divestiture process:
     (a) potential purchasers receive sufficient and correct information relating to the
         Divestment Business and the Personnel in particular by reviewing, if
         available, the data room documentation, the information memorandum and
         the due diligence process, and
     (b) potential purchasers are granted reasonable access to the Personnel;
(v) act as a contact point for any requests by third parties, in particular potential
     purchasers, in relation to the Commitments;
(vi) provide to the Commission, sending the Parties a non-confidential copy at the
     same time, a written report within fifteen (15) days after the end of every month
     that shall cover the operation and management of the Divestment Business as
     well as the splitting of assets and the allocation of Personnel so that the
     Commission can assess whether the Divestment Business is held in a manner
     consistent with the Commitments and the progress of the divestiture process as
     well as potential purchasers;
(vii) promptly report in writing to the Commission, sending the Parties a non-
     confidential copy at the same time, if it concludes on reasonable grounds that
     Rockwell Collins is failing to comply with these Commitments;
(viii) within one (1) week after receipt of the documented proposal referred to in
     paragraph 17 of these Commitments, submit to the Commission, sending the
     Parties a non-confidential copy at the same time, a reasoned opinion as to the
     suitability and independence of the proposed purchaser and the viability of the
                                             12
 ---pagebreak---           Divestment Business after the sale and as to whether the Divestment Business is
          sold in a manner consistent with the conditions and obligations attached to the
          Decision, in particular, if relevant, whether the sale of the Divestment Business
          without one or more Assets or one or more Key Personnel affects the viability of
          the Divestment Business after the sale, taking account of the proposed purchaser;
     (ix) assume the other functions assigned to the Monitoring Trustee under the
          conditions and obligations attached to the Decision.
28.       If the Monitoring and Divestiture Trustee are not the same legal or natural
          persons, the Monitoring Trustee and the Divestiture Trustee shall cooperate
          closely with each other during and for the purpose of the preparation of the
          Trustee Divestiture Period in order to facilitate each other's tasks.
          Duties and obligations of the Divestiture Trustee
29.       Within the Trustee Divestiture Period, the Divestiture Trustee shall sell at no
          minimum price the Divestment Business to a purchaser, provided that the
          Commission has approved both the purchaser and the final binding sale and
          purchase agreement (and ancillary agreements) as in line with the Commission's
          Decision and the Commitments in accordance with paragraphs 16 and 17 of these
          Commitments. The Divestiture Trustee shall include in the sale and purchase
          agreement (as well as in any ancillary agreements) such terms and conditions as it
          considers appropriate for an expedient sale in the Trustee Divestiture Period. In
          particular, the Divestiture Trustee may include in the sale and purchase agreement
          such customary representations and warranties and indemnities as are reasonably
          required to affect the sale. The Divestiture Trustee shall protect the legitimate
          financial interests of Rockwell Collins, subject to Rockwell Collins' unconditional
          obligation to divest at no minimum price in the Trustee Divestiture Period.
30.       In the Trustee Divestiture Period (or otherwise at the Commission's request), the
          Divestiture Trustee shall provide the Commission with a comprehensive monthly
          report written in English on the progress of the divestiture process. Such reports
          shall be submitted within fifteen (15) days after the end of every month with a
          simultaneous copy to the Monitoring Trustee and a non-confidential copy to the
          Parties.
III.      Duties and obligations of Rockwell Collins
31.       Rockwell Collins shall provide and shall cause its advisors to provide the Trustee
          with all such co-operation, assistance and information as the Trustee may
          reasonably require to perform its tasks. The Trustee shall have full and complete
          access to any of Rockwell Collins' or the Divestment Business' books, records,
          documents, management or other personnel, facilities, sites and technical
          information necessary for fulfilling its duties under the Commitments and
          Rockwell Collins and the Divestment Business shall provide the Trustee upon
          request with copies of any document. Rockwell Collins and the Divestment
                                                   13
 ---pagebreak---     Business shall make available to the Trustee one or more offices on their premises
    and shall be available for meetings in order to provide the Trustee with all
    information necessary for the performance of its tasks.
32. Rockwell Collins shall provide the Monitoring Trustee with all managerial and
    administrative support that it may reasonably request on behalf of the
    management of the Divestment Business. This shall include all administrative
    support functions relating to the Divestment Business which are currently carried
    out at headquarters level. Rockwell Collins shall provide and shall cause its
    advisors to provide the Monitoring Trustee, on request, with the information
    submitted to potential purchasers, in particular give the Monitoring Trustee access
    to the data room documentation and all other information granted to potential
    purchasers in the due diligence procedure. Rockwell Collins shall inform the
    Monitoring Trustee on possible purchasers, submit lists of potential purchasers at
    each stage of the selection process, including the offers made by potential
    purchasers at those stages, and keep the Monitoring Trustee informed of all
    developments in the divestiture process.
33. Rockwell Collins shall grant or procure Affiliated Undertakings to grant
    comprehensive powers of attorney, duly executed, to the Divestiture Trustee to
    effect the sale (including ancillary agreements), the Closing and all actions and
    declarations which the Divestiture Trustee considers necessary or appropriate to
    achieve the sale and the Closing, including the appointment of advisors to assist
    with the sale process. Upon request of the Divestiture Trustee, Rockwell Collins
    shall cause the documents required for effecting the sale and the Closing to be
    duly executed.
34. Rockwell Collins shall indemnify the Trustee and its employees and agents (each
    an “Indemnified Party”) and hold each Indemnified Party harmless against, and
    hereby agrees that an Indemnified Party shall have no liability to Rockwell
    Collins for, any liabilities arising out of the performance of the Trustee’s duties
    under the Commitments, except to the extent that such liabilities result from the
    wilful default, recklessness, gross negligence or bad faith of the Trustee, its
    employees, agents or advisors.
35. At the expense of Rockwell Collins, the Trustee may appoint advisors (in
    particular for corporate finance or legal advice), subject to Rockwell Collins'
    approval (this approval not to be unreasonably withheld or delayed) if the Trustee
    considers the appointment of such advisors necessary or appropriate for the
    performance of its duties and obligations under the Mandate, provided that any
    fees and other expenses incurred by the Trustee are reasonable. Should Rockwell
    Collins refuse to approve the advisors proposed by the Trustee the Commission
    may approve the appointment of such advisors instead, after having heard
    Rockwell Collins. Only the Trustee shall be entitled to issue instructions to the
    advisors. Paragraph 34 of these Commitments shall apply mutatis mutandis. In
    the Trustee Divestiture Period, the Divestiture Trustee may use advisors who
    served Rockwell Collins during the Divestiture Period if the Divestiture Trustee
    considers this in the best interest of an expedient sale.
                                               14
 ---pagebreak--- 36.    Rockwell Collins agrees that the Commission may share Confidential
       Information proprietary to Rockwell Collins with the Trustee. The Trustee shall
       not disclose such information and the principles contained in Article 17 (1) and
       (2) of the Merger Regulation apply mutatis mutandis.
37.    Rockwell Collins agrees that the contact details of the Monitoring Trustee are
       published on the website of the Commission's Directorate-General for
       Competition and they shall inform interested third parties, in particular any
       potential purchasers, of the identity and the tasks of the Monitoring Trustee.
38.    For a period of ten (10) years from the Effective Date the Commission may
       request all information from the Parties that is reasonably necessary to monitor
       the effective implementation of these Commitments.
IV.    Replacement, discharge and reappointment of the Trustee
39.    If the Trustee ceases to perform its functions under the Commitments or for any
       other good cause, including the exposure of the Trustee to a Conflict of Interest:
       (a) the Commission may, after hearing the Trustee and Rockwell Collins, require
            Rockwell Collins to replace the Trustee; or
       (b) Rockwell Collins may, with the prior approval of the Commission, replace the
            Trustee.
40.    If the Trustee is removed according to paragraph 39 of these Commitments, the
       Trustee may be required to continue in its function until a new Trustee is in place
       to whom the Trustee has effected a full hand over of all relevant information. The
       new Trustee shall be appointed in accordance with the procedure referred to in
       paragraphs 18-25 of these Commitments.
41.    Unless removed according to paragraph 39 of these Commitments, the Trustee
       shall cease to act as Trustee only after the Commission has discharged it from its
       duties after all the Commitments with which the Trustee has been entrusted have
       been implemented. However, the Commission may at any time require the
       reappointment of the Monitoring Trustee if it subsequently appears that the
       relevant remedies might not have been fully and properly implemented.
Section F.      The review clause
42.    The Commission may extend the time periods foreseen in the Commitments in
       response to a request from the Parties or, in appropriate cases, on its own
       initiative. Where the Parties request an extension of a time period, it shall submit
       a reasoned request to the Commission no later than one (1) month before the
       expiry of that period, showing good cause. This request shall be accompanied by
                                                15
 ---pagebreak---        a report from the Monitoring Trustee, who shall, at the same time send a non-
       confidential copy of the report to the Parties. Only in exceptional circumstances
       shall the Parties be entitled to request an extension within the last month of any
       period.
43.    The Commission may further, in response to a reasoned request from the Parties
       showing good cause waive, modify or substitute, in exceptional circumstances,
       one or more of the undertakings in these Commitments. This request shall be
       accompanied by a report from the Monitoring Trustee, who shall, at the same
       time send a non-confidential copy of the report to the Parties. The request shall
       not have the effect of suspending the application of the undertaking and, in
       particular, of suspending the expiry of any time period in which the undertaking
       has to be complied with.
Section G.      Entry into force
44.    The Commitments shall take effect upon the date of adoption of the Decision.
       [Signed]
                                                16
 ---pagebreak---       SCHEDULE
   1. The proposed Commitments offered by Rockwell Collins consist of the
      divestiture to the Purchaser of Rockwell Collins' global: (i) Trimmable Horizontal
      Stabilizer Actuators ("THSA") business, which includes THSAs, legacy flap
      actuation, and nose wheel steering gear boxes; (ii) Pilot Control Systems ("PCS")
      business, which includes center yokes, rudder brake pedal units, throttle quadrant
      assemblies, auto-throttles and control stand modules; and (iii) Special Products
      business, which includes inter alia fuel sticks, waste water drain valves, aircraft
      ground support couplings, and ground service couplings. These businesses, as
      defined in this Schedule, are hereinafter referred to as the "Divestment
      Business". If there is any asset or personnel which is not covered by this
      Schedule but which is both used (exclusively or not) in the Divestment Business
      and necessary for the continued viability and competitiveness of the Divestment
      Business, that asset or adequate substitute will be offered to potential purchasers.
2.    The Divestment Business is comprised of the following tangible assets:
          (a) Rockwell Collins' rights to use:
                 i.   Buildings […] (United States);
                ii.   Building […] (United States); and
               iii.   Buildings […] (Mexico).
              Should the Purchaser so choose, and at the Purchaser's sole discretion,
              Rockwell Collins will:
               iv.    Retain Building […], and transfer the requisite assets to Building
                      […];
                v.    Retain Building […], and transfer the requisite assets to a location
                      at the Purchaser's discretion; and
               vi.    Retain Building […], and transfer the requisite assets to Building
                      […].
          (b) The inventory of finished goods, components, sub-components, and raw
              materials to the extent related to Rockwell Collins' THSA, PCS, and
              Special Products businesses, and owned by Rockwell Collins as of the
              date of Closing, as well as all rights to market and sell such inventory (to
              the extent applicable);
          (c) The manufacturing, testing and servicing equipment and machinery
              owned or licensed by Rockwell Collins and used in the manufacturing and
                                                17
 ---pagebreak---             testing of Rockwell Collins' THSA, PCS and Special Products. A non-
            exhaustive list is included at Appendix 1 to the Commitments. This
            includes all documentation (for example, machine records, design history
            files and technical files) related to this manufacturing, testing and
            servicing equipment and machinery;
        (d) All business records, books of account, financial records, and tax records
            to the extent related to Rockwell Collins' THSA, PCS, and Special
            Products businesses; all information, including customer and supplier
            lists and details, product and pricing information, account histories,
            research data and commercial data to the extent relating to Rockwell
            Collins' THSA, PCS, and Special Products.
        (e) To the extent applicable, all sales and promotional literature and other
            sales-related materials to the extent used or held for use for Rockwell
            Collins' THSA, PCS, and Special Products businesses.
        (f) For the avoidance of doubt, the Divestment Business will not include any
            tangible assets that are used either exclusively or predominantly for
            activities other than those related to, and that are not necessary for the
            viability and competitiveness of, Rockwell Collins' THSA, PCS, and
            Special Products businesses.
3. The Divestment Business includes the following personnel:
   Subject to the applicable local employment legislation, Rockwell Collins commits
   to transfer to the Purchaser the following personnel:
               i.    The Key Personnel; and
              ii.    The Personnel.
   An exhaustive list of the Key Personnel, and the Personnel is enclosed herewith at
   Appendix 2.
4. The Divestment Business is comprised of the following intangible assets:
        (a) Patents. Rockwell Collins will transfer or license the patents and
            applications, including the rights thereto, owned by Rockwell Collins that
            are used by Rockwell Collins in the manufacturing, sale and servicing of
            its THSA, PCS, and Special Products businesses. A non-exhaustive list of
            the patents and applications to be transferred is included at Appendix 3 to
            the Commitments.
                                             18
 ---pagebreak---        (b) Know-how. Rockwell Collins will transfer the trade secrets, confidential
           and/or proprietary know-how, confidential customer data, or other
           confidential information and other intellectual property owned by
           Rockwell Collins that are used by Rockwell Collins in Rockwell Collins'
           THSA, PCS, and Special Products businesses.
       (c) Trademarks. Rockwell Collins will transfer the trademarks owned by
           Rockwell Collins, that are used by Rockwell Collins in the manufacturing
           of its THSA, PCS, and Special Products businesses. An exhaustive list is
           included at Appendix 3 to the Commitments.
       (d) Other intangible assets:
   The Divestment Business will also include:
              i.   Any contracts related to Rockwell Collins' THSA, PCS, and/or
                   Special Products businesses (or are otherwise necessary to operate
                   the Divestment Business) entered into by Rockwell Collins prior
                   to Closing.
             ii.   In order to confer the benefit of such contracts to the Purchaser,
                   Rockwell Collins will use its best efforts to transfer (in whole or in
                   part) any sales, sourcing, and supply agreements to the extent they
                   relate to the manufacture and/or commercialization of Rockwell
                   Collins THSA, PCS, and/or Special Products businesses. An non-
                   exhaustive list of such customers and suppliers is included at
                   Appendix 4 to the Commitments.
            iii.   All licenses, permits and authorizations issued by any
                   governmental organization to the extent transferable under
                   applicable legal requirements, and the Purchaser and its affiliates
                   do not own substantially similar licenses, permits and
                   authorizations.
       (e) For the avoidance of doubt, the Divestment Business will not include any
           intangible assets that are used exclusively or predominantly for activities
           other than those related to, and that are not necessary for the viability and
           competitiveness of, Rockwell Collins' THSA, PCS, and Special Products
           businesses.
   Transitional agreements
5. The Parties will enter into any necessary transitional agreements with the
   Purchaser (covering, depending on the Purchaser's profile and preferences, inter
   alia IT, HR, aftermarket and spare parts, purchasing, contract support,
                                            19
 ---pagebreak---       manufacturing assistance etc.) to effectuate the move of the assets described
      herein to the Purchaser as quickly as possible.
                                             ***
Appendices 1-4 […]
                                              20
 ---pagebreak---                                               Annex 3
                                                                                  April 30, 2018
                        Case COMP/M.8658 – UTC / Rockwell Collins
                 COMMITMENTS TO THE EUROPEAN COMMISSION
Pursuant to Article 6(2) of Council Regulation (EC) No 139/2004 (the “Merger
Regulation”), Rockwell Collins (including its Affiliated Undertakings, “Rockwell Collins”)
and United Technologies Corporation (including its Affiliated Undertakings, “UTC”, and
together with Rockwell Collins, the “Parties”) hereby enter into the following Commitments
(the “Commitments”) vis-à-vis the European Commission (the “Commission”) with a view
to rendering Rockwell Collins' acquisition by UTC (the “Transaction”) compatible with the
internal market and the functioning of the EEA Agreement.
This text shall be interpreted in light of the Commission's decision pursuant to Article 6(1)(b)
of the Merger Regulation to declare the Transaction compatible with the internal market and
the functioning of the EEA Agreement (the “Decision”), in the general framework of
European Union law, in particular in light of the Merger Regulation, and by reference to the
Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and
under Commission Regulation (EC) No 802/2004 (the “Remedies Notice”).
The Schedule and its Appendices form an integral part of the Commitments.
Section A.      Definitions
1.      For the purposes of these Commitments, the following terms shall have the following
        meaning:
           Affiliated Undertakings: undertakings controlled by the Parties, whereby the
            notion of control shall be interpreted pursuant to Article 3 of the Merger
            Regulation and in light of the Commission Consolidated Jurisdictional Notice
            under Council Regulation (EC) No 139/2004 on the control of concentrations
            between undertakings (the “Consolidated Jurisdictional Notice”).
           Assets: the assets that are necessary to ensure the viability and competitiveness of
            the Divestment Business, and insofar as they are not specifically mentioned in the
            Schedule taking into account the identity and capabilities of the Purchaser, as
            indicated in Section B, paragraph 6 and as described in more detail in the
            Schedule.
           Closing: the transfer of the legal title to the Divestment Business to the Purchaser.
 ---pagebreak---  Closing Period: the later of the period of […] from the approval of the Purchaser
  and the terms of sale by the Commission or the obtaining of all required
  regulatory approvals prior to Closing.
 Confidential Information: any business secrets, know-how, commercial
  information, or any other information of a proprietary nature that is not in the
  public domain.
 Conflict of Interest: any conflict of interest that impairs the Trustee's objectivity
  and independence in discharging its duties under the Commitments.
 Divestment Business: the assets as defined in Section B and in the Schedule
  which UTC and Rockwell Collins commit to divest.
 Divestiture Trustee: one or more natural or legal person(s) who is / are approved
  by the Commission and appointed by Rockwell Collins and who has / have
  received from Rockwell Collins the exclusive Trustee Mandate to sell the
  Divestment Business to a Purchaser at no minimum price.
 Effective Date: the date of adoption of the Decision.
 First Divestiture Period: the period of […] from the Effective Date.
 Hold Separate Manager: the person appointed by Rockwell Collins to manage
  the day-to-day operation of the Divestment Business under the supervision of the
  Monitoring Trustee.
 Key Personnel: all personnel necessary to maintain the viability and
  competitiveness of the Divestment Business, as listed in the Schedule, including
  the Hold Separate Manager.
 Monitoring Trustee: one or more natural or legal person(s) who is / are approved
  by the Commission and appointed by Rockwell Collins, and who has / have the
  duty to monitor Rockwell Collins' compliance with the conditions and obligations
  attached to the Decision.
 Parties: Rockwell Collins and UTC.
 Personnel: all staff currently employed by the Divestment Business, including
  staff seconded to the Divestment Business, shared personnel as well as the
  additional personnel listed in the Schedule.
 Purchaser: the entity approved by the Commission as acquirer of the Divestment
  Business in accordance with the criteria set out in Section D.
                                         2
 ---pagebreak---  Purchaser Criteria: the criteria laid down in paragraph 16 of these Commitments
  that the Purchaser must fulfil in order to be approved by the Commission.
 Rockwell Collins: Rockwell Collins, Inc., incorporated under the laws of the
  State of Delaware (U.S.), with its registered office at 400 Collins Road N.E.,
  Cedar Rapids, Iowa 52498, U.S., and its Affiliated Undertakings.
 Schedule: the schedule to these Commitments describing more in detail the
  Divestment Business.
 Trustee(s): the Monitoring Trustee and / or the Divestiture Trustee as the case
  may be.
 Trustee Divestiture Period: the period of […] from the end of the First
  Divestiture Period.
 UTC: United Technologies Corporation, incorporated under the laws of the State
  of Delaware, United States, with its registered office at Corporation Trust Center,
  1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware,
  19801, United States.
                                          3
 ---pagebreak--- Section B.     The commitment to divest and the Divestment Business
       Commitment to divest
2.     In order to maintain effective competition, the Parties commit to divest, or procure the
       divestiture of, the Divestment Business by the end of the Trustee Divestiture Period to
       a Purchaser and on terms of sale approved by the Commission in accordance with the
       procedure described in paragraph 17 of these Commitments. To carry out the
       divestiture, the Parties commit to find a Purchaser and to enter into a final binding
       sale and purchase agreement for the sale of the Divestment Business within the First
       Divestiture Period. If the Parties have not entered into such an agreement at the end
       of the First Divestiture Period, the Parties shall grant the Divestiture Trustee an
       exclusive mandate to sell the Divestment Business in accordance with the procedure
       described in paragraph 29 in the Trustee Divestiture Period.
3.     The Parties shall be deemed to have complied with this commitment if:
       (a) by the end of the Trustee Divestiture Period, Rockwell Collins or the Divestiture
           Trustee has entered into a final binding sale and purchase agreement and the
           Commission approves the proposed purchaser and the terms of sale as being
           consistent with the Commitments in accordance with the procedure described in
           paragraph 17; and
       (b) the Closing of the sale of the Divestment Business to the Purchaser takes place
           within the Closing Period.
4.     In order to maintain the structural effect of the Commitments, the Parties shall, for a
       period of ten (10) years after Closing, not acquire, whether directly or indirectly, the
       possibility of exercising influence (as defined in paragraph 43 of the Remedies
       Notice, footnote 3) over the whole or part of the Divestment Business, unless,
       following the submission of a reasoned request from the Parties showing good cause
       and accompanied by a report from the Monitoring Trustee (as provided in
       paragraph 43 of these Commitments), the Commission finds that the structure of the
       market has changed to such an extent that the absence of influence over the
       Divestment Business is no longer necessary to render the Transaction compatible with
       the internal market.
       Structure and definition of the Divestment Business
5.     The Divestment Business consists of Rockwell Collins' SMR Technologies – which
       manufactures inter alia Rockwell Collins' pneumatic ice protection systems and other
       ice protection products, along with fueling systems and other industrial products,
       hovercraft skirts, composites and commercial aviation products – as detailed in the
       Schedule. The structure of the Divestment Business as operated to date is described
       in the Schedule.
                                                  4
 ---pagebreak--- 6.     The Divestment Business, described in more detail in the Schedule, includes all assets
       and staff that contribute to the current operation or are necessary to ensure the viability and
       competitiveness of the Divestment Business, in particular:
       (a) all tangible and intangible assets (including intellectual property rights);
       (b) all licenses, permits and authorizations issued by any governmental organisation
           for the benefit of the Divestment Business;
       (c) all contracts, leases, commitments and customer orders of the Divestment
           Business; all customer, credit and other records of the Divestment Business; and
       (d) the Personnel.
7.     For the avoidance of doubt, the Divestment Business will not include:
       (a) the WEMAC product line (e.g., air gasper valves, interior signage components,
           etc.);
       (b) any manufacturing equipment related to the WEMAC product line; and
       (c) any tangible or intangible assets which are exclusively related to the WEMAC
           product line;
       (d) any tangible or intangible assets that are used either exclusively or predominantly
           for activities other than those related to, and that are not necessary for the viability
           and competitiveness of SMR Technologies' businesses.
Section C.       Related commitments
       Preservation of viability, marketability and competitiveness
8.     From the Effective Date until Closing, Rockwell Collins shall preserve or procure the
       preservation of the economic viability, marketability and competitiveness of the
       Divestment Business, in accordance with good business practice, and shall minimise
       as far as possible any risk of loss of competitive potential of the Divestment Business.
       In particular Rockwell Collins undertakes:
       (a) not to carry out any action that might have a significant adverse impact on the
           value, management or competitiveness of the Divestment Business or that might
           alter the nature and scope of activity, or the industrial or commercial strategy or
           the investment policy of the Divestment Business;
       (b) to make available, or procure to make available, sufficient resources for the
           development of the Divestment Business, on the basis and continuation of the
           existing business plans;
                                                       5
 ---pagebreak---     (c) to take all reasonable steps, or procure that all reasonable steps are being taken,
         including appropriate incentive schemes (based on industry practice), to
         encourage all Key Personnel to remain with the Divestment Business, and not to
         solicit or move any Key Personnel to Rockwell Collins' remaining businesses.
         Where, nevertheless, individual members of the Key Personnel exceptionally
         leave the Divestment Business, Rockwell Collins shall provide a reasoned
         proposal to replace the person or persons concerned to the Commission and the
         Monitoring Trustee. Rockwell Collins must be able to demonstrate to the
         Commission that the replacement is well suited to carry out the functions
         exercised by those individual members of the Key Personnel. The replacement
         shall take place under the supervision of the Monitoring Trustee, who shall report
         to the Commission
    Hold-separate obligations
9.  The Parties commit, from the Effective Date until Closing, to keep the Divestment
    Business separate from the business(es) they are retaining and to ensure that unless
    explicitly permitted under these Commitments: (i) management and staff of the
    business(es) retained by the Parties have no involvement in the Divestment Business;
    (ii) the Key Personnel and Personnel of the Divestment Business have no involvement
    in any business retained by the Parties and do not report to any individual outside the
    Divestment Business.
10. Until Closing, Rockwell Collins shall assist the Monitoring Trustee in ensuring that
    the Divestment Business is managed as a distinct and saleable entity separate from the
    businesses which Rockwell Collins is retaining. Immediately after the adoption of the
    Decision, Rockwell Collins shall appoint a Hold Separate Manager. The Hold
    Separate Manager, who shall be part of the Key Personnel, shall manage the
    Divestment Business independently and in the best interest of the Divestment
    Business with a view to ensuring its continued economic viability, marketability and
    competitiveness and its independence from the businesses retained by Rockwell
    Collins. The Hold Separate Manager shall closely cooperate with and report to the
    Monitoring Trustee and, if applicable, the Divestiture Trustee. Any replacement of
    the Hold Separate Manager shall be subject to the procedure laid down in
    paragraph 9(c) of these Commitments. The Commission may, after having heard
    Rockwell Collins, require Rockwell Collins to replace the Hold Separate Manager.
    Ring-fencing
11. The Parties shall implement, or procure to implement, all necessary measures to
    ensure that it does not, after the Effective Date, obtain any Confidential Information
    relating to the Divestment Business. Any such Confidential Information obtained by
    Rockwell Collins before the Effective Date will be eliminated and not be used by
    Rockwell Collins. This includes measures vis-à-vis Rockwell Collins' appointees on
    the supervisory board and/or board of directors of the Divestment Business. In
    particular, the participation of the Divestment Business in any central information
                                               6
 ---pagebreak---     technology network shall be severed to the extent possible, without compromising the
    viability of the Divestment Business. Rockwell Collins may obtain or keep
    information relating to the Divestment Business which is reasonably necessary for the
    divestiture of the Divestment Business or the disclosure of which to Rockwell Collins
    is required by law.
    Non-solicitation clause
12. The Parties undertake, subject to customary limitations, not to solicit, and to procure
    that Affiliated Undertakings do not solicit, the Key Personnel transferred with the
    Divestment Business for a period of […] after Closing.
    Due diligence
13. In order to enable potential purchasers to carry out a reasonable due diligence of the
    Divestment Business, Rockwell Collins shall, subject to customary confidentiality
    assurances and dependent on the stage of the divestiture process:
    (a) provide to potential purchasers sufficient information as regards the Divestment
         Business; and
    (b) provide to potential purchasers sufficient information relating to the Personnel and
         allow them reasonable access to the Personnel.
    Reporting
14. Rockwell Collins shall submit written reports in English on potential purchasers of the
    Divestment Business and developments in the negotiations with such potential
    purchasers to the Commission and the Monitoring Trustee no later than ten (10) days
    after the end of every month following the Effective Date (or otherwise at the
    Commission's request). Rockwell Collins shall submit a list of all potential
    purchasers having expressed interest in acquiring the Divestment Business to the
    Commission at each and every stage of the divestiture process, as well as a copy of all
    the offers made by potential purchasers within five days of their receipt.
15. Rockwell Collins shall inform the Commission and the Monitoring Trustee on the
    preparation of the data room documentation and the due diligence procedure and shall
    submit a copy of any information memorandum to the Commission and the
    Monitoring Trustee before sending the memorandum out to potential purchasers.
                                               7
 ---pagebreak--- Section D.       The Purchaser
16.    In order to be approved by the Commission, the Purchaser must fulfil the following
       criteria:
       (a) The Purchaser shall be independent of and unconnected to the Parties and their
           Affiliated Undertakings (this being assessed having regard to the situation
           following the divestiture);
       (b) The Purchaser shall have the financial resources, proven expertise and incentive to
           maintain and develop the Divestment Business as a viable and active competitive
           force in competition with the Parties and other competitors;
       (c) The Purchaser shall have an existing presence in the aerospace industry;
       (d) The acquisition of the Divestment Business by the Purchaser must neither be
           likely to create, in light of the information available to the Commission, prima
           facie competition concerns nor give rise to a risk that the implementation of the
           Commitments will be delayed. In particular, the Purchaser must reasonably be
           expected to obtain all necessary approvals from the relevant regulatory authorities
           for the acquisition of the Divestment Business.
17.    The final binding sale and purchase agreement (as well as ancillary agreements)
       relating to the divestment of the Divestment Business shall be conditional on the
       Commission's approval. When Rockwell Collins has reached an agreement with a
       purchaser, it shall submit a fully documented and reasoned proposal, including a copy
       of the final agreement(s), within one (1) week to the Commission and the Monitoring
       Trustee. Rockwell Collins must be able to demonstrate to the Commission that the
       purchaser fulfils the Purchaser Criteria and that the Divestment Business is being sold
       in a manner consistent with the Commission's Decision and the Commitments. For
       the approval, the Commission shall verify that the purchaser fulfils the Purchaser
       Criteria and that the Divestment Business is being sold in a manner consistent with
       the Commitments including their objective to bring about a lasting structural change
       in the market. The Commission may approve the sale of the Divestment Business
       without one or more Assets or parts of the Personnel, or by substituting one or more
       Assets or parts of the Personnel with one or more different assets or different
       personnel, if this does not affect the viability and competitiveness of the Divestment
       Business after the sale, taking account of the proposed purchaser.
Section E.       Trustee
I.     Appointment procedure
18.    Rockwell Collins shall appoint a Monitoring Trustee to carry out the functions
       specified in these Commitments for a Monitoring Trustee. Rockwell Collins commits
       not to close the Transaction before the appointment of a Monitoring Trustee.
                                                   8
 ---pagebreak--- 19. If Rockwell Collins has not entered into a binding sale and purchase agreement
    regarding the Divestment Business one (1) month before the end of the First
    Divestiture Period or if the Commission has rejected a purchaser proposed by
    Rockwell Collins at that time or thereafter, Rockwell Collins shall appoint a
    Divestiture Trustee. The appointment of the Divestiture Trustee shall take effect upon
    the commencement of the Trustee Divestiture Period.
20. The Trustee shall:
    (i) at the time of appointment, be independent of the Parties;
    (ii) possess the necessary qualifications to carry out its mandate, for example have
          sufficient relevant experience as an investment banker or consultant or auditor;
          and
    (iii) neither have nor become exposed to a Conflict of Interest.
21. The Trustee shall be remunerated by Rockwell Collins in a way that does not impede
    the independent and effective fulfilment of its mandate. In particular, where the
    remuneration package of a Divestiture Trustee includes a success premium linked to
    the final sale value of the Divestment Business, such success premium may only be
    earned if the divestiture takes place within the Trustee Divestiture Period.
    Proposal by Rockwell Collins
22. No later than two (2) weeks after the Effective Date, Rockwell Collins shall submit
    the names of one (1) or more natural or legal persons whom Rockwell Collins
    proposes to appoint as the Monitoring Trustee to the Commission for approval. No
    later than one (1) month before the end of the First Divestiture Period or on request by
    the Commission, Rockwell Collins shall submit a list of one (1) or more persons
    whom Rockwell Collins proposes to appoint as Divestiture Trustee to the
    Commission for approval. The proposal shall contain sufficient information for the
    Commission to verify that the person or persons proposed as Trustee fulfil the
    requirements set out in paragraph 20 and shall include:
    (a) the full terms of the proposed mandate, which shall include all provisions
         necessary to enable the Trustee to fulfil its duties under these Commitments;
    (b) the outline of a work plan which describes how the Trustee intends to carry out its
         assigned tasks; and
    (c) an indication whether the proposed Trustee is to act as both Monitoring Trustee
         and Divestiture Trustee or whether different trustees are proposed for the two
         functions.
                                                9
 ---pagebreak---          Approval or rejection by the Commission
23.      The Commission shall have the discretion to approve or reject the proposed Trustee(s)
         and to approve the proposed mandate subject to any modifications it deems necessary
         for the Trustee to fulfil its obligations. If only one (1) name is approved, Rockwell
         Collins shall appoint or cause to be appointed the person or persons concerned as
         Trustee, in accordance with the mandate approved by the Commission. If more than
         one (1) name is approved, Rockwell Collins shall be free to choose the Trustee to be
         appointed from among the names approved. The Trustee shall be appointed within
         one (1) week of the Commission’s approval, in accordance with the mandate
         approved by the Commission.
         New proposal by Rockwell Collins
24.      If all the proposed Trustees are rejected, Rockwell Collins shall submit the names of
         at least two (2) more natural or legal persons within one (1) week of being informed
         of the rejection, in accordance with paragraphs 18 and 23 of these Commitments.
         Trustee nominated by the Commission
25.      If all further proposed Trustees are rejected by the Commission, the Commission shall
         nominate a Trustee, whom Rockwell Collins shall appoint, or cause to be appointed,
         in accordance with a Trustee mandate approved by the Commission.
II.      Functions of the Trustee
26.      The Trustee shall assume its specified duties and obligations in order to ensure
         compliance with the Commitments. The Commission may, on its own initiative or at
         the request of the Trustee or Rockwell Collins, give any orders or instructions to the
         Trustee in order to ensure compliance with the conditions and obligations attached to
         the Decision.
         Duties and obligations of the Monitoring Trustee
27.      The Monitoring Trustee shall:
    (i) propose in its first report to the Commission a detailed work plan describing how it
         intends to monitor compliance with the obligations and conditions attached to the
         Decision.
    (ii) oversee, in close co-operation with the Hold Separate Manager, the on-going
         management of the Divestment Business with a view to ensuring its continued
         economic viability, marketability and competitiveness and monitor compliance by
         Rockwell Collins with the conditions and obligations attached to the Decision. To
         that end the Monitoring Trustee shall:
                                                    10
 ---pagebreak---      (a) monitor the preservation of the economic viability, marketability and
         competitiveness of the Divestment Business, and the keeping separate of the
         Divestment Business from the businesses retained by Rockwell Collins, in
         accordance with paragraphs 8 and 9 of these Commitments;
     (b) supervise the management of the Divestment Business, in accordance with
         paragraph 10 of these Commitments;
     (c) with respect to Confidential Information:
              determine all necessary measures to ensure that Rockwell Collins does not
               after the Effective Date obtain any Confidential Information relating to the
               Divestment Business,
              in particular strive for the severing of the Divestment Business' participation
               in a central information technology network to the extent possible, without
               compromising the viability of the Divestment Business,
              make sure that any Confidential Information relating to the Divestment
               Business obtained by Rockwell Collins before the Effective Date is
               eliminated and will not be used by Rockwell Collins, and
              decide whether such information may be disclosed to or kept by Rockwell
               Collins as the disclosure is reasonably necessary to allow Rockwell Collins
               to carry out the divestiture or as the disclosure is required by law;
     (d) monitor the splitting of assets and the allocation of Personnel between the
         Divestment Business and Rockwell Collins;
(iii)propose to Rockwell Collins such measures as the Monitoring Trustee considers
     necessary to ensure Rockwell Collins' compliance with the conditions and obligations
     attached to the Decision, in particular the maintenance of the full economic viability,
     marketability or competitiveness of the Divestment Business, the holding separate of
     the Divestment Business and the non-disclosure of competitively sensitive
     information;
(iv) review and assess potential purchasers as well as the progress of the divestiture
     process and verify that, dependent on the stage of the divestiture process:
     (a) potential purchasers receive sufficient and correct information relating to the
         Divestment Business and the Personnel in particular by reviewing, if available, the
         data room documentation, the information memorandum and the due diligence
         process, and
     (b) potential purchasers are granted reasonable access to the Personnel;
                                                  11
 ---pagebreak---     (v) act as a contact point for any requests by third parties, in particular potential
         purchasers, in relation to the Commitments;
    (vi) provide to the Commission, sending the Parties a non-confidential copy at the same
         time, a written report within fifteen (15) days after the end of every month that shall
         cover the operation and management of the Divestment Business as well as the
         splitting of assets and the allocation of Personnel so that the Commission can assess
         whether the Divestment Business is held in a manner consistent with the
         Commitments and the progress of the divestiture process as well as potential
         purchasers;
    (vii) promptly report in writing to the Commission, sending the Parties a non-confidential
         copy at the same time, if it concludes on reasonable grounds that Rockwell Collins is
         failing to comply with these Commitments;
    (viii) within one (1) week after receipt of the documented proposal referred to in
         paragraph 17 of these Commitments, submit to the Commission, sending the Parties a
         non-confidential copy at the same time, a reasoned opinion as to the suitability and
         independence of the proposed purchaser and the viability of the Divestment Business
         after the sale and as to whether the Divestment Business is sold in a manner consistent
         with the conditions and obligations attached to the Decision, in particular, if relevant,
         whether the sale of the Divestment Business without one or more Assets or one or
         more Key Personnel affects the viability of the Divestment Business after the sale,
         taking account of the proposed purchaser;
    (ix) assume the other functions assigned to the Monitoring Trustee under the conditions
         and obligations attached to the Decision.
28.      If the Monitoring and Divestiture Trustee are not the same legal or natural persons,
         the Monitoring Trustee and the Divestiture Trustee shall cooperate closely with each
         other during and for the purpose of the preparation of the Trustee Divestiture Period
         in order to facilitate each other's tasks.
         Duties and obligations of the Divestiture Trustee
29.      Within the Trustee Divestiture Period, the Divestiture Trustee shall sell at no
         minimum price the Divestment Business to a purchaser, provided that the
         Commission has approved both the purchaser and the final binding sale and purchase
         agreement (and ancillary agreements) as in line with the Commission's Decision and
         the Commitments in accordance with paragraphs 16 and 17 of these Commitments.
         The Divestiture Trustee shall include in the sale and purchase agreement (as well as in
         any ancillary agreements) such terms and conditions as it considers appropriate for an
         expedient sale in the Trustee Divestiture Period. In particular, the Divestiture Trustee
         may include in the sale and purchase agreement such customary representations and
                                                    12
 ---pagebreak---      warranties and indemnities as are reasonably required to affect the sale. The
     Divestiture Trustee shall protect the legitimate financial interests of Rockwell Collins,
     subject to Rockwell Collins' unconditional obligation to divest at no minimum price
     in the Trustee Divestiture Period.
30.  In the Trustee Divestiture Period (or otherwise at the Commission's request), the
     Divestiture Trustee shall provide the Commission with a comprehensive monthly
     report written in English on the progress of the divestiture process. Such reports shall
     be submitted within fifteen (15) days after the end of every month with a
     simultaneous copy to the Monitoring Trustee and a non-confidential copy to the
     Parties.
III. Duties and obligations of Rockwell Collins
31.  Rockwell Collins shall provide and shall cause its advisors to provide the Trustee with
     all such co-operation, assistance and information as the Trustee may reasonably
     require to perform its tasks. The Trustee shall have full and complete access to any of
     Rockwell Collins' or the Divestment Business' books, records, documents,
     management or other personnel, facilities, sites and technical information necessary
     for fulfilling its duties under the Commitments and Rockwell Collins and the
     Divestment Business shall provide the Trustee upon request with copies of any
     document. Rockwell Collins and the Divestment Business shall make available to the
     Trustee one or more offices on their premises and shall be available for meetings in
     order to provide the Trustee with all information necessary for the performance of its
     tasks.
32.  Rockwell Collins shall provide the Monitoring Trustee with all managerial and
     administrative support that it may reasonably request on behalf of the management of
     the Divestment Business. This shall include all administrative support functions
     relating to the Divestment Business which are currently carried out at headquarters
     level. Rockwell Collins shall provide and shall cause its advisors to provide the
     Monitoring Trustee, on request, with the information submitted to potential
     purchasers, in particular give the Monitoring Trustee access to the data room
     documentation and all other information granted to potential purchasers in the due
     diligence procedure. Rockwell Collins shall inform the Monitoring Trustee on
     possible purchasers, submit lists of potential purchasers at each stage of the selection
     process, including the offers made by potential purchasers at those stages, and keep
     the Monitoring Trustee informed of all developments in the divestiture process.
33.  Rockwell Collins shall grant or procure Affiliated Undertakings to grant
     comprehensive powers of attorney, duly executed, to the Divestiture Trustee to effect
     the sale (including ancillary agreements), the Closing and all actions and declarations
     which the Divestiture Trustee considers necessary or appropriate to achieve the sale
     and the Closing, including the appointment of advisors to assist with the sale process.
     Upon request of the Divestiture Trustee, Rockwell Collins shall cause the documents
     required for effecting the sale and the Closing to be duly executed.
                                                 13
 ---pagebreak--- 34. Rockwell Collins shall indemnify the Trustee and its employees and agents (each an
    “Indemnified Party”) and hold each Indemnified Party harmless against, and hereby
    agrees that an Indemnified Party shall have no liability to Rockwell Collins for, any
    liabilities arising out of the performance of the Trustee’s duties under the
    Commitments, except to the extent that such liabilities result from the wilful default,
    recklessness, gross negligence or bad faith of the Trustee, its employees, agents or
    advisors.
35. At the expense of Rockwell Collins, the Trustee may appoint advisors (in particular
    for corporate finance or legal advice), subject to Rockwell Collins' approval (this
    approval not to be unreasonably withheld or delayed) if the Trustee considers the
    appointment of such advisors necessary or appropriate for the performance of its
    duties and obligations under the Mandate, provided that any fees and other expenses
    incurred by the Trustee are reasonable. Should Rockwell Collins refuse to approve
    the advisors proposed by the Trustee the Commission may approve the appointment
    of such advisors instead, after having heard Rockwell Collins. Only the Trustee shall
    be entitled to issue instructions to the advisors. Paragraph 34 of these Commitments
    shall apply mutatis mutandis. In the Trustee Divestiture Period, the Divestiture
    Trustee may use advisors who served Rockwell Collins during the Divestiture Period
    if the Divestiture Trustee considers this in the best interest of an expedient sale.
36. Rockwell Collins agrees that the Commission may share Confidential Information
    proprietary to Rockwell Collins with the Trustee. The Trustee shall not disclose such
    information and the principles contained in Article 17 (1) and (2) of the Merger
    Regulation apply mutatis mutandis.
37. Rockwell Collins agrees that the contact details of the Monitoring Trustee are
    published on the website of the Commission's Directorate-General for Competition
    and they shall inform interested third parties, in particular any potential purchasers, of
    the identity and the tasks of the Monitoring Trustee.
38. For a period of ten (10) years from the Effective Date the Commission may request all
    information from the Parties that is reasonably necessary to monitor the effective
    implementation of these Commitments.
IV. Replacement, discharge and reappointment of the Trustee
39. If the Trustee ceases to perform its functions under the Commitments or for any other
    good cause, including the exposure of the Trustee to a Conflict of Interest:
    (a) the Commission may, after hearing the Trustee and Rockwell Collins, require
         Rockwell Collins to replace the Trustee; or
    (b) Rockwell Collins may, with the prior approval of the Commission, replace the
         Trustee.
                                                14
 ---pagebreak--- 40.    If the Trustee is removed according to paragraph 39 of these Commitments, the
       Trustee may be required to continue in its function until a new Trustee is in place to
       whom the Trustee has effected a full hand over of all relevant information. The new
       Trustee shall be appointed in accordance with the procedure referred to in
       paragraphs 18-25 of these Commitments.
41.    Unless removed according to paragraph 39 of these Commitments, the Trustee shall
       cease to act as Trustee only after the Commission has discharged it from its duties
       after all the Commitments with which the Trustee has been entrusted have been
       implemented. However, the Commission may at any time require the reappointment
       of the Monitoring Trustee if it subsequently appears that the relevant remedies might
       not have been fully and properly implemented.
Section F.      The review clause
42.    The Commission may extend the time periods foreseen in the Commitments in
       response to a request from the Parties or, in appropriate cases, on its own initiative.
       Where the Parties request an extension of a time period, it shall submit a reasoned
       request to the Commission no later than one (1) month before the expiry of that
       period, showing good cause. This request shall be accompanied by a report from the
       Monitoring Trustee, who shall, at the same time send a non-confidential copy of the
       report to the Parties. Only in exceptional circumstances shall the Parties be entitled to
       request an extension within the last month of any period.
43.    The Commission may further, in response to a reasoned request from the Parties
       showing good cause waive, modify or substitute, in exceptional circumstances, one or
       more of the undertakings in these Commitments. This request shall be accompanied
       by a report from the Monitoring Trustee, who shall, at the same time send a non-
       confidential copy of the report to the Parties. The request shall not have the effect of
       suspending the application of the undertaking and, in particular, of suspending the
       expiry of any time period in which the undertaking has to be complied with.
Section G.      Entry into force
44.    The Commitments shall take effect upon the date of adoption of the Decision.
[Signed]
                                                 15
 ---pagebreak---                                          SCHEDULE
1. The proposed Commitments offered by Rockwell Collins consist of the divestiture to
   the Purchaser of SMR Technologies – which manufactures inter alia Rockwell
   Collins' pneumatic ice protection systems and other ice protection products, along
   with fueling systems and other industrial products, hovercraft skirts, composites and
   commercial aviation products – as defined in the Schedule, including the tangible and
   intangible assets listed below (hereinafter referred to as the "Divestment Business").
   For the avoidance of doubt, the Divestment Business does not include the WEMAC
   product line (e.g., air gasper valves, interior signage components, etc.) and related
   equipment and machinery, as specified below.1 If there is any asset or personnel
   which is not covered by this Schedule but which is both used (exclusively or not) in
   the Divestment Business and necessary for the continued viability and
   competitiveness of the Divestment Business, that asset or adequate substitute will be
   offered to potential purchasers.
2. The Divestment Business is comprised of the following tangible assets:
         (a) SMR Technologies' facility located in Fenwick (West Virginia, United
             States);
         (b) The inventory of finished goods to the extent related to the SMR
             Technologies business with the exclusion of those related to the WEMAC
             product line, and owned by SMR Technologies as of the date of Closing, as
             well as the right to market and sell such inventory;
         (c) The manufacturing and testing equipment and machinery owned by SMR
             Technologies and used in the manufacturing of ice protection systems, fueling
             systems and other industrial products, hovercraft skirts, composites and
             commercial aviation products, with the exclusion of those used exclusively or
             predominantly in the WEMAC product line.2                            This includes all
             documentation (for example, machine records, design history files and
             technical files) related to the manufacturing equipment and machinery. An
             exhaustive list of the equipment is included at Appendix 1 to the
             Commitments;
         (d) All business records, books of account, financial records, and tax records to
             the extent pertaining to SMR Technologies, with the exclusion of those
             related to the WEMAC product line;
1
   As submitted in response to RFI 2 on March 22, 2018, the Parties intend to retain the WEMAC product
   line by way of a reverse carve-out. […].
2
   For completeness, one piece of equipment called […] manufactures both the ice protection systems and
   the WEMAC product line. This piece of equipment will be included in the Divestment Business. Only
   machinery exclusively used for the WEMAC product line will be excluded.
                                                   16
 ---pagebreak---        (e) For the avoidance of doubt, the Divestment Business will not include any
           tangible assets that are used either exclusively or predominantly for activities
           other than those related to, and that are not necessary for the viability and
           competitiveness of SMR Technologies' businesses, with the exclusion of the
           WEMAC product line.
3. The Divestment Business is comprised of the following intangible assets:
        (a) Pipeline products. All pipeline products and projects initiated before
            Closing, including […], by SMR Technologies and that are reflected in the
            books and records, with the exception of those exclusively related to the
            WEMAC product line.
        (b) Patents. Rockwell Collins will transfer the patents and applications,
            including the rights thereto, owned by Rockwell Collins that are used by
            SMR Technologies in its ice protection product line or in any of the other
            products manufactured in its Fenwick facility. […]. A non-exhaustive list
            of the patents and applications to be transferred is included at Appendix 2 to
            the Commitments.
        (c) Know-how. Rockwell Collins will transfer the trade secrets, confidential
            know-how, confidential customer data, or other confidential information and
            other intellectual property owned by Rockwell Collins that are used by SMR
            Technologies in Rockwell Collins' ice protection product lines, as well as in
            other products manufactured in its Fenwick facility, with the exception of
            the WEMAC product line. A non-exhaustive list is included at Appendix 3
            to the Commitments.
        (d) Brands. Rockwell Collins will transfer the ice protection brand names […].
            Rockwell Collins will also transfer the brand names associated with any of
            its other products manufactured SMR Technologies, with the exception of
            those related to the WEMAC product line. A non-exhaustive list is included
            at Appendix 4 to the Commitments.
        (e) Other intangible assets.
                (i) Any contracts related to Rockwell Collins’ Divestment Business
                     product line or pipeline projects (or are otherwise necessary to
                     operate the Divestment Business and to develop the pipeline
                     projects) entered into by Rockwell Collins prior to Closing.
                (ii) In order to confer the benefit of such contracts to the Purchaser,
                     Rockwell Collins will use its best efforts to transfer (in whole or in
                     part) any sales, sourcing, supply and distribution agreements to the
                     extent they relate to the manufacture and/or commercialization of the
                     Divestment Business product lines or pipeline projects (or are
                     otherwise necessary to operate the Divestment Business and to
                     develop the pipeline projects).
                                               17
 ---pagebreak---                      (iii)All licenses, permits and authorizations issued by any governmental
                          organization (including, where applicable, the CE mark) specifically
                          identified by reference to a schedule, to the extent transferable under
                          applicable legal requirements and Purchaser and its affiliates do not
                          own substantially similar licenses, permits and authorizations. A
                          non-exhaustive list is included at Appendix 5 to the Commitments.
             (f) The Divestment Business will not include any intangible assets that are used
                 either exclusively or predominantly for activities other than those related to,
                 and that are not necessary for the viability and competitiveness of SMR
                 Technologies' businesses.
   4. For the avoidance of doubt, the Divestment Business concerns SMR Technologies,
      including its tangible and intangible assets with the exclusion of the WEMAC product
      line (e.g., air gasper valves and related components as well as interior signage
      components). The WEMAC product line will be transferred to Rockwell Collins'
      facility […]. The WEMAC product line is unrelated to the manufacturing of ice
      protection systems.
5.    The Divestment Business includes all Personnel employed at SMR Technologies
      including Key Personnel set out below. An exhaustive list of the Key Personnel, and
      the Personnel is enclosed at Appendix 6 to the Commitments.
              […]: Manufacturing Engineering Manager;
              […]: Quality Manager;
              […]: Program Manager;
              […]: Marketing Specialist;
              […]: Inside Sales Representative;
              […]: Inside Sales Representative;
              […]: Manufacturing Supervisor (De-ice product line);
              […]: Materials Supervisor;
                                                    18
 ---pagebreak---             […]: Accounting Manager; and
            […]: Maintenance Supervisor.
6.    At the request of the Purchaser, customary transition services may be put in place
      notwithstanding the stand-alone business that constitutes SMR Technologies.
                                             ***
Appendices 1-6 […]
                                               19
 ---pagebreak---                                                  Annex 4
                                                                                         April 26, 2018
European Commission
DG Competition
Place Madou
1210 BRUSSELS
               CASE COMP/M.8658 – UTC/ROCKWELL COLLINS
            COMMITMENTS TO THE EUROPEAN COMMISSION
Pursuant to Article 6(2) of Council Regulation (EC) No 139/2004 (the “Merger Regulation”), United
Technologies Corporation (“UTC”) hereby enters into the following Commitments (the
“Commitments”) vis-à-vis the European Commission (the “Commission”) with a view to rendering
the acquisition of Rockwell Collins, Inc. (“Rockwell Collins”, together with UTC the “Parties”) (the
“Concentration”) compatible with the internal market and the functioning of the EEA Agreement.
This text shall be interpreted in light of the Commission’s decision pursuant to Article 6(1)(b) of the of
the Merger Regulation to declare the Concentration compatible with the internal market and the
functioning of the EEA Agreement (the “Decision”), in the general framework of European Union
law, in particular in light of the Merger Regulation, and by reference to the Commission Notice on
remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation
(EC) No 802/2004 (the “Remedies Notice”).
Section A.        Definitions
1. For the purpose of the Commitments, the following terms shall have the following meaning:
    Administrative Support: any administrative support provided by UTC to the Hold Separate
    Manager and the Divestment Programs, including at the Hold Separate Manager’s request, to
    assist with day-to-day management of the Divestment Programs, including but not limited to legal
    advice and use of IT resources or administrative resources.
    Affiliated Undertakings: undertakings controlled by the Parties, whereby the notion of control
    shall be interpreted pursuant to Article 3 of the Merger Regulation and in light of the Commission
    Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of
    concentrations between undertakings (the “Consolidated Jurisdictional Notice”).
    Assets: the assets that contribute to the current operation or are necessary to ensure the viability
    and competitiveness of the Divestment Programs as indicated in Section B, paragraphs 6 (a), (b)
    and (c) and described more in detail in the Schedule.
    [Details of UTC’s R&D programs] Oxygen Program: [details of UTC’s R&D programs].
 ---pagebreak--- Closing: the transfer of the Divestment Programs to the Purchaser.
Closing Period: the period of […] from the approval of the Purchaser and the terms of sale by the
Commission or the obtaining of all required regulatory approvals prior to Closing, whichever
occurs later.
Confidential Information: any business secrets, know-how, commercial information, or any
other information of a proprietary nature that is not in the public domain.
Conflict of Interest: any conflict of interest that impairs the Trustee's objectivity and
independence in discharging its duties under the Commitments.
[Details of UTC’s R&D programs] Oxygen Program: [details of UTC’s R&D programs].
Divestment Programs: the oxygen research and development programs that UTC commits to
divest, as defined in Section B and in the Schedule.
Divestiture Trustee: one or more natural or legal person(s) who is/are approved by the
Commission and appointed by UTC and who has/have received from UTC the exclusive Trustee
Mandate to sell the Divestment Programs to a Purchaser at no minimum price.
Effective Date: the date of adoption of the Decision.
First Divestiture Period: the period of […] from the Effective Date.
Hold Separate Manager: the person appointed by UTC for the Divestment Programs to manage
the day-to-day business under the supervision of the Monitoring Trustee.
Key Personnel: all personnel necessary to maintain the viability and competitiveness of the
Divestment Programs, as listed in the Schedule.
Monitoring Trustee: one or more natural or legal person(s) who is/are approved by the
Commission and appointed by UTC, and who has/have the duty to monitor UTC’s compliance
with the conditions and obligations attached to the Decision.
Parties: UTC and the undertaking that is the target of the concentration, Rockwell Collins.
Personnel: all staff currently solely engaged in the Divestment Programs, as listed in the
Schedule.
Proposed Transaction: the acquisition of Rockwell Collins by UTC.
Purchaser: the entity approved by the Commission as acquirer of the Divestment Programs in
accordance with the criteria set out in Section D. Any singular reference to the Purchaser should
be considered to refer to one or more Purchasers.
Purchaser Criteria: the criteria laid down in paragraph 16 of these Commitments that the
Purchaser must fulfil in order to be approved by the Commission.
                                                    2
 ---pagebreak---     Rockwell Collins: Rockwell Collins, Inc., incorporated under the laws of the State of Delaware,
    United States, with its registered office at 400 Collins Road N.E., Cedar Rapids, Iowa 52498,
    United States.
    Schedule: the schedule to these Commitments describing more in detail the Divestment Programs.
    Trustee(s): the Monitoring Trustee and/or the Divestiture Trustee as the case may be.
    Trustee Divestiture Period: the period of […] from the end of the First Divestiture Period,
    subject to any extensions granted in accordance with Section F (The Review Clause) of these
    Commitments.
    UTC: United Technologies Corporation, incorporated under the laws of the State of Delaware,
    United States, with its registered office at Corporation Trust Center, 1209 Orange Street, in the
    City of Wilmington, County of New Castle, Delaware, 19801, United States, and registered with
    the Delaware Division of Corporations under file number 0334827.
Section B.        The commitment to divest and the Divestment Programs
       Commitment to divest
2. In order to maintain effective competition, UTC commits to divest, or procure the divestiture of
    the Divestment Programs by the end of the Trustee Divestiture Period to a purchaser and on terms
    of sale approved by the Commission in accordance with the procedure described in paragraph 17
    of these Commitments. To carry out the divestiture, UTC commits to find a purchaser and to enter
    into a final binding sale and purchase agreement for the sale of the Divestment Programs within
    the First Divestiture Period. If UTC has not entered into such an agreement at the end of the First
    Divestiture Period, UTC shall grant the Divestiture Trustee an exclusive mandate to sell the
    Divestment Programs in accordance with the procedure described in paragraph 29 in the Trustee
    Divestiture Period.
3. The Concentration shall not be implemented before UTC or the Divestiture Trustee has entered
    into a final binding sale and purchase agreement for the sale of the Divestment Programs and the
    Commission has approved the purchaser and the terms of sale in accordance with paragraph 17.
4. UTC shall be deemed to have complied with this commitment if:
       (a)       by the end of the Trustee Divestiture Period, UTC or the Divestiture Trustee has
                 entered into a final binding sale and purchase agreement and the Commission
                 approves the proposed purchaser and the terms of sale as being consistent with the
                 Commitments in accordance with the procedure described in paragraph 17; and
       (b)       the Closing of the sale of the Divestment Programs to the Purchaser takes place within
                 the Closing Period.
                                                       3
 ---pagebreak--- 5. In order to maintain the structural effect of the Commitments, UTC shall, for a period of […] after
    Closing, not acquire, whether directly or indirectly, the possibility of exercising influence (as
    defined in paragraph 43 of the Remedies Notice, footnote 3) over the whole or part of the
    Divestment Programs, unless, following the submission of a reasoned request from UTC showing
    good cause and accompanied by a report from the Monitoring Trustee (as provided in paragraph
    43 of these Commitments), the Commission finds that the structure of the market has changed to
    such an extent that the absence of influence over the Divestment Programs is no longer necessary
    to render the proposed concentration compatible with the internal market.
       Structure and definition of the Divestment Programs
6. The Divestment Programs consist of all of UTC’s activities in the development of aircraft oxygen
    generation systems, consisting of two R&D programs: the […] Oxygen Program and the […]
    Oxygen Program. The legal and functional structure of the Divestment Programs as operated to
    date is described in the Schedule. The Divestment Programs, described in more detail in the
    Schedule, include all assets and staff that contribute to the current operation or are necessary to
    ensure the viability and competitiveness of the Divestment Programs, in particular:
       (a)       all intangible assets, including intellectual property rights;
       (b)       all research and development contracts of the Divestment Programs concerning the
                 […] Oxygen Program and the […] Oxygen Program;
       (c)       the Personnel.
7. [Intentionally left blank].
 Section C.        Related commitments
       Preservation of viability, marketability and competitiveness
8. From the Effective Date until Closing, UTC shall preserve or procure the preservation of the
    economic viability, marketability and competitiveness of the Divestment Programs, in accordance
    with good business practice, and shall minimise as far as possible any risk of loss of competitive
    potential of the Divestment Programs. In particular UTC undertakes:
       (a)       not to carry out any action that might have a significant adverse impact on the value,
                 management or competitiveness of the Divestment Programs or that might alter the
                 nature and scope of activity, or the industrial or commercial strategy or the investment
                 policy of the Divestment Programs;
       (b)       to make available, or procure to make available, sufficient resources for the
                 development of the Divestment Programs, on the basis and continuation of the
                 existing business plans;
       (c)       to take all reasonable steps, or procure that all reasonable steps are being taken,
                 including appropriate incentive schemes (based on industry practice), to encourage all
                 Key Personnel to remain with the Divestment Programs, and not to solicit or move
                 any Personnel to UTC’s remaining business. Where, nevertheless, individual members
                                                          4
 ---pagebreak---                  of the Key Personnel exceptionally leave the Divestment Programs, UTC shall
                 provide a reasoned proposal to replace the person or persons concerned to the
                 Commission and the Monitoring Trustee. UTC must be able to demonstrate to the
                 Commission that the replacement is well suited to carry out the functions exercised by
                 those individual members of the Key Personnel. The replacement shall take place
                 under the supervision of the Monitoring Trustee, who shall report to the Commission.
       Hold-separate obligations
9. UTC commits, from the Effective Date until Closing, to procure that the Divestment Programs are
    kept separate from the businesses that UTC will be retaining and, after closing of the notified
    transaction to keep the Divestment Programs separate from the business that UTC is retaining and
    to ensure that unless explicitly permitted under these Commitments: (i) management and staff of
    the businesses retained by UTC have no involvement in the Divestment Programs, with the
    exception of providing Administrative Support; (ii) the Key Personnel and Personnel of the
    Divestment Programs have no involvement in any business retained by UTC . These provisions
    will not apply to any involvement necessary after the Effective Date by UTC personnel not
    engaged in the Divestment Programs, in the negotiation and signing of any agreements with […]
    for additional research in the best interests of the […] Oxygen Program. For the avoidance of
    doubt, any such agreements shall be considered a contract relating to the Divestment Programs as
    set out in paragraph 2 of the Schedule.
10. Until Closing, UTC shall assist the Monitoring Trustee in ensuring that the Divestment Programs
    are managed as distinct and saleable research and development programs separate from the
    businesses which UTC is retaining. Immediately after the adoption of the Decision, UTC shall
    appoint a Hold Separate Manager. The Hold Separate Manager, who shall be part of the Key
    Personnel, shall manage the Divestment Programs independently and in the best interest of the
    Divestment Programs with a view to ensuring their continued economic viability, marketability
    and competitiveness and their independence from the businesses retained by UTC, with UTC’s
    Administrative Support where needed. The Hold Separate Manager shall closely cooperate with
    and report to the Monitoring Trustee and, if applicable, the Divestiture Trustee. Any replacement
    of the Hold Separate Manager shall be subject to the procedure laid down in paragraph 8(c) of
    these Commitments. The Commission may, after having heard UTC, require UTC to replace the
    Hold Separate Manager.
11. [Intentionally left blank.]
       Ring-fencing
12. UTC shall implement, or procure to implement, all necessary measures to ensure that it does not,
    after the Effective Date, obtain any Confidential Information relating to the Divestment Programs
    except to the extent needed and only for the purposes of providing Administrative Support, and
    that any such Confidential Information obtained by UTC before the Effective Date will be
    eliminated and not be used by UTC. In particular, the participation of the Divestment Programs in
    any central information technology network shall be severed to the extent possible, without
    compromising the viability of the Divestment Programs. UTC may obtain or keep information
    relating to the Divestment Programs which is reasonably necessary for the divestiture of the
    Divestment Programs or the disclosure of which to UTC is required by law.
                                                       5
 ---pagebreak---        Non-solicitation clause
13. The Parties undertake, subject to customary limitations, not to solicit, and to procure that
    Affiliated Undertakings do not solicit, the Key Personnel transferred with the Divestment
    Programs for a period of […] after Closing.
       Due diligence
14. In order to enable potential purchasers to carry out a reasonable due diligence of the Divestment
    Programs, UTC shall, subject to customary confidentiality assurances and dependent on the stage
    of the divestiture process:
       (a)        provide to potential purchasers sufficient information as regards the Divestment
                  Programs;
       (b)        provide to potential purchasers sufficient information relating to the Personnel and
                  allow them reasonable access to the Personnel.
       Reporting
15. UTC shall submit written reports in English on potential purchasers of the Divestment Programs
    and developments in the negotiations with such potential purchasers to the Commission and the
    Monitoring Trustee no later than 10 days after the end of every month following the Effective
    Date (or otherwise at the Commission’s request). UTC shall submit a list of all potential
    purchasers having expressed interest in acquiring the Divestment Programs to the Commission at
    each and every stage of the divestiture process, as well as a copy of all the offers made by
    potential purchasers within five days of their receipt.
16. UTC shall inform the Commission and the Monitoring Trustee on the preparation of the data room
    documentation and the due diligence procedure and shall submit a copy of any information
    memorandum to the Commission and the Monitoring Trustee before sending the memorandum out
    to potential purchasers.
Section D.         The Purchaser
17. In order to be approved by the Commission, the Purchaser must fulfil the following criteria:
       (a) The Purchaser shall be independent of and unconnected to the Parties and their Affiliated
       Undertakings (this being assessed having regard to the situation following the divestiture).
       (b) The Purchaser shall have the financial resources, proven expertise and incentive to maintain
       and develop the Divestment Programs as a viable and active competitive force in competition
       with the Parties and other competitors and, in particular, to continue to commit resources as
       UTC would otherwise have done to progress the Development Programs;
       (c) The acquisition of the Divestment Programs by the Purchaser must neither be likely to
       create, in light of the information available to the Commission, prima facie competition
       concerns nor give rise to a risk that the implementation of the Commitments will be delayed. In
       particular, the Purchaser must reasonably be expected to obtain all necessary approvals from the
       relevant regulatory authorities for the acquisition of the Divestment Programs.
                                                         6
 ---pagebreak--- 18. The final binding sale and purchase agreement (as well as ancillary agreements) relating to the
    divestment of the Divestment Programs shall be conditional on the Commission’s approval. When
    UTC has reached an agreement with a purchaser, it shall submit a fully documented and reasoned
    proposal, including a copy of the final agreement(s), within one week to the Commission and the
    Monitoring Trustee. UTC must be able to demonstrate to the Commission that the purchaser fulfils
    the Purchaser Criteria and that the Divestment Programs are being sold in a manner consistent
    with the Commission's Decision and the Commitments. For the approval, the Commission shall
    verify that the purchaser fulfils the Purchaser Criteria and that the Divestment Programs are being
    sold in a manner consistent with the Commitments including their objective to bring about a
    lasting structural change in the market. The Commission may approve the sale of the Divestment
    Programs without one or more Assets or parts of the Personnel, or by substituting one or more
    Assets or parts of the Personnel with one or more different assets or different personnel, if this
    does not affect the viability and competitiveness of the Divestment Programs after the sale, taking
    account of the proposed purchaser.
Section E.          Trustee
       I.           Appointment procedure
19. UTC shall appoint a Monitoring Trustee to carry out the functions specified in these Commitments
    for a Monitoring Trustee. UTC commits not to close the Concentration before the appointment of
    a Monitoring Trustee.
20. If UTC has not entered into a binding sale and purchase agreement regarding the Divestment
    Programs one month before the end of the First Divestiture Period or if the Commission has
    rejected a purchaser proposed by UTC at that time or thereafter, UTC shall appoint a Divestiture
    Trustee. The appointment of the Divestiture Trustee shall take effect upon the commencement of
    the Trustee Divestiture Period.
21. The Trustee shall:
       (i) at the time of appointment, be independent of the Parties and their Affiliated Undertakings;
       (ii) possess the necessary qualifications to carry out its mandate, for example have sufficient
       relevant experience as an investment banker or consultant or auditor; and
       (iii) neither have nor become exposed to a Conflict of Interest.
22. The Trustee shall be remunerated by UTC in a way that does not impede the independent and
    effective fulfilment of its mandate. In particular, where the remuneration package of a Divestiture
    Trustee includes a success premium linked to the final sale value of the Divestment Programs,
    such success premium may only be earned if the divestiture takes place within the Trustee
    Divestiture Period.
                    Proposal by UTC
23. No later than two weeks after the Effective Date, UTC shall submit the name or names of one or
    more natural or legal persons whom UTC proposes to appoint as the Monitoring Trustee to the
    Commission for approval. No later than one month before the end of the First Divestiture Period
    or on request by the Commission, UTC shall submit a list of one or more persons whom UTC
                                                        7
 ---pagebreak---     proposes to appoint as Divestiture Trustee to the Commission for approval. The proposal shall
    contain sufficient information for the Commission to verify that the person or persons proposed as
    Trustee fulfil the requirements set out in paragraph 20 and shall include:
       (a)        the full terms of the proposed mandate, which shall include all provisions necessary to
                  enable the Trustee to fulfil its duties under these Commitments;
       (b)        the outline of a work plan which describes how the Trustee intends to carry out its
                  assigned tasks;
       (c)        an indication whether the proposed Trustee is to act as both Monitoring Trustee and
                  Divestiture Trustee or whether different trustees are proposed for the two functions.
                   Approval or rejection by the Commission
24. The Commission shall have the discretion to approve or reject the proposed Trustee(s) and to
    approve the proposed mandate subject to any modifications it deems necessary for the Trustee to
    fulfil its obligations. If only one name is approved, UTC shall appoint or cause to be appointed the
    person or persons concerned as Trustee, in accordance with the mandate approved by the
    Commission. If more than one name is approved, UTC shall be free to choose the Trustee to be
    appointed from among the names approved. The Trustee shall be appointed within one week of the
    Commission’s approval, in accordance with the mandate approved by the Commission.
                   New proposal by the UTC
25. If all the proposed Trustees are rejected, UTC shall submit the names of at least two more natural
    or legal persons within one week of being informed of the rejection, in accordance with
    paragraphs 18 and 23 of these Commitments.
                   Trustee nominated by the Commission
26. If all further proposed Trustees are rejected by the Commission, the Commission shall nominate a
    Trustee, whom UTC shall appoint, or cause to be appointed, in accordance with a trustee mandate
    approved by the Commission.
       II.         Functions of the Trustee
27. The Trustee shall assume its specified duties and obligations in order to ensure compliance with
    the Commitments. The Commission may, on its own initiative or at the request of the Trustee or
    UTC, give any orders or instructions to the Trustee in order to ensure compliance with the
    conditions and obligations attached to the Decision.
                                                           8
 ---pagebreak---                 Duties and obligations of the Monitoring Trustee
28. The Monitoring Trustee shall:
    (i)   propose in its first report to the Commission a detailed work plan describing how it
          intends to monitor compliance with the obligations and conditions attached to the
          Decision.
    (ii)  oversee, in close co-operation with the Hold Separate Manager, the on-going management
          of the Divestment Programs with a view to ensuring their continued economic viability,
          marketability and competitiveness and monitor compliance by UTC with the conditions
          and obligations attached to the Decision. To that end the Monitoring Trustee shall:
             (a) monitor the preservation of the economic viability, marketability and
                 competitiveness of the Divestment Programs, and the keeping separate of the
                 Divestment Programs from the business retained by the Parties, in accordance with
                 paragraphs 8 and 9 of these Commitments;
             (b) supervise the management of the Divestment Programs as a distinct and saleable
                 research and development program, in accordance with paragraph 10 of these
                 Commitments;
             (c) with respect to Confidential Information:
                       determine all necessary measures to ensure that UTC does not after the
                        Effective Date obtain any Confidential Information relating to the
                        Divestment Programs,
                       in particular strive for the severing of the Divestment Programs’ participation
                        in a central information technology network to the extent possible, without
                        compromising the viability of the Divestment Programs,
                       make sure that any Confidential Information relating to the Divestment
                        Programs obtained by UTC before the Effective Date is eliminated and will
                        not be used by UTC and
                       decide whether such information may be disclosed to or kept by UTC as the
                        disclosure is reasonably necessary to allow UTC to carry out the divestiture
                        or as the disclosure is required by law;
             (d) monitor the splitting of assets and the allocation of Personnel between the
                 Divestment Programs and UTC or Affiliated Undertakings;
    (iii) propose to UTC such measures as the Monitoring Trustee considers necessary to ensure
          UTC’s compliance with the conditions and obligations attached to the Decision, in
          particular the maintenance of the full economic viability, marketability or competitiveness
          of the Divestment Programs, the holding separate of the Divestment Programs and the
          non-disclosure of competitively sensitive information;
    (iv)  review and assess potential purchasers as well as the progress of the divestiture process
          and verify that, dependent on the stage of the divestiture process:
                                                       9
 ---pagebreak---                (a) potential purchasers receive sufficient and correct information relating to the
                    Divestment Programs and the Personnel in particular by reviewing, if available, the
                    data room documentation, the information memorandum and the due diligence
                    process, and
               (b) potential purchasers are granted reasonable access to the Personnel;
    (v)     act as a contact point for any requests by third parties, in particular potential purchasers, in
            relation to the Commitments;
    (vi)    provide to the Commission, sending UTC a non-confidential copy at the same time, a
            written report within 15 days after the end of every month that shall cover the operation
            and management of the Divestment Programs as well as the splitting of assets and the
            allocation of Personnel so that the Commission can assess whether the Divestment
            Programs are held in a manner consistent with the Commitments and the progress of the
            divestiture process as well as potential purchasers;
    (vii)   promptly report in writing to the Commission, sending UTC a non-confidential copy at the
            same time, if it concludes on reasonable grounds that UTC is failing to comply with these
            Commitments;
    (viii)  within one week after receipt of the documented proposal referred to in paragraph 17 of
            these Commitments, submit to the Commission, sending UTC a non-confidential copy at
            the same time, a reasoned opinion as to the suitability and independence of the proposed
            purchaser and the viability of the Divestment Programs after the Sale and as to whether
            the Divestment Programs are sold in a manner consistent with the conditions and
            obligations attached to the Decision, in particular, if relevant, whether the Sale of the
            Divestment Programs without one or more Assets or not all of the Personnel affects the
            viability of the Divestment Programs after the sale, taking account of the proposed
            purchaser;
    (ix)    assume the other functions assigned to the Monitoring Trustee under the conditions and
            obligations attached to the Decision.
29. If the Monitoring and Divestiture Trustee are not the same legal or natural persons, the Monitoring
    Trustee and the Divestiture Trustee shall cooperate closely with each other during and for the
    purpose of the preparation of the Trustee Divestiture Period in order to facilitate each other's tasks.
                  Duties and obligations of the Divestiture Trustee
30. Within the Trustee Divestiture Period, the Divestiture Trustee shall sell at no minimum price the
    Divestment Programs to a purchaser, provided that the Commission has approved both the
    purchaser and the final binding sale and purchase agreement (and ancillary agreements) as in line
    with the Commission's Decision and the Commitments in accordance with paragraphs 17 and 17
    of these Commitments. The Divestiture Trustee shall include in the sale and purchase agreement
    (as well as in any ancillary agreements) such terms and conditions as it considers appropriate for
    an expedient sale in the Trustee Divestiture Period. In particular, the Divestiture Trustee may
                                                       10
 ---pagebreak---     include in the sale and purchase agreement such customary representations and warranties and
    indemnities as are reasonably required to effect the sale. The Divestiture Trustee shall protect the
    legitimate financial interests of UTC, subject to UTC’s unconditional obligation to divest at no
    minimum price in the Trustee Divestiture Period.
31. In the Trustee Divestiture Period (or otherwise at the Commission’s request), the Divestiture
    Trustee shall provide the Commission with a comprehensive monthly report written in English on
    the progress of the divestiture process. Such reports shall be submitted within 15 days after the end
    of every month with a simultaneous copy to the Monitoring Trustee and a non-confidential copy to
    UTC.
       III.       Duties and obligations of the Parties
32. UTC shall provide and shall cause its advisors to provide the Trustee with all such co-operation,
    assistance and information as the Trustee may reasonably require to perform its tasks. The Trustee
    shall have full and complete access to any of UTC’s or the Divestment Programs’ books, records,
    documents, management or other personnel, facilities, sites and technical information necessary
    for fulfilling its duties under the Commitments and UTC and the Divestment Programs shall
    provide the Trustee upon request with copies of any document. UTC and the Divestment Programs
    shall make available to the Trustee one or more offices on their premises and shall be available for
    meetings in order to provide the Trustee with all information necessary for the performance of its
    tasks.
33. UTC shall provide the Monitoring Trustee with all managerial and administrative support that it
    may reasonably request on behalf of the management of the Divestment Programs. This shall
    include all administrative support functions relating to the Divestment Programs which are
    currently carried out at headquarters level. UTC shall provide and shall cause its advisors to
    provide the Monitoring Trustee, on request, with the information submitted to potential
    purchasers, in particular give the Monitoring Trustee access to the data room documentation and
    all other information granted to potential purchasers in the due diligence procedure. UTC shall
    inform the Monitoring Trustee on possible purchasers, submit lists of potential purchasers at each
    stage of the selection process, including the offers made by potential purchasers at those stages,
    and keep the Monitoring Trustee informed of all developments in the divestiture process.
34. UTC shall grant or procure Affiliated Undertakings to grant comprehensive powers of attorney,
    duly executed, to the Divestiture Trustee to effect the sale (including ancillary agreements), the
    Closing and all actions and declarations which the Divestiture Trustee considers necessary or
    appropriate to achieve the sale and the Closing, including the appointment of advisors to assist
    with the sale process. Upon request of the Divestiture Trustee, UTC shall cause the documents
    required for effecting the sale and the Closing to be duly executed.
35. UTC shall indemnify the Trustee and its employees and agents (each an “Indemnified Party”) and
    hold each Indemnified Party harmless against, and hereby agrees that an Indemnified Party shall
    have no liability to UTC for, any liabilities arising out of the performance of the Trustee’s duties
    under the Commitments, except to the extent that such liabilities result from the wilful default,
    recklessness, gross negligence or bad faith of the Trustee, its employees, agents or advisors.
                                                        11
 ---pagebreak--- 36. At the expense of UTC, the Trustee may appoint advisors (in particular for corporate finance or
    legal advice), subject to UTC’s approval (this approval not to be unreasonably withheld or
    delayed) if the Trustee considers the appointment of such advisors necessary or appropriate for the
    performance of its duties and obligations under the Mandate, provided that any fees and other
    expenses incurred by the Trustee are reasonable. Should UTC refuse to approve the advisors
    proposed by the Trustee the Commission may approve the appointment of such advisors instead,
    after having heard UTC. Only the Trustee shall be entitled to issue instructions to the advisors.
    Paragraph 34 of these Commitments shall apply mutatis mutandis. In the Trustee Divestiture
    Period, the Divestiture Trustee may use advisors who served UTC during the Divestiture Period if
    the Divestiture Trustee considers this in the best interest of an expedient sale.
37. UTC agrees that the Commission may share Confidential Information proprietary to UTC with the
    Trustee. The Trustee shall not disclose such information and the principles contained in Article 17
    (1) and (2) of the Merger Regulation apply mutatis mutandis.
38. UTC agrees that the contact details of the Monitoring Trustee are published on the website of the
    Commission's Directorate-General for Competition and they shall inform interested third parties,
    in particular any potential purchasers, of the identity and the tasks of the Monitoring Trustee.
39. For a period of 10 years from the Effective Date the Commission may request all information
    from the Parties that is reasonably necessary to monitor the effective implementation of these
    Commitments.
        IV.       Replacement, discharge and reappointment of the Trustee
40. If the Trustee ceases to perform its functions under the Commitments or for any other good cause,
    including the exposure of the Trustee to a Conflict of Interest:
    (a) the Commission may, after hearing the Trustee and UTC, require UTC to replace the Trustee;
    or
    (b) UTC may, with the prior approval of the Commission, replace the Trustee.
41. If the Trustee is removed according to paragraph 39 of these Commitments, the Trustee may be
    required to continue in its function until a new Trustee is in place to whom the Trustee has
    effected a full hand over of all relevant information. The new Trustee shall be appointed in
    accordance with the procedure referred to in paragraphs 18-25 of these Commitments.
42. Unless removed according to paragraph 39 of these Commitments, the Trustee shall cease to act as
    Trustee only after the Commission has discharged it from its duties after all the Commitments
    with which the Trustee has been entrusted have been implemented. However, the Commission
    may at any time require the reappointment of the Monitoring Trustee if it subsequently appears
    that the relevant remedies might not have been fully and properly implemented.
Section F.        The review clause
43. The Commission may extend the time periods foreseen in the Commitments in response to a
    request from UTC or, in appropriate cases, on its own initiative. Where UTC requests an extension
    of a time period, it shall submit a reasoned request to the Commission no later than one month
                                                        12
 ---pagebreak---     before the expiry of that period, showing good cause. This request shall be accompanied by a
    report from the Monitoring Trustee, who shall, at the same time send a non-confidential copy of
    the report to UTC. Only in exceptional circumstances shall UTC be entitled to request an
    extension within the last month of any period.
44. The Commission may further, in response to a reasoned request from UTC showing good cause
    waive, modify or substitute, in exceptional circumstances, one or more of the undertakings in
    these Commitments. This request shall be accompanied by a report from the Monitoring Trustee,
    who shall, at the same time send a non-confidential copy of the report to UTC. The request shall
    not have the effect of suspending the application of the undertaking and, in particular, of
    suspending the expiry of any time period in which the undertaking has to be complied with.
Section G.       Entry into force
45. The Commitments shall take effect upon the date of adoption of the Decision.
        [Signed]
                                                     13
 ---pagebreak---                                        SCHEDULE
1.  The Divestment Programs consist of UTC’s activities in the development of aircraft
    passenger oxygen generation systems, consisting of two R&D programs, the […]
    Oxygen Program and the […] Oxygen Program. They include all of UTC’s oxygen-
    related assets necessary to continue developmental R&D efforts on the […] Oxygen
    Program and the […] Oxygen Program.
2.  In accordance with paragraph 5 of these Commitments, the Divestment Programs
    comprise:
(a) All intangible assets owned by UTC or Affiliated Undertakings at the Effective Date,
    including all UTC’s rights in intellectual property, research data generated in the
    course of business, patents, invention disclosures, research results, and know-how,
    necessary to continue R&D efforts on the […] Oxygen Program and the […] Oxygen
    Program. In particular, UTC’s intangible assets to be transferred include all patents
    and patent applications listed in Confidential Annex – Oxygen – 4.
(b) All research and development contracts relating to the Divestment Programs and
    necessary to continue R&D efforts on the […] Oxygen Program and the […] Oxygen
    Program, entered into by UTC prior to Closing. In particular, UTC will make best
    efforts to either assign any existing contracts with the partner universities involved in
    the […] Oxygen Program (including the […] identified in Confidential Annex –
    Oxygen – 2), and the […] Oxygen Program (including the agreement with […]
    identified in Confidential Annex – Oxygen – 3.3) to the Purchaser, as well as any
    future agreements with […] for additional oxygen-related research, or alternatively
    and at the Purchaser’s discretion, will make best efforts to terminate any existing
    contracts with the universities, as well as any new agreements with […], so as to
    provide the Purchaser with the ability to enter into new contracts with the partner
    universities or carry out the research concerning the […] Oxygen Program and […]
    Oxygen Program alone or with partners of its own choosing;
(c) The following Personnel and Key Personnel: the Divestment Programs’ […].
3.  The Divestment Programs shall not include:
(a) Any intangible assets owned by UTC that are used either exclusively or predominantly
    for activities other than those related to, and that are not necessary for the viability and
    competitiveness of, the […] Oxygen Program or the […] Oxygen Program.
(b) The employees who currently provide limited general engineering and project support
    to the Divestment Programs, or management oversight, and reflect the general non-
    specialized expertise that any qualified aerospace Purchaser would have and will not
    be transferred.
(c) Certain UTC employees assisting with the negotiation and signing of any agreements
    with […] for additional research in the […] Oxygen Program.
                                            14
 ---pagebreak---       (d)    Certain commercially available engineering software owned or licensed by UTC and
             used to analyse data generated by the Divestment Programs.
      4.     If there is any asset or personnel which is not covered by paragraph 2 of this Schedule
             but which is both used (exclusively or not) in the Divestment Programs and necessary
             for the continued viability and competitiveness of the Divestment Programs, that asset
             or adequate substitute will be offered to potential purchasers.
                                                  ***
Annexes: [Details of UTC's R&D programs]
                                                    15