CELEX: 32020M9434
Language: en
Date: 2020-03-13 00:00:00
Title: Commission Decision of 13/03/2020 declaring a concentration to be compatible with the common market (Case No COMP/M.9434 - UTC / RAYTHEON) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 13.03.2020
                                                                 C(2020) 1718 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                                                                  information omitted has been replaced by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.9434 – UTC/Raytheon
                    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
Dear Sir or Madam,
(1)       On 24 January 2020, the European Commission received notification of a
          concentration pursuant to Article 4 of the Merger Regulation resulting from a
          proposed transaction whereby United Technologies Corporation (“UTC”, USA)
          intends to acquire control, within the meaning of Article 3(1)(b) of the Merger
          Regulation, of the whole of Raytheon Company (“Raytheon”, USA).3 UTC is
          referred to hereinafter as the “Notifying Party” and together with Raytheon as the
          “Parties”. The undertaking that would result from the proposed transaction is
          referred to as “the merged entity”.
1         OJ L 24, 29.1.2004, p. 1 (the ‘Merger Regulation’). With effect from 1 December 2009, the Treaty on
          the Functioning of the European Union (‘TFEU’) has introduced certain changes, such as the
          replacement of ‘Community’ by ‘Union’ and ‘common market’ by ‘internal market’. The terminology
          of the TFEU will be used throughout this decision.
2         OJ L 1, 3.1.1994, p. 3 (the ‘EEA Agreement’).
3         Publication in the Official Journal of the European Union No C 32, 31.1.2020, p. 19.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.  THE PARTIES
(2) UTC supplies products and services for the building systems and aerospace
    industries. In the aerospace industry, via its subsidiary Collins Aerospace Systems
    (USA), UTC supplies aerospace products and aftermarket service solutions for
    aircraft manufacturers and operators mainly in the commercial sector but also for
    integration into military aircraft. Furthermore, via its subsidiary Pratt & Whitney
    (USA), UTC supplies aircraft engines for the commercial, military, business jet, and
    general aviation industries, as well as fleet management services and aftermarket
    maintenance, repair, and overhaul services. UTC also produces, sells, and services
    auxiliary power units for military and commercial aircraft.
(3) By way of context, UTC currently comprises Otis Elevator Company, Carrier, Pratt
    & Whitney and Collins Aerospace Systems. Before closing the proposed acquisition
    of Raytheon, UTC has announced its intention to spin off its Otis and Carrier
    business units into standalone, publicly traded companies. It will then combine the
    remainder of UTC (consisting of UTC’s aerospace businesses Pratt & Whitney and
    Collins Aerospace Systems) with Raytheon.
(4) Raytheon is a defence contractor that supplies defence, civil government and
    cybersecurity solutions with a core focus on missiles and air defence systems, radars
    and electronic warfare.
2.  THE CONCENTRATION
(5) On 9 June 2019, the Parties entered into a binding agreement setting out the terms of
    the acquisition by UTC of sole control over Raytheon (hereinafter the “Transaction”
    or the “Concentration”). The Transaction is structured as a merger of a subsidiary of
    UTC with Raytheon. In consideration for their existing shareholdings, Raytheon
    shareholders will receive 2.3348 shares in the merged entity for each Raytheon share
    they hold. Consequently, following the Transaction, UTC shareowners will own
    approximately 57% of the merged entity, while Raytheon shareowners will own
    approximately 43%.
(6) Prior to the Transaction, no shareholder holds an interest in any of the Parties’ issued
    share capital that is sufficient to confer control within the meaning of Article 3 of the
    Merger Regulation.
(7) It follows that the Transaction would result in a concentration within the meaning of
    Article 3(1)(b) of the Merger Regulation.
3.  UNION DIMENSION
(8) The Parties have a combined aggregate worldwide turnover of more than EUR 5 000
    million (UTC: EUR 53 377.1 million, Raytheon: EUR 22 951 million).4 Each of
    them has a Union-wide turnover in excess of EUR 250 million (UTC: EUR […]
    million, Raytheon: EUR […] million), but each of them does not achieve more than
4   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission
    Consolidated Jurisdictional Notice (OJ C95, 16.4.2008, p. 1).
                                                     2
 ---pagebreak---      two-thirds of its aggregate Union-wide turnover within one and the same Member
     State. The Concentration therefore has a Union dimension pursuant to Article 1(2) of
     the Merger Regulation.
4.   INTRODUCTION TO THE MILITARY AEROSPACE INDUSTRY
(9)  The Transaction brings together UTC’s and Raytheon’s production and supply of
     systems and components for military airborne platforms, in particular for military
     aircrafts and precision-guided munities (“PGMs”). Military aircrafts comprise
     aircrafts designed for military activities, be it combat aircrafts or non-combat
     aircrafts – i.e. designed for search and rescue, reconnaissance, transport, observation
     and training. For the purpose of the merger control assessment of the Transaction,
     this section introduces the Commission's understanding of the basic features of the
     military aerospace industry.
4.1. Supply chain in the military aerospace industry
(10) The supply chain in the aerospace industry mainly comprises tier suppliers: Tier-1
     suppliers, Tier-2 suppliers (and Tier-3 suppliers as the case may be) and aircraft and
     helicopter manufacturers (referred to as original equipment manufacturers or
     “OEMs”). 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 for integration into the
     systems/equipment by either the Tier-1 supplier or the OEM.
(11) Systems and equipment for military aircrafts are purchased by the OEMs or by
     armed forces and ministries of defence depending on the equipment or system in
     question. Helicopter/military aircraft OEMs carry out the integration of main
     systems and equipment in both cases.
4.2. Procurement of US military aerospace equipment
(12) Due to the lower volumes of military aircraft (compared to commercial aircraft) and
     the complexity of their integrated systems, the procurement process for equipment
     and systems for military aircraft requires close cooperation between the relevant
     OEM, system suppliers and the national procurement authorities acting on behalf of
     the end-users.
(13) The Parties produce military equipment in the US that is ultimately acquired by the
     US Department of Defence (“US DoD”) and armed forces of EEA countries and
     other allied countries.
(14) The production of military systems and components in the US is driven by the
     requirements of the US government and its annual defence budget. The US DoD
     plans the development of new platforms, defines product specifications, funds
     development, and manages suppliers. Manufacturers then compete to persuade the
     US DoD and OEMs that they should select them to develop and supply products for
     these opportunities.
(15) After developing their defence products in the US, suppliers also market them in US
     allied countries, including in the EEA. These sales to countries in the EEA largely
                                                3
 ---pagebreak---      take place through the US Foreign Military Sales (“FMS”) program and to a limited
     extent through direct commercial sales (“DCS”).5
(16) The US FMS program is a program administered by the US Defence Security
     Cooperation Agency (“DSCA”)6 for transferring defence articles, services, and
     training to US allied countries and international organizations. The US FMS
     program is funded by administrative charges levied on foreign purchasers.
(17) Under the FMS program, the DSCA serves as an intermediary (usually handling
     procurement, logistics, and delivery and providing product support and training)
     between foreign customers and US defence contractors. This framework provides
     several advantages to foreign customers in US allied countries, such as, inter alia,
     the US DoD’s procurement infrastructure and purchasing practices and greater
     economies of scale (although it includes administrative charges). The US FMS
     program uses a total package approach for its contracts, which means that they
     include training, spare parts, and other support needed to sustain a system through its
     first few years.7
(18) Besides administrative charges, purchases via the US FMS program may include
     nonrecurring costs, which are those one-time costs incurred by the US government
     in support of research, development, or production of certain major defence
     equipment. The US DoD may waive nonrecurring costs to allied countries if (i) the
     sale would significantly advance US government’s interests in standardization with
     allied armed forces, (ii) the imposition of the charge likely would result in the loss of
     the sale; or (iii) the increase in quantity resulting from the sale would result in a
     reduced unit cost for the same item being procured by the US government.
(19) US allied countries, including in the EEA, can also acquire military equipment from
     US defence manufacturers via DCS.
(20) Cost comparisons between FMS and DCS are often not possible as, if a purchaser
     requests US FMS data after soliciting bids from contractors, the purchaser must
     demonstrate that commercial acquisition efforts have ceased before any US FMS
     data is provided. If the purchaser obtains FMS data and later determines to request a
     commercial price quote, the FMS offer may be withdrawn. DCS purchasing
     agreements may or may not include training, spare parts, and general support.
(21) Military equipment produced in the US is subject to International Traffic in Arms
     Regulations (“ITAR”) and Export Administration Regulations (“EAR”) and can only
     be exported to the EEA subject to relevant US legislation and/or authorization.
5.   PRODUCT MARKET DEFINITION
(22) The Transaction brings together UTC’s aerospace businesses, which include
     commercial and military aero engines and aircraft systems, and Raytheon’s defence
     business, which focuses on missiles and missile systems, electronic warfare, and
     other defence systems.
5    Questionnaire to European (EEA) armed forces Q2, question 10.
6    The DSCA administers the US FMS program for the US DoD.
7    https://www.dsca.mil/resources/faq
                                                   4
 ---pagebreak--- (23)   Both Parties are active in the production and supply of systems and components for
       military aircraft platforms. Although their respective product portfolio is largely
       complementary, there are some horizontal overlaps between the Parties’ activities.
       Those horizontal overlaps lie in the supply of military global navigation satellite
       systems (“GNSS”) receivers, military airborne communications systems (voice and
       data) and electro-optical/infrared (EO/IR) sensors for military aircraft platforms.
(24)   The Transaction also gives rise to some vertical links because of UTC’s supply of
       components for PGMs manufactured by Raytheon and rival suppliers. Those vertical
       links involve primarily the supply of GNSS receivers, actuation systems, inertial
       measurement units (“IMUs”) and propulsion systems for PGMs.
(25)   According to the Notifying Party, there are no overlaps between UTC’s commercial
       aerospace products and Raytheon’s activities.
(26)   The present section examines product market definition for all products in relation to
       which the Parties’ activities overlap horizontally, are vertically related or could
       potentially be regarded as complementary to one another.
5.1.   GNSS receivers
5.1.1. Introduction
(27)   GNSS serve to determine position and follow a route. GNSS have three components:
       (1) constellations of satellites orbiting the earth, (2) ground control systems
       managing the satellites and (3) equipment that receives and processes GNSS signals
       (GNSS receivers). All GNSS receivers calculate their location by measuring the
       distance between their position and four or more satellites.
                         Figure 1: GNSS constellation of satellites
                               Source: Form CO, Chapter D, para 11.
(28)   GNSS receivers interact with satellites and calculate their position through an
       Application-Specific Integrated Circuit (“ASIC”), which is a semiconductor chip
       that receives, digitizes, and processes GNSS signals and shares the data with other
       systems (e.g., avionics). ASICs used in military GNSS receivers also incorporate
       cryptographic processing capabilities to decode encrypted signals.
(29)   The ASIC is incorporated into a receiver card, which includes ancillary hardware
       and software (e.g., storage, memory, and a basic operating system). GNSS receiver
                                                  5
 ---pagebreak---      cards can be sold as standalone products or incorporated into other systems
     (e.g., missile guidance) or in boxes, which are then mounted on a platform like an
     airframe. These boxes house the receiver card and related components (e.g., an
     inertial measurement unit).
                    Figure 2: ASIC, receiver card and navigation box
                                 Source: Form CO, Chapter D, para 14.
(30) GNSS can operate signals that are openly available to anyone (typically used for
     civil purposes) and encrypted signals that can only be accessed with governmental
     consent (typically used for military or security-related purposes). Armed forces use
     military GNSS receivers to decrypt secured GNSS signals. Anti-jamming, which
     counters interference with GNSS signals, is not a component of GNSS receivers but
     is an ancillary capability typically included alongside a military GNSS receiver.
(31) The first GNSS system was the Global Positioning System (“GPS”), which was
     developed by the US government in the 1970s. Other countries have since developed
     similar systems, including the EU Galileo system.8 Both the US GPS and EU Galileo
     systems operate both signals openly available to anyone and encrypted signals.
(32) GPS receivers can use different ranging signals. These include (i) C/A-code, an
     unencrypted civil signal used by the vast majority of civilian GPS applications
     (e.g., mobile phones and passenger vehicles); (ii) P(Y)-code, an encrypted signal
     used for government applications, e.g., missile and aircraft guidance, ground
     vehicles, handheld devices, and as a source of precision timing information for a
8    Further GNSS systems are the Russian GLONASS and Chinese BeiDou systems. India and Japan
     operate smaller constellations (NAVIC and QZSS) with regional coverage.
                                                    6
 ---pagebreak---        variety of applications; and (iii) military code (“M-code”), an encrypted GPS signal
       for military use that is currently under development.
(33)   The US DoD has awarded funding to UTC, L3Harris, Raytheon and Trimble to
       develop M-code GPS receivers. According to the Notifying Party,9 all GPS
       equipment purchased by the US DoD after 2017 must be M-code compatible by law.
       However, as this would not yet be feasible, the US DoD has issued individual
       waivers permitting continued use of P(Y)-code GPS receivers. The Notifying Party
       expects that an exhaustive transition to M-code will take approximately
       10-15 years.10
(34)   The authorization of the US DoD is required to manufacture, sell, and use P(Y)-code
       or M-code receivers. Such authorization covers the entire receiver, not just the ASIC.
(35)   The EU Galileo system is a GNSS developed by the European Union and operated
       by the European GNSS Agency and European Space Agency. Although it already
       enjoys widespread adoption in the mobile, automotive, marine, search-and-rescue,
       and industrial sectors, it is only scheduled to reach full operational capacity in 2020
       with 30 satellites.11
(36)   Member States and the Commission, Council, and European External Action Service
       may authorize companies established in the EU to manufacture Galileo PRS
       receivers. Non-EU countries may also be authorized to produce Galileo PRS
       receivers under bilateral agreements. The Parties understand that EU companies with
       access to the Galileo PRS signal currently include, at a minimum, GMV (Spain),
       Leonardo (Italy), QinetiQ (UK), Siemens (Germany), and Thales (France).12
5.1.2. The Notifying Party’s view
(37)   The Notifying Party submits that civilian and military GNSS receivers likely
       constitute distinct markets and that it is appropriate to define a relevant product
       market for the supply of military GNSS receivers without further segmentation.13
(38)   First, according to the Notifying Party, while civilian GNSS receivers are
       manufactured by a wide range of suppliers for applications available to the public
       (e.g., handheld devices, sports watches, and passenger vehicles), both the
       manufacture and purchase of military GNSS receivers require authorization from
       national authorities (e.g., the U.S. DoD for GPS and EU Member States and
       institutions for Galileo). Once that authorization is granted, it would generally be
       possible for a civilian GNSS receiver supplier to start producing military receivers.
       Nevertheless, the Notifying Party submits that the additional needs of military users
       and the need for manufacturers to obtain governmental authorization likely provide
       sufficient supply- and demand-side differentiation to warrant a distinction for
       purposes of product market definition.14
9      Form CO, Chapter D, para. 21.
10     Form CO, Chapter D, para. 21.
11     Form CO, Chapter D, para. 23.
12     Form CO, Chapter D, para. 26.
13     Form CO, Chapter D, para. 34.
14     Form CO, Chapter D, paras. 35-36.
                                                   7
 ---pagebreak--- (39)   Second, the Notifying Party argues that there is no need to segment the supply of
       GNSS receivers based by military application.15 From a demand-side perspective,
       UTC argues that the same GNSS receiver card can typically be used in a variety of
       platforms. On the supply side, UTC submits that suppliers of military GNSS
       receivers for one platform could start producing receivers for another, provided they
       have the necessary US DoD authorization.
(40)   Finally, according to the Notifying Party, the GPS and the EU Galileo systems (once
       it is fully operational) are substitutes.16
5.1.3. The Commission’s precedents
(41)   In the past, the Commission has identified an overall market for GPS receivers but
       has ultimately left open the question of whether the market should be further
       segmented by product type (type of mission and class of reliability) or by final
       customer (military, commercial or institutional).17
5.1.4. The Commission’s assessment
(42)   From a demand side perspective, according to the results of the market investigation,
       most market participants consider that civilian and military GNSS receivers
       constitute separate product markets due to limited substitutability for customers in
       terms of, e.g., product characteristics, applications and prices. 18 One respondent to
       the market investigation indicated that ‘[m]ilitary receivers utilize a different signal
       and have technical features that ordinary, civilian receivers do not include, such as
       enhanced security to prevent disruption of signals’.19
(43)   From the point of view of suppliers, the results of the market investigation have
       revealed that the production of civilian and military GNSS receivers entail
       significantly different technical features, expertise and costs.20 This is irrespective of
       the fact that the manufacture and supply of military GNSS receivers requires
       authorisation from relevant national authorities. One market participant indicated
       that ‘in terms of technical features, the military receivers are more complex and
       require much more expertise and costs’.21 In line with this, another respondent to the
       market investigation indicated that ‘the product complexity is far higher for a
       military GNSS receiver, due to cyber constraints and cyber certification’.22
(44)   Respondents to the market investigation indicated that, for assessing the relevant
       competitive dynamics, it may be appropriate to consider further segmentations of
       military GNSS receivers by military application (i.e. by platform).23 In particular, the
       results of the market investigation suggest that the strengths and market position of
15     Form CO, Chapter D, para. 37.
16     Form CO, Chapter D, para 38.
17     Case M.3680 – Alcatel/Finmeccanica/Alcatel Alenia Space & Telespazio.
18     Questionnaire to suppliers of military equipment Q1, question 98.
19     Questionnaire to suppliers of military equipment Q1, question 98.1.
20     Questionnaire to suppliers of military equipment Q1, question 99.
21     Questionnaire to suppliers of military equipment Q1, question 99.1.
22     Questionnaire to suppliers of military equipment Q1, question 99.1.
23     Questionnaire to suppliers of military equipment Q1, question 100.
                                                        8
 ---pagebreak---        the different suppliers of GPS receivers may vary for ground equipment, aviation,
       maritime equipment, PGMs and handheld applications, respectively.24
(45)   In turn, the results of the market investigation are not conclusive on the demand and
       supply-side substitutability between Galileo PRS receivers and P(Y)-code and M-
       code GPS receivers. Some respondents indicated that with the introduction of the
       Galileo PRS receivers, the situation has shifted from single mode receivers to dual
       mode receivers integrating multi-constellation capabilities. Accordingly, Galileo
       PRS receivers appear to be perceived as a complementary constellation to GPS
       receivers rather than a substitute.25 However, although the Galileo PRS signal should
       be operational as of 2020, the final operational capabilities (e.g., the infrastructure
       dedicated to maintenance the signal) will be delayed.26 Furthermore, military Galileo
       PRS receivers have not yet been fielded.
(46)   Based on the assessment laid down in paragraphs (42) to (45), the Commission
       considers it appropriate to define a separate product market for military GPS
       receivers. The Commission will in addition factor into its assessment a possible
       differentiation in the production and supply of military GPS receivers by type of
       application/platform.
5.2.   Military communication systems
5.2.1. Introduction
(47)   Communication systems are devices used for the transmission of information for
       military or civil purposes. While civil and military communication systems share
       some basics features, military communication systems require specific features
       necessary to ensure reliability in the demanding environments of battlespace. These
       include anti-jamming, anti-spoofing, multi-band, multi-channel, encryption
       capabilities and resilience under arduous climate and transport conditions. Military
       communication systems include military (air and ground) radios, data links and
       satellite communication systems (SATCOMs).
(48)   Military airborne radios provide secure air-to-air and air-to-ground connectivity to
       support voice and data communications, therefore enabling an aircraft to
       communicate with other (air or ground) platforms. Depending on the operational
       requirements of an aircraft, military airborne radios will operate in the high
       frequency (HF), very high frequency (VHF) or ultra-high frequency band (UHF).
(49)   HF radios enable single-channel communication at frequencies up to 30 MHz and
       provide beyond line-of-sight communications (they are typically used by armed
       forces for communications over great distances, such as cross-continental
       communication). VHF/UHF radios enable single-channel communication at
       frequencies between 30 MHz and 1000 MHz and can only support line-of-sight
       communication (they are typically used at distances up to hundreds of kilometres).
       VHF/UHF radios can incorporate narrowband SATCOM functionality, which allows
       for beyond line-of-sight communications.
24     Questionnaire to suppliers of military equipment Q1, question 100.1.
25     Questionnaire to suppliers of military equipment Q1, question 101.1.
26     Questionnaire to suppliers of military equipment Q1, question 101.2.
                                                        9
 ---pagebreak---                          Figure 3: HF military airborne radio
                            Source: Form CO, Chapter C, para 11.
                     Figure 4: VHF/UHF military airborne radio
                            Source: Form CO, Chapter C, para 11.
(50) Military ground radios enable secure ground-to-ground and ground-to-air
     communications. Since they usually need to communicate with airborne radios,
     ground radios generally operate at the same frequency bands as airborne radios (HF
     or VHF/UHF) and may as well feature narrowband SATCOM capabilities.
     Depending on the frequency band and other technical characteristics, ground radios
     allow data, image, voice and video communication. They can be fixed (typically at a
     military or government building) or deployable. Deployable ground radios can be
     used in land vehicles or carried by a soldier (in the hand or in the back).
(51) Military data links provide secure air-to-air, air-to-ground and ground-to-ground
     communications. While radios are primarily used for voice communications, the
     main purpose of data links is to transfer data, even though they can also transfer
     voice. Moreover, while radios allow only for point-to-point communications, data
     links devices enable communications between multiple points simultaneously.
     Finally, data links have higher bandwidth than radios. There are two types of data
     links: situational awareness (“SA”) data links, which use radio waves to create a
     “picture” of where assets and targets are in the battlespace; and intelligence,
     surveillance and reconnaissance (“ISR”) data links, which provide connectivity to
     offload large amounts of intelligence information from platforms such as aircraft
     carrying cameras.
(52) Different data links communicate using different protocols generally designed and
     implemented by governments. The main military data links protocols are Link 11,
     Link 22, Link 16, Situational Awareness Data Link (“SADL”) and Enhanced
     Position Location Reporting System (“EPLRS”). To enable interoperability between
                                               10
 ---pagebreak---        armed forces, protocols are sometimes defined at a military alliance level. NATO
       countries, for example, use the Link 16 data link network.
                      Figure 5: NATO Link 16 data link architecture
                                Source: Form CO, Chapter C, para 17.
(53)   Military platforms may also use commercial data link products and related network
       services when operating in commercial airspace or other. The main commercial data
       links networks are ARINC27 and SITA. Both networks use the traditional, low-
       bandwidth Aircraft Communications Addressing and Reporting System (“ACARS”)
       protocol, first deployed in 1978.
(54)   Military SATCOMs relay their radio signals via satellite, enabling secure
       communications between two locations at significant distances, including beyond
       line-of-sight communications. They can be narrowband, wideband or protected.
       narrowband SATCOMs operate in the UHF frequency. Wideband SATCOMs
       operate in frequencies higher than UHF and are used to transfer large amounts of
       data. Protected SATCOMs offer additional levels of resistance to interference.
5.2.2. The Notifying Party’s view
(55)   First, the Notifying Party submits that civilian and military communication systems
       are not substitutable and likely constitute distinct markets. According to the
       Notifying Party, military customers require distinct features (e.g., anti-jamming,
       anti-spoofing, multi-band, multi-channel, encryption capabilities, and resilience
       under arduous climate or transport conditions) which requires manufacturers to make
       significant investments in engineering, which applies equally across radios and data
       links.28
(56)   Second, with regard to military airborne radios in particular, the Notifying Party
       argues that military airborne and ground radios may be distinct markets, although
       there is significant supply-side substitutability. In this regard, according to the
       Notifying Party, there are significant demand-side differences between airborne and
       ground radios, given the conditions in which they operate (e.g., vibration and
27     UTC owns and operates the ARINC network. However, SAE International stewards the ARINC
       standards, which are a set of communications standards for avionics, wiring, and other aircraft
       electronics.
28     Form CO, Chapter C, para. 67.
                                                   11
 ---pagebreak---        temperature ranges). That said, the Notifying Party argues that companies that
       currently manufacture military ground radios can switch production to manufacture
       military airborne radios, given the similarity of the fundamental radio technology
       and design, and vice versa.29
(57)   Third, according to the Notifying Party, there is no need to segment radios by
       frequency (i.e. HF, VHF/UHF) because although HF and VHF/UHF radios are not
       perfect substitutes from the demand-side due to their different operational
       functionalities, the addition of narrowband SATCOM functionality to VHF/UHF
       radios enables beyond line-of-sight communications similar to that of HF radios. In
       addition, the Notifying Party argues that HF and VHF/UHF radios are highly
       substitutable from a supply-side perspective as current manufacturers of HF radios
       would able to produce VHF/UHF radio without any significant increase in cost or
       change of expertise, and vice versa.30
(58)   Lastly, the Notifying Party submits that data links (i.e., SA and ISR data links) may
       comprise a distinct market, though data link functionality is increasingly
       incorporated into airborne radios – and there is increasing technological convergence
       between radios and data links.31
5.2.3. The Commission’s precedents
(59)   In M.3735 – Finmeccanica/AMS, the Commission identified different segments
       within military communication systems depending on the functionality, the platform
       (ground, air, sea) and the force for which they are intended. 32 In that case, the
       Commission distinguished between (i) military ground communications systems and
       (ii) military naval information and communication systems, while leaving open the
       exact market definition and the potential need for further segmentation.
5.2.4. The Commission’s assessment
(60)   From a demand-side perspective, according to the results of the market investigation,
       most market participants consider that military airborne radios and military ground
       radios constitute separate product markets due to limited substitutability for
       customers in terms of, e.g., product characteristics, applications and prices.33 As a
       market participant explained, ‘[m]ilitary airborne radios and military ground radios
       have different requirements to suit different environmental conditions (e.g. vibration,
       temperature and atmospheric pressure etc.) and differ in size, and weight’.34
       Another market participant indicated that ‘requirements of airborne and ground
       radios are different enough that there is almost no overlap in utilization’.35
(61)   From a supply-side perspective, the market investigation has revealed that most
       market participants consider that the production of military airborne radios and the
       production of military ground radios entail significantly different technical features,
29     Form CO, Chapter C, paras. 68-70.
30     Form CO, Chapter C, paras.72-74.
31     Form CO, Chapter C, para. 75.
32     See case M.3735 – Finmeccanica/AMS, paras. 12-15.
33     Questionnaire to suppliers of military equipment Q1, question 35.
34     Questionnaire to suppliers of military equipment Q1, question 35.1.
35     Questionnaire to suppliers of military equipment Q1, question 35.1.
                                                        12
 ---pagebreak---      expertise and costs.36 One market participant explained that ‘[a]lthough the basic
     technology (i.e. software defined radios) can be the same for both airborne and
     ground radios, that notwithstanding the main steps for the development, production
     and, even more, certification are different, with direct consequences on the required
     expertize and the final cost of the equipment’.37 Another market participant indicated
     that ‘[i]t is often very difficult to use systems that were designed for ground use in an
     airborne environment’ and ‘[t]his is because the control, integration with other
     avionic systems, environmental, size, weight and power of the systems for the
     different environments can differ significantly and are not easy to adapt’.38
(62) Respondents to the market investigation indicated that, for assessing the relevant
     competitive dynamics, it may be appropriate to consider further segmentations of
     military airborne radios by frequency band between HF and VHF/UHF. 39 In turn, the
     market investigation has revealed that military HF and VHF/UHF radios have
     different characteristics and applications, irrespective of whether VHF/UHF radios
     include narrowband SATCOM capabilities.40 The results of the market investigation
     are however not conclusive as to whether, from the point of view of the suppliers,
     the production of military radios of different frequency bands (e.g. HF, VHF/UHF)
     entail significantly different technical features, expertise and costs. However, at least
     one market participant indicated that ‘[t]he production of every new airborne radio
     requires major investments in terms of production and test equipment on modul- and
     radio level, e.g. coating procedures, soldering and quality adjustments’ and ‘[s]ame
     for new ground based radios’.41
(63) With regard to military ground radios, the results of the market investigation show
     that most market participants consider that fixed and deployable ground radios
     constitute separate product markets due to limited substitutability for customers.42
     The results of the market investigation are however not conclusive as to whether,
     from the point of view of suppliers, the production of fixed and deployable military
     ground radios entail significantly different technical features, expertise and costs.
     The results of the market investigation are similarly not conclusive as to whether
     further segmentations within deployable ground radios should be considered.
(64) With regard to military data links, the market investigation has revealed that most
     market participants consider that, from both demand and supply side perspectives, it
     is appropriate to consider that military radios and data links constitute separate
     product markets.43 One market participant has explained that, ‘[r]adios are largely
     narrow band and low data rate, whereas data links can be very wide band, high
     bandwidth, and specialized to handle advanced network topologies and data
     routing’ and ‘[d]ata links are therefore different products and are not substitutable
     with radios’.44 Within data links, the results of the market investigation are however
36   Questionnaire to suppliers of military equipment Q1, question 36.
37   Questionnaire to suppliers of military equipment Q1, question 35.1.
38   Questionnaire to suppliers of military equipment Q1, question 36.1.
39   Questionnaire to suppliers of military equipment Q1, question 38.
40   Questionnaire to suppliers of military equipment Q1, questions 38.1 and 39.
41   Questionnaire to suppliers of military equipment Q1, question 40.1.
42   Questionnaire to suppliers of military equipment Q1, question 41.
43   Questionnaire to suppliers of military equipment Q1, question 46.
44   Questionnaire to suppliers of military equipment Q1, question 46.1.
                                                      13
 ---pagebreak---        not conclusive as to whether further segmentations of the market between SA and
       ISR data links are appropriate.
(65)   As to SATCOMs, most respondents to the market investigation indicated that it is
       appropriate to consider that SATCOMs constitute a separate product market from
       other military airborne communications systems (i.e. military radios and data links)
       due to limited substitutability for customers and suppliers.45 Within SATCOMs,
       most respondents consider that, from a demand side perspective, further
       segmentations between (i) narrowband SATCOMs, (ii) wideband SATCOMs and
       (iii) protected SATCOMs are should be considered due to limited substitutability for
       customers.46 However, the results of the market investigation are not conclusive as to
       whether, from the supply side perspective, the market for the supply of SATCOMs
       should be further segmented.
(66)   Based on the assessment laid down in paragraphs (60) to (65), the Commission
       considers it appropriate to define separate product markets for the production and
       supply of, respectively, military airborne radios, military ground radios, military data
       links and SATCOMs. The Commission concludes that, for the purposes of the
       present Decision, no further segmentation of said markets is necessary, as the
       conclusion would remain the same, though a possible differentiation of military
       airborne radios by frequency band will be taken into account in the competitive
       assessment.
5.3.   EO/IR sensors
5.3.1. Introduction
(67)   Electro-optical and infra-red sensors (“EO/IR sensors”) are devices that convert
       light, changes thereof, or changes of its infrared radiation, into an electrical signal.
       These devices are installed on certain equipment used by military forces, law
       enforcement personnel, and other government and industry operators and allow users
       to identify and track objects, conduct threat assessments, assess intent, and, in some
       cases, provide laser targeting for guided precision munitions.
(68)   EO/IR sensors working principle is based on measuring the light that is reflected by
       an object or, in the absence of light, on measuring the infrared radiation emitted by a
       heated object (such as a building, an engines, a person, or an animal).
(69)   EO/IR sensors can be classified according to different criteria. The most common
       ways to classify them is according to their technical characteristics and to the
       intended use.
(70)   From a technical characteristic point of view, EO/IR sensors can be classified
       according to their range of use, i.e. according to the distance within which an object
       can be detected by the sensor. In this respect, EO/IR sensors can be classified as
       low-, mid- and long-range.
(71)   From an end-use point of view, EO/IR sensors can be classified according to the
       intended mission of the aircraft where they are installed. In this respect, EO/IR
45     Questionnaire to suppliers of military equipment Q1, questions 53 and 54.
46     Questionnaire to suppliers of military equipment Q1, question 55.
                                                        14
 ---pagebreak---        sensors can be classified as for targeting, for reconnaissance and for surveillance
       missions. While the objective of a targeting mission is to detect, identify, and track a
       certain target in sufficient detail in order to, for example, permit the effective
       delivery of a guided munition, a surveillance mission involves the persistent and
       systematic observation of an already known and usually static point of interest for an
       extended period of time. Compared to a surveillance mission, a reconnaissance
       mission involves broader intelligence gathering, covering multiple points of interest
       in a limited period of time.47
(72)   In terms of integration into an aircraft, EO/IR sensors can be podded on or embedded
       in the aircraft. For illustration purposes, Figure 6 shows two different EO/IR sensors
       podded in the Dassault’s jet fighter named Rafale.
       Figure 6: Dassault’s Rafale jet fighter carrying a podded EO/IR sensor for
         reconnaissance (left) and a podded EO/IR sensor for targeting (right)
                                Source: Form CO, Chapter B, figure 1.
5.3.2. The Notifying Party’s view
(73)   According to the Notifying Party, EO/IR sensors of long-, mid-, and short-range
       should be considered as separate product markets, due to limited demand- and
       supply-side substitutability.48
(74)   From a demand-side view point, the Notifying Party argues that customers cannot
       substitute sensors of different ranges because: (i) EO/IR sensors of different ranges
       are not substitutable for the same application; (ii) EO/IR sensors of different ranges
       generally are not mounted on the same types of platform; (iii) EO/IR sensors of
       different ranges are procured by distinct customer groups because long-range EO/IR
       sensors tend to be purchased by the final customer, whereas short- and mid-range
       EO/IR sensors are typically purchased by OEMs. The Notifying Party also claims
       that the strong price difference between short-, medium- and long-range EO/IR
       sensors is an indication of the lack of demand-side substitutability.
(75)   From a supply-side view point, the Notifying Party considers that no substitutability
       between long-, mid-, and short-range sensors exist because: (i) EO/IR sensors of
47     Form CO, Chapter B, para. 8.
48     Form CO, Chapter B, paras. 34-62.
                                                   15
 ---pagebreak---        different ranges require different production processes and technologies and are
       typically manufactured in different production lines; (ii) suppliers active in one
       category of EO/IR sensors cannot easily enter other segments because they would
       require to develop new technologies, to procure different materials, to establish new
       production facilities and to develop commercial relationships with different customer
       groups. According to the Notifying Party, the lack of supply-side substitutability is
       confirmed by the fact that most manufacturers of short-range EO/IR sensors are not
       active in mid- or long-range EO/IR sensors.
(76)   The Notifying Party considers that a market segmentation by applications, as for
       example, by targeting, reconnaissance and surveillance missions, would not be
       appropriate because it would include entirely different products in the same category
       (without reflecting differences in size, weight, range, coverage, and, ultimately, their
       prices).49
(77)   With respect to a possible distinction between podded and integrated EO/IR sensors,
       the Notifying Party considers that these two types of EO/IR sensors do not belong to
       separate product markets because they have the same capabilities and applications
       and often compete with each other.50
5.3.3. The Commission’s precedents
(78)   In a previous decision,51 the Commission considered electro-optic systems as “active
       or passive systems used in military applications such as targeting, fire control or
       surveillance”. Due to limited supply-side substitutability, and a lack of demand-side
       substitutability, the Commission considered electro-optic systems as distinct markets
       “as they are conceived, designed and manufactured according to the very specific
       requirements of the applications they serve”.
(79)   With respect to possible segmentations of EO/IR sensors, in a more recent
       decision,52 the Commission considered that the supply and demand landscapes are
       not necessarily the same for all EO/IR products, and therefore the segment of
       “sights” where a vertical relationship arose from that transaction, may constitute a
       distinct relevant market separate from other optronics equipment. Ultimately, the
       Commission left the market definition open because no competition concerns arose
       irrespective of the exact product market definition.
5.3.4. The Commission’s assessment
(80)   The market investigation indicates that the Notifying Party’s proposed product
       market segmentation by range of EO/IR sensors, that is to say EO/IR sensors with
       short-, mid-, and long-range, reflects market conditions in terms of, for example,
       product characteristics, applications and prices. However, alternative market
       segmentations have also been suggested by respondents to the market investigation.
       In any event, as explained below, the exact product market definition can ultimately
       be left open because no competition concern would arise as a result of the
       Transaction, irrespectively of the exact product market definition.
49     Form CO, Chapter B, paras. 38-40.
50     Form CO, Chapter B, paras. 50-51.
51     M.3649 – Finmeccanica/BAES Avionics & Communications, paragraphs 9–10.
52     M.8425 – Safran/Zodiac Aerospace, paragraph 257.
                                                    16
 ---pagebreak--- (81) First, with respect to demand-side substitutability, the market investigation confirms
     the Notifying Party’s claim that customers have limited possibilities of substitution
     among EO/IR sensors with short-, mid-, and long-range.
(82) In particular, a large majority of the suppliers of military equipment that replied to
     the market investigation agree with the Notifying Party’s view that short-, mid-, and
     long-range EO/IR sensors should be considered to constitute separate product
     markets due to limited substitutability for customers in terms of, e.g., product
     characteristics, applications and prices.53
(83) However, the market investigation does not seem to confirm the Notifying Party’s
     claim that long-, mid- and short-range EO/IR sensors are typically mounted on
     different types of aircrafts.54
(84) Second, with respect to supply-side substitutability, a large majority of the suppliers
     of military equipment that replied to the market investigation agree with the
     Notifying Party’s view that the production of long-, mid- and short-range sensors
     entail significantly different technical features, expertise and costs, therefore
     suggesting limited supply-side substitutability among these three types of EO/IR
     sensors.
(85) One supplier manufacturer also explained that ‘[a] supplier of sensors in one of
     these ranges cannot begin producing sensors in another range without making
     significant investments and engaging in substantial design efforts’.55 While another
     manufacturer explained that ‘[t]he production of long-range sensors requires
     telephoto optics, high spatial stability, high sensitivity, and high resolution, which
     require very specialized skills and trigger much higher costs of production. On the
     other hand, short-range sensors require much lower technology and expertise. The
     costs of production are also much lower compared to long-range sensors’.56
(86) Third, notwithstanding the lack of demand- and supply-side substitutability for
     short-, mid-, and long-range EO/IR sensors, a majority of the suppliers of military
     equipment that expressed a view in the market investigation considers that for
     assessing the relevant competitive dynamics, it may also be appropriate to consider
     an alternative segmentation based for example on the type of mission they serve
     (e.g., surveillance, reconnaissance, targeting).57 In that respect, however, the
     Notifying Party has explained that there was a significant overlap between the
     segmentation by ranges and by mission types.58
(87) Further, some of the suppliers of military equipment that replied to the market
     investigation suggested other possible market segmentations. For example, a
     prominent EEA-based defence contractor indicated that ‘the relevant airborne
     product segmentation within EO/IR sensors is the destination in terms of missions: -
     Targeting pods (delivering a laser guided ammunition from a fighter type aircraft);-
53   Questionnaire to suppliers of military equipment Q1, question 8.
54   Questionnaire to suppliers of military equipment Q1, question 12.
55   Questionnaire to suppliers of military equipment Q1, question 9.1.
56   Questionnaire to suppliers of military equipment Q1, question 9.1.
57   Questionnaire to suppliers of military equipment Q1, questions 10 and 11.
58   Form CO, Chapter B, paras. 37-41.
                                                      17
 ---pagebreak---        Reconnaissance pod; - Surveillance products (for UAVs and mission aircraft)’.59
       Similarly, an OEM indicated that it ‘[…] segments EO/IR sensors differently due to
       their functionalities, but not on the ranges particularly’.60 Another supplier of
       military equipment further explained that ‘[a]ll these applications [i.e. surveillance,
       reconnaissance, targeting] require different technical approaches. Target tracking
       systems need much more accuracy, resolution, sightline spin rate than surveillance
       systems’.61
(88)   With respect to a possible distinction between integrated and podded EO/IR sensors,
       a large majority of suppliers of military equipment, including OEMs, confirmed the
       Notifying Party’s claim that embedded and podded EO/IR sensors can have the same
       capabilities and applications.62 However, a number of respondents also highlighted
       several differences between these two types of sensors, in terms of, e.g.,
       performance, effects on aerodynamic and observability, and space requirements, thus
       highlighting that the two types of sensors are not completely interchangeable.63
(89)   In conclusion, the market investigation appears to confirm the Notifying Party’s
       claim that long-, mid-, and short-range EO/IR sensors constitute three distinct
       product markets due to limited demand-side and supply-side substitutability.
       However, the market investigation also suggests that an alternative way of defining
       product markets for EO/IR sensors would be based on their final use, i.e. that the
       markets for EO/IR sensors for surveillance, for reconnaissance, and for targeting
       would constitute three distinct product markets. At the end though, while there might
       be some overlaps between a segmentation by ranges and by mission types, the exact
       product market definition can be left open because, as explained in Section 7.1.3 and
       for the purposes of this Decision, no competition concern would arise as a result of
       the Transaction, irrespective of whether product markets are defined based on
       sensors range or based on final application.
5.4.   Precision guided munitions (‘PGMs’)
5.4.1. Introduction
(90)   Innovation in the field of military weapons and munitions increased exponentially
       during the 20th century driven by advances in technology. Basic projectiles and
       unguided missiles (known as rockets) developed into sophisticated guided systems,
       which are now commonplace today.
(91)   Modern day PGMs rely on sophisticated subsystems and components to strike their
       intended target. As a result, the number of aircrews and equipment in high-risk
       environments, in particular, is considerably reduced. The advent of PGMs resulted in
       the renaming of older unguided bombs as “dumb” or “gravity” bombs.
(92)   PGMs contain a number of subsystems and components. Each subsystem performs a
       particular function that allows the PGM to perform specific actions; e.g., propulsion,
       flight, target identification, and detonation. The same subsystems and components
59     Questionnaire to suppliers of military equipment Q1, question 8.1.
60     Questionnaire to suppliers of military equipment Q1, question 8.1.
61     Questionnaire to suppliers of military equipment Q1, question 10.1
62     Questionnaire to suppliers of military equipment Q1, question 13.
63     Questionnaire to suppliers of military equipment Q1, questions 13.1 and 13.2.
                                                        18
 ---pagebreak---      are used to provide the guidance capabilities to guided projectiles, guided bombs and
     guided missiles. Additional subsystems and components are required for a guided
     missile to function i.e., propulsion systems. The precise specifications of those
     subsystems and components may vary and be tailored to the specific mission
     purpose.
            Figure 7: General anatomy of a conventional guided missile.
                              Source: Form CO, Chapter E, figure 1.
(93) The exact combination of systems and components will vary depending on the type
     of PGM, and the mission-specific purpose it is intended for (e.g., a guided bomb or
     guided projectile would not contain a propulsion system). However, PGMs will
     generally include some or all of the following subsystems, as described by the
     Parties.64
     (a)     Seeker: Acquires and tracks the target. The seeker is mounted at the head of
             the weapon and allows the weapon to detect energy; e.g., infrared or radar to
             help direct the weapon to its target. A GPS guided weapon may contain an
             infrared or radar seeker (referred to as multi-mode) but GPS guidance itself
             does not require a seeker and uses the GPS satellite constellation to provide
             position and velocity information to enable the weapon to strike its target.
     (b)     Warhead: The energetic, explosive part of the weapon. There are a range of
             conventional warheads (blast, fragmentation, continues-rod, etc.) or
             alternatively a nuclear or chemical/biological warhead could be used.
     (c)     Fuze: Detects that the weapon is in the vicinity of the target and detonates a
             weapon’s warhead. The triggering functionality is normally based on
             engaging in contact with or close proximity to the target but can also be
             based on time, laser functionality, etc. A safety and arming mechanism is
             built into the fuse to prevent premature detonation.
     (d)     GPS Receiver: The receiver uses the GPS satellite constellation to provide
             position and velocity information to enable the weapon to strike its target.
64   Form CO, Chapter E, para 52.
                                                 19
 ---pagebreak---        (e)     Actuation System: Helps control the weapon’s flight. The actuation system
               controls the adjustable aerodynamic surfaces of the weapon to determine its
               flight path. The weapon’s fins or thrust vector move in response to steering
               commands from the flight computer to steer the weapon.
       (f)     The IMU measures            the    weapon’s     rotation,  angular   rate,   and
               acceleration/force.
       (g)     Propulsion System: Provides the required initial thrust to enable the weapon
               to fly with sufficient velocity to reach the target. Various technologies can be
               used in the propulsion system of a weapon, e.g., solid rocket motors, ramjets,
               turbojets, etc.
(94)   In addition to the main systems and components described above, other components
       may be necessary depending on the type of PGM and its mission-specific purpose.
5.4.2. The Notifying Party’s view
(95)   The Parties define three criteria that drive the segmentation of the weapons market
       ‘There are three common ways to distinguish between military weapons: (i) the
       warhead; (ii) whether the weapon is self-propelled or not; and (iii) whether it uses a
       guidance system’65.
(96)   The Parties view on the market segmentation is the following: ‘The Parties consider
       that it is likely appropriate to segment the weapons market between: (i) bombs;
       (ii) projectiles; (iii) rockets; and (iv) missiles. The Parties do not consider it
       necessary to segment these further.’66
(97)   With regards to PGMs, more specifically, the Parties distinguish three different
       markets:
       (a)     Guided Bombs: A bomb is typically deployed by an aircraft and uses only
               gravity to find its target. As with projectiles, technological advances now
               enable bombs to include guidance systems and other components that
               increase the accuracy of their strike rate. These are referred to as guided
               bombs. Guided bombs differ from guided missiles in that they do not contain
               any propulsion technology.
       (b)     Guided Projectiles: Projectiles, also referred to as shells, are non-self-
               propelled airborne explosive devices fired from a separate object (gun) with
               force. As technology has evolved, projectiles have become more
               sophisticated and now commonly contain additional guidance systems or
               components that increase the accuracy of their strike. Guided projectiles
               differ from guided missiles in that they do not contain their own propulsion
               technology but rely on the force from the propellant platform.
       (c)     Guided Missiles: Guided missiles are powered by jet or rocket propulsion
               and rely on a guidance system, which has the ability to change course mid-air
               and direct the missile to a precise target. This minimizes collateral damage,
65     Form CO, Chapter E, para 7.
66     Form CO, Chapter E, para 34.
                                                   20
 ---pagebreak---              increases the effectiveness of the strike and creates fewer risks for the person
             and/or equipment deploying the missile. Guided missiles are also referred to
             as precision missiles.
(98) Considering specifically guided missiles, the Parties specify that that they are
     designed or adapted for specific operational purposes, primarily:
     (a)     Surface-to-surface missiles, launched from the land (or from a ship) to strike
             targets located elsewhere on land or sea;
     (b)     Air-to-surface missiles, launched from aircraft to strike targets on land or at
             sea;
     (c)     Surface-to-air missiles, launched from land (or from a ship) to strike targets
             in the air;
     (d)     Air-to-air missiles, launched from aircraft to strike targets in the air.
(99) The Parties do not consider the point of origin or destination as a relevant
     segmentation. ‘The Parties consider that all guided missiles should be considered
     part of the same product market irrespective of their point of origin and destination.
     Guided missiles are designed or adapted for specific operational purposes. The
     point of origin and destination of a missile are largely immaterial for the majority of
     missiles.’67 The Parties state that even if, at conception, a guided missile is typically
     designed for a specific launch platform, based on the needs of the customer it is
     common for guided missiles to be subsequently adapted for other launch platforms.
     Raytheon gives examples of guided missile product that can be used across different
     launch platforms. ‘For example, the AIM-9X Sidewinder may be operated as an air-
     to-air, air-to-surface and surface-to-air missile,14 and the AMRAAM (Advanced
     Medium-Range Air-to-Air Missile) has also been adapted for use as a surface-to-air
     interceptor missile, where it is the baseline weapon on the NASAMSTM launcher.’68
     There are numerous guided missiles that span categories based on point of origin and
     destination as described in Figure 8 below.
67   Form CO, Chapter E, para 36.
68   Form CO, Chapter E, para 36.
                                                21
 ---pagebreak---    Figure 8: Selected Examples of Raytheon Missiles Spanning Categories of Point of
                                    Origin and Destination
                                Source: Form CO, Chapter E, Table 1.
(100) The Parties consider that the traditional “strategic” versus “tactical” distinction is not
       anymore relevant with technological advancements blurring the segmentation.
       Strategic missiles are, historically, weapons designed to strike targets far beyond the
       battle area whereas tactical missiles are intended for battlefield use or shorter range
       and usually employ conventional warheads. Raytheon, to substantiate the irrelevance
       of this segmentation, gives example of guided missile product that would be
       qualified as “tactical” that can now be fired from much further distances with greater
       accuracy. ‘For example, Raytheon’s Tomahawk cruise missile is designed to be
       launched at long range away from the battlefield and to strike distant targets
       (previously considered a “strategic” capability) but with a conventional high
       explosive warhead (previously considered “tactical”). They are guided missiles that
       follow a controlled, non-ballistic profile to remain within the Earth’s atmosphere
       during flight but have the range of a strategic missile.’69
5.4.3. The Commission’s precedents
(101) The Commission has not previously assessed the relevant product market for
       projectiles and bombs. The Commission has previously assessed the relevant product
69     Form CO, Chapter E, para 35.
                                                   22
 ---pagebreak---        market for guided weapons and guided weapons systems (herein also referred to as
       “guided missiles”), competition for which takes place at the prime contract level.70
       In particular, the Commission has previously distinguished between “strategic” and
       “tactical” guided weapons.
(102) In Roxel/Protac the Commission stated ‘[t]actical missiles are used for specific,
       geographically limited actions, either to protect territorial property against the
       threat of attack (e.g., from tanks, planes or ships) or to dispose of enemy capacity in
       destroying or damaging its infrastructure. Tactical weapons typically carry a
       conventional high explosive warhead. Strategic missiles, on the other hand, are
       dedicated to State defense and typically have a longer range and greater destruction
       capabilities than tactical missiles. The decision to employ strategic missiles is
       generally reserved to the highest levels whereas the decision to use tactical missiles
       is normally made by commanders in the field.’71 In Airbus/Safran/JV, the
       Commission described ‘[m]issiles are guided weapons carrying either a high
       explosive (tactical missiles) or a nuclear (strategic missiles) warhead.’72
(103) Most recently, in Safran/Zodiac Aerospace, the Commission stated that strategic
       missiles are ‘dedicated to critical state defense applications. They have a long range
       and great destruction capabilities relying on nuclear warheads’ whereas tactical
       missiles have historically been used for ‘specific geographically limited actions to
       protect against the threat of attack or to destroy the enemy infrastructure or
       capacity’.73
(104) Further, the Commission previously stated that ‘tactical missiles can be classified
       according to functionality and products characteristics such as their point of origin
       and destination (e.g., air-to-air, surface-to-air/land, surface-to-air/naval, air-to-
       surface, anti-ships and anti-tanks) and range (very short range, short range, medium
       range and long range),’ but ultimately left the exact product market definition
       open.74
5.4.4. The Commission’s assessment
(105) The results of the market investigation reveal that the Notifying Party’s proposed
       product market segmentation by type of weapon, that is to say bombs, projectiles
       and missiles, reflects market conditions in terms of product characteristics,
       applications and prices. However, alternative market segmentations have also been
       suggested by respondents to the market investigation. In any event, as explained
       below, the exact product market definition can ultimately be left open because no
       competition concern arise as a result of the Transaction, irrespectively of the exact
       product market definition.
(106) First, with respect to demand-side substitutability, the market investigation confirms
       the Notifying Party’s claim that customers have limited possibilities of substitution
       among bombs, projectiles and missiles.
70     COMP/M.7353 – Airbus/Safran/JV, paragraph 496.
71     COMP/M.5032 – Roxel/Protac, footnote. 5.
72     COMP/M.7353 – Airbus/Safran/JV, paragraph 495.
73     COMP/M.8425 – Safran/Zodiac Aerospace, paragraph 249.
74     COMP/M.8425 – Safran/Zodiac Aerospace, para. 250; COMP/M.5032 – Roxel/Protac, para. 14;
       COMP/M.1745 – EADS, para. 122; and COMP/M.4653 – MBDA/Bayern-Chemie, para. 17.
                                                  23
 ---pagebreak--- (107) A large majority of the suppliers of military equipment that replied to the market
      investigation agree with the Notifying Party’s view that bombs, projectiles and
      missiles constitute separate product markets due to limited substitutability for
      customers in terms of, e.g., product characteristics, applications and prices.75 As
      described by a market participant: ‘The capabilities and market pricing associated
      with each product market would be different. Customers would look at each
      category independently. For example, if they wished to purchase a bomb, they would
      purchase one, it would not be substituted for a projectile or missile.’76
(108) Second, with respect to supply-side substitutability, a large majority of the suppliers
      of military equipment that replied to the market investigation agree that the
      production of bombs, projectiles and missiles entail significantly different technical
      features, expertise and costs.
(109) One supplier manufacturer also explained that ‘Cost – the price of bombs is
      significantly lower; and Technical features – the capability of each will differ. For
      example, a bomb could be dropped on an intended target from above. However, a
      missile would contain other key technical features such as an engine to ensure that it
      could travel to its intended target.’.77 While another manufacturer explained that
      ‘[v]ery specific knowhow and technical/engineering experience required for each of
      the niches.’78
(110) Third, some of the suppliers of military equipment that replied to the market
      investigation suggested alternative market segmentations. For example a
      segmentation based on the distinction between tactical and strategic missiles. A
      majority of the respondents to the market investigation considered that is it
      appropriate to consider that tactical missiles (used for specific, geographically
      limited actions) and strategic missiles (dedicated to state defence with longer range
      and greater destruction capabilities) constitute separate product markets due to
      limited substitutability for customers in terms of, e.g., product characteristics,
      applications and prices.79 A military equipment supplier explains: ‘There is no
      substitution in product application between tactical and strategic systems. They
      perform different functions. Strategic systems also tend to be extremely expensive
      systems given their massive size and other attributes, such as nuclear warheads.’80
(111) With respect to supply-side substitutability, a large majority of the suppliers of
      military equipment that replied to the market investigation agree that - bombs,
      projectiles and missiles entail significantly different technical features, expertise and
      costs.81 A market participant describes the difference in facilities able to produce the
      tactical and strategic missiles: ‘The manufacture of strategic missiles requires
      different types of facilities and capabilities than the manufacture of tactical missiles.
      Strategic missiles are much larger weapons systems, so the equipment needed to
      handle and manufacture systems of that size is different in scale than that needed for
75    Questionnaire to suppliers of military equipment Q1, question 126.
76    Questionnaire to suppliers of military equipment Q1, question 126.1.
77    Questionnaire to suppliers of military equipment Q1, question 127.1.
78    Questionnaire to suppliers of military equipment Q1, question 127.1.
79    Questionnaire to suppliers of military equipment Q1, question 130.
80    Questionnaire to suppliers of military equipment Q1, question 130.1.
81    Questionnaire to suppliers of military equipment Q1, question 131.
                                                       24
 ---pagebreak---        manufacturing tactical missiles.’82 The market investigation further substantiate the
       absence of supply-side substitutability with a majority of the market participants
       confirming the inability for a company that produces either strategic missiles or
       tactical missiles, to start producing the other type of missiles without having to incur
       major investments and within a short timeframe (based on industry standards)83.
(112) With respect to a possible distinction based on point of origin and destination, the
       market investigation provides mixed results. Some market participants responded
       that is it necessary to consider further segmentations within tactical missiles based
       on their point of origin and destination (air-to-air, surface-to-air/land, surface-to-
       air/naval, air-to-surface). A military equipment supplier explains that ‘[t]he different
       mission sets lead to specific missile designs that make it difficult to be
       interchangeable. For example, an air-to-air missile may have a much higher end
       propulsion or seeker solution compared to an air-to-surface missile intended for
       stationary targets.’84 Other market participant claim that this further segmentation of
       the market is not relevant arguing that ‘[o]verall, the same class of products and
       technologies is currently used for the different applications.’85
(113) In conclusion, the market investigation confirms the Notifying Party’s claim that the
       markets for bombs, projectiles and missiles constitute distinct product markets due to
       limited demand-side and supply-side substitutability. However, the market
       investigation also suggests that a further segmentation of product markets
       specifically for missiles could be based on their final use, i.e. that strategic and
       tactical missiles would constitute distinct product markets. At the end, though, the
       exact product market definition can be left open because no competition concern
       would arise as a result of the Transaction, irrespective of whether product markets
       are defined based on the type of PGM, or based on their final use.
5.5.   Actuation systems
5.5.1. Introduction
(114) As described in paragraph (93), PGMs contain a number of subsystems and
       components. Each subsystem performs a particular function that allows the PGM to
       perform specific actions.
(115) Actuation Systems help control the weapon’s flight. The actuation system controls
       the adjustable aerodynamic surfaces of the weapon to determine its flight path. The
       weapon’s fins or thrust vector move in response to steering commands from the
       flight computer to steer the weapon.
(116) There are two main types of PGM actuation systems: (i) thrust vector-based
       actuation systems (‘TVA’); and (ii) fin-based actuation systems. While there are
       limited other types of actuation systems, TVA and fin-based are used for the vast
       majority of PGMs.
82     Questionnaire to suppliers of military equipment Q1, question 131.1.
83     Questionnaire to suppliers of military equipment Q1, question 132.
84     Questionnaire to suppliers of military equipment Q1, question 133.1.
85     Questionnaire to suppliers of military equipment Q1, question 133.1.
                                                        25
 ---pagebreak--- (117) TVA typically relies on engines or thrust nozzles to change the weapon’s trajectory,
       and is therefore used only if the weapon is self-propelled (i.e., guided missiles). In
       general, the technology, components, and production costs for TVA systems are
       significantly higher than fin-based solutions. TVA systems are typically used on
       higher-end guided missile systems, and in particular, are required for systems which
       fly at very high altitudes where the atmosphere is too thin for a guided missile’s
       actuation fins to be effective. TVA is becoming more common with the increasing
       development of guided missiles which exit the Earth’s atmosphere.
(118) Fin-based actuation systems use control surfaces (i.e., fins) to alter the flight path of
       a PGM, in the same way as a conventional commercial aircraft. The fins use air
       resistance to guide the PGM, and need only be small because tiny movements are
       capable of having a directional impact when the PGM is travelling at high speed.
       Due to the reliance on air resistance, fin-based actuation systems must have adequate
       air density and require airflow across the surface to maintain the necessary control
       authority. For this reason, they are inoperable in low air density or exoatmospheric
       conditions.
5.5.2. The Notifying Party’s view
(119) The Parties consider that fin-based actuation systems are suitable for a vast majority
       of the lower end missile systems but are not applicable to guided bombs or guided
       projectiles while TVA is most commonly used in strategic and high-end tactical
       guided missiles. Although the underlying actuation technology is consistent across
       multiple PGMs, each system is tailored to the specific application. In contrast to fin-
       based actuation systems, the Parties are not aware of TVA systems being used
       interchangeably across multiple PGMs.
(120) Therefore the Parties consider it may also be appropriate to segment the relevant
       product market for PGM actuation systems between: (i) TVA, and (ii) fin-based
       actuation systems.
5.5.3. The Commission’s precedents
(121) The Commission has previously decided that guided missile actuation systems
       constitute a separate product market.86
(122) The Commission’s market investigations into these products have previously
       suggested a potential delineation between fin-based actuation systems and TVA
       systems: ‘In fin-based missiles, the actuation system controls the position of
       aerodynamic fins in response to steering commands from the flight computer, while
       the actuation system in thrust vector control missiles steers the missile by moving the
       missile engine’s exhaust nozzle and thereby changing the direction of the thrust
       coming from the engine. Thrust vector control is used for ballistic missiles (missiles
       that fly outside the atmosphere) since aerodynamic control surfaces (movable fins)
       are ineffective for ballistic missiles that fly outside the atmosphere’.87
86     COMP/M.6410 – UTC/Goodrich, para. 92; COMP/M.2892 – Goodrich/TRW Aeronautical Systems
       Group, paras. 6 and 7.
87     COMP/M.6410 – UTC/Goodrich, para. 99.
                                                    26
 ---pagebreak--- 5.5.4. The Commission’s assessment
(123) The market investigation indicates that a market segmentation distinguishing TVA
       and fin-based actuation systems for PGMs reflects market conditions in terms of,
       e.g., product characteristics, applications and prices. In any event, the exact product
       market definition can ultimately be left open because no competition concern would
       arise as a result of the Transaction, irrespectively of the exact product market
       definition.
(124) First, with respect to demand-side substitutability, a majority of the suppliers of
       military equipment that replied to the market investigation agree with the view that it
       is appropriate to consider that thrust vector-based (TVA) and fin-based actuation
       systems for PGMs constitute separate product markets due to limited substitutability
       for customers in terms of, e.g., product characteristics, applications and prices.88
(125) As described by a market participant, ‘[a]s is the case with many other aspects of
       precision guided munitions, the application and environment in which a missile will
       operate will drive the selection of the guidance system to be used. If the operating
       parameters call for a TVA, then the missile provider cannot use a fin-based guidance
       setup, and vice versa.’89
(126) Second, with respect to supply-side substitutability, a large majority of the suppliers
       of military equipment that replied to the market investigation agree that the
       production of TVA and fin-based actuation systems for PGMs entail significantly
       different technical features, expertise and costs.90 A market participant explains that
       ‘[t]he materials, technology and complexity can be significantly different between
       these two systems.’91.
(127) The absence of substitutability and the inability to switch between TVA and fin
       based actuators is also explained by a market participant ‘The choice between TVA
       and fin-based actuation is done at the beginning of the programme. The switch from
       one solution to another solution is likely not to be a realistic option’92.
(128) In conclusion, the market investigation confirms that TVA and fin-based actuation
       systems constitute distinct product markets due to the limited demand-side and
       supply-side substitutability. At the end, though, the exact product market definition
       can be left open because no competition concern would arise as a result of the
       Transaction, irrespectively if product markets are defined based on the type of
       actuators, or not.
5.6.   IMUs
5.6.1. Introduction
(129) An IMU is an electronic device that measures and reports how specific forces cause
       a body to change its vector. The IMU works from within a PGM’s control systems
88     Questionnaire to suppliers of military equipment Q1, question 141.
89     Questionnaire to suppliers of military equipment Q1, question 141.1.
90     Questionnaire to suppliers of military equipment Q1, question 142.
91     Questionnaire to suppliers of military equipment Q1, question 142.1.
92     Questionnaire to suppliers of military equipment Q1, question 142.2.
                                                        27
 ---pagebreak---        where gyroscopes and accelerometers measure the PGM’s rotation and angular rate
       in relation to a fixed point and to control the PGM’s velocity and flight path. The
       IMU system communicates these measurements to the PGM’s guidance and control
       systems.
5.6.2. The Notifying Party’s view
(130) The Parties submit that the relevant product market for IMUs should be segmented
       by grade: (i) high performance navigation grade IMUs, (ii) lower performance
       tactical grade IMUs, and (iii) consumer grade IMUs.93
(131) The Parties argue that IMU products across these three categories are generally not
       interchangeable. This is based on the fact that a customer’s product selection is
       based on the specific performance and cost requirements. Therefore, switching to a
       navigation grade IMU where this is not functionally required would be cost
       prohibitive. Alternatively, switching to a tactical grade IMU for an aircraft or long
       range guided missile application would not be possible as it would be unable to
       achieve the required operational performance level.
(132) More specifically for PGMs, navigation grade systems for aircraft and cruise
       missiles operate over long periods of time, must provide highly accurate information
       and use much more sophisticated components. By contrast, other types of PGM have
       much shorter flight times and ground vehicles operate at much lower speeds so these
       applications are able to use lower performing tactical grade sensors
(133) For tactical IMUs, the Parties submit that the relevant product market includes all
       tactical grade IMUs irrespective of their application (missiles, land vehicles, UAVs,
       etc.). UTC estimates that its market share in the overall market of tactical grade
       IMUs is lower than [20-30]%.
5.6.3. The Commission’s precedents
(134) The Commission has previously considered there to be a separate product market for
       inertial guidance systems within guided weapons.94 In other cases, the Commission
       has referred to separate markets for: (i) sensor avionics, and (ii) mission avionics,
       itself further segmented into flight avionics and CNI avionics.95
5.6.4. The Commission’s assessment
(135) The results of the market investigation indicate that a market segmentation
       distinguishing lower end tactical IMUs from navigation IMUs systems for PGMs
       reflects market conditions in terms of, e.g., product characteristics, applications and
       prices. In any event, though, the exact product market definition can ultimately be
       left open because no competition concern would arise as a result of the Transaction,
       irrespectively of the exact product market definition. Consumer grade IMUs are used
       in electronics products (smartphones use IMU sensors to determine movement). The
       consumer grade sensors price point is no more than USD 1 per unit and these sensors
93     Form CO, Chapter E, para 105.
94     COMP/M.1745 – EADS, para. 126; COMP/M.797 – SAAB/Celsius, para. 19.
95     COMP/M.3649 – Finmeccanica/BAES Avionics & Communications, para. 9; COMP/M.3735 –
       Finmeccanica/AMS, para. 9.
                                                  28
 ---pagebreak---       are not used for PGMs. Therefore they are not considered in this section and in the
      remaining of the Decision.
(136) First, with respect to demand-side substitutability, a large majority of the suppliers of
      military equipment that replied to the market investigation agree with the view that
      lower performance tactical grade IMUs (used in short-range PGMs, land vehicles,
      sensor stabilization, and low altitude tactical UAVs) constitute a product market
      separate from other IMUs due to limited substitutability for customers in terms of,
      e.g., product characteristics, applications and prices.96
(137) As described by a market participant, ‘[l]ower performance tactical grade IMUs
      constitute a product market separate from other IMUs, due to the important
      difference in terms of performance. These IMUs are suited for low cost and short
      range PGMs.’97 Another market participant explains that ‘Performance
      characteristics, complexity and price vary significantly between short range and
      longer range applications.’98
(138) Second, with respect to supply-side substitutability, a majority of the suppliers of
      military equipment that replied to the market investigation agree that the production
      of lower performance tactical grade IMUs and other IMUs for PGMs entail
      significantly different technical features, expertise and costs.99 A market participant
      explains that ‘[t]he materials, technology and complexity can be significantly
      different between these two systems.’100
(139) The absence of substitutability is mainly explained by the fact that it would not be
      economically viable to substitute one with another given the prices of IMUs is
      strongly linked to their performance. As explained by a market participant ‘The price
      is a key parameter for the cost of operations and the IMU must be optimized to the
      use case requirement.’101 Another market participant confirms ‘Performance drives
      cost at IMUs!’102
(140) In conclusion, the market investigation seems to confirm that tactical IMUs systems
      and other IMUs for PGMs constitute distinct product markets due to the limited
      demand-side and supply-side substitutability. At the end, the exact product market
      definition can be left open because no competition concern would arise as a result of
      the Transaction, irrespectively if product markets are defined based on the type of
      IMU, or not.
5.7.  ARINC
(141) As a matter of clarity, the ARINC network should be distinguished from ARINC
      standards.
96    Questionnaire to suppliers of military equipment Q1, question 143.
97    Questionnaire to suppliers of military equipment Q1, question 143.1.
98    Questionnaire to suppliers of military equipment Q1, question 143.1.
99    Questionnaire to suppliers of military equipment Q1, question 142.
100   Questionnaire to suppliers of military equipment Q1, question 142.1.
101   Questionnaire to suppliers of military equipment Q1, question 143.1.
102   Questionnaire to suppliers of military equipment Q1, question 143.1.
                                                       29
 ---pagebreak--- (142) The ARINC network is a low-bandwidth air-to-ground and ground-to-ground
       communications network that is owned and operated by UTC. It is used
       predominantly by airlines to transfer data between aircraft and counterparties on the
       ground (e.g., between an airline’s operation centre, air traffic control, border control,
       and airline partners). Military aircraft may use ARINC to communicate with air
       traffic control or operations centres while operating in commercial airspace, or –
       notably for VIP and maritime patrol aircraft – to transmit data or messages in
       support of their operations.
(143) ARINC standards are a set of communications standards for avionics, wiring, and
       other aircraft electronics. They are stewarded by SAE International, an independent
       industry body that is unrelated to UTC. An example of an ARINC standard is
       ARINC Specification 618, which defines the low-bandwidth ACARS protocol used
       to send short messages between aircraft and the ground.
(144) As described by the Parties: ‘The ARINC and SITA networks use the traditional, low-
       bandwidth Aircraft Communications Addressing and Reporting System (“ACARS”)
       protocol, first deployed in 1978. The ACARS protocol also allows aircraft operators
       to transmit low-volume snapshot information on the aircraft status (akin to text
       messages), typically several times per flight, or repair messages in case of a
       component fault in flight.’103
(145) Only the ARINC network is controlled by UTC. It shares the “ARINC” name with
       the ARINC standards because both the network and standards were previously under
       the umbrella of ARINC Incorporated, which UTC (then Rockwell Collins) acquired
       in 2013. As part of this acquisition, however, UTC transferred management of the
       ARINC standards to SAE International, precisely to preserve independence and pre-
       empt foreclosure.
5.7.1. The Notifying Party’s view
(146) 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.
5.7.2. The Commission’s precedents
(147) In UTC/Rockwell Collins ‘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 out. 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 means. The majority of OEMs
       therefore considered that ARINC and SITA compete’.104
103    Form CO, Chapter E, para 105.
104    COMP/M.8658 UTC/Rockwell Collins, paragraph 157.
                                                 30
 ---pagebreak--- 5.7.3. The Commission’s assessment
(148) Market investigation shows that both ARINC and SITA are used as datalink network
       services and that market participant consider that they are alternative providing a
       similar service. A market participant explains that ‘[the company] considers that
       SITA is the alternative to ARINC’105 and further specifies that ‘the question refers to
       the role of ARINC as Communication Service Provider (CSP) for civil Datalink
       services. The same service is provided by SITA in Europe.'106
(149) In conclusion, the market investigation appears to confirm that ARINC and SITA are
       considered to offer alternative datalink network services. However, the question of
       whether ARINC and SITA 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.
6.     GEOGRAPHIC MARKET DEFINITION
(150) As explained in its Market Definition Notice, a relevant geographic market is the
       geographic area in which the conditions of competition are sufficiently
       homogeneous and which can be distinguished from neighbouring areas because the
       conditions of competition are appreciably different in those areas.107
6.1.   The Notifying Party’s view
(151) The Notifying Party submits that the relevant geographic market for military
       products is EEA-wide. In particular, the Notifying Party submits that, although
       transportation costs represent a negligible share of the overall cost of the supply of
       military products, conditions of competition in the EEA are differentiated from those
       prevailing elsewhere (including in the US) for several reasons.108
(152) First, the Notifying Party submits that some military products produced in the US are
       subject to ITAR or EAR restrictions and can only be exported to the EEA subject to
       relevant US legislation and/or authorization. Second, the Notifying Party argues that
       the EEA features an autonomous legal regime for the international trade of military
       products, which do not apply to non-EEA suppliers. Third, according to the
       Notifying Party, EEA governments would typically have preferred long-established
       relationships with local suppliers. Fourth, the leading suppliers to the EEA defence
       industry would be distinct from the US-based manufacturers that typically supply the
       US DoD.
(153) In addition, the Notifying Party submits that, although some early Commission
       decisions concerning the defence industry defined national markets on the basis of
       national preferences of the monopsonistic buyers, a national geographic market
       definition is not instructive for purposes of the assessment of the Transaction. This
       would be because these Commission decisions tended to concern concentrations
       involving the incumbent supplier in a Member State and the Parties are not
105    Questionnaire to suppliers of military equipment Q1, question 58.1.
106    Questionnaire to suppliers of military equipment Q1, question 57.1.
107    Commission Notice on the definition of the relevant market for the purposes of Community
       competition law (OJ C372, 9.12.1997, p. 5), paragraphs 8 and seq. and 28 and seq.
108    Form CO, Chapters B, C, D and E.
                                                        31
 ---pagebreak---       incumbent players in any Member State. Further, according to the Notifying Party,
      there would be a trend towards internationalization in the defence industry
      (particularly among EEA Member States).
6.2.  The Commission’s precedents
(154) In the past, the Commission has left open the possibility of defining markets for
      specific military and defence applications on an EEA-wide or national basis due to,
      e.g., the existence of specific government regulations (such export restrictions) or
      national security-related preferences for local suppliers.109
6.3.  The Commission’s assessment
(155) The results of the market investigation suggest that the geographic scope of the
      relevant product markets is EEA-wide. This is because, when asked at what
      geographical level EEA-based customers procure the relevant products, none or very
      few respondents to the market investigation indicated that EEA-based customers
      typically procure the relevant products at nation-wide level. Conversely, most
      respondents indicated that EEA-based customers typically procure the relevant
      products at EEA level and from the US.110 The geographic scope of the relevant
      product markets should thus reflect the fact that sales of defence equipment in the
      EEA generally originate from EEA-based or US-based suppliers.
(156) The market investigation has also revealed that the conditions of competition are not
      homogeneous in the EEA and in the US. In particular, relevant segments of the US
      market are de facto closed to EEA suppliers of military equipment,111 as it is difficult
      for EEA-based suppliers to be awarded military projects in the US unless they
      collaborate with US-based suppliers.
(157) The Commission therefore considers that the geographic market for all military
      equipment discussed in Section 7 below, is EEA-wide in scope.
7.    COMPETITIVE ASSESSMENT
(158) Under Article 2(2) and (3) of the Merger Regulation, the Commission must assess
      whether a proposed concentration would significantly impede effective competition
      in the internal market or in a substantial part of it, in particular through the creation
      or strengthening of a dominant position. In this respect, a merger can entail
      horizontal and/or non-horizontal effects.
(159) In this respect, horizontal effects are those deriving from a concentration where the
      undertakings concerned are actual or potential competitors of each other in one or
      more of the relevant markets concerned. The Commission appraises horizontal
109   COMP/M.8425 – Safran/Zodiac Aerospace, paragraph 300.
110   Questionnaire to suppliers of military equipment Q1, questions 18, 60, 106 and 145.
111   Minutes of a call with a EEA-based competitor, 30.09.2019.
                                                       32
 ---pagebreak---         effects in accordance with the guidance set out in the Horizontal Merger
        Guidelines.112
(160) As regards non-horizontal effects, the Commission Non-Horizontal Merger
        Guidelines113 distinguish between the effects of vertical mergers, which involve
        companies operating at different levels of the supply chain, and of conglomerate
        mergers, which involve companies that are active in closely related markets.
(161) The Horizontal Merger Guidelines and the Non-Horizontal Merger Guidelines
        distinguish between two main ways in which mergers may significantly impede
        competition, namely non-coordinated or coordinated effects. The present section
        assesses successively whether the Transaction is likely to raise horizontal, vertical or
        conglomerate non-coordinated effects on the markets examined in Section 5 above.
7.1.    Horizontal non-coordinated effects
7.1.1. Military GPS receivers
7.1.1.1. Introduction
(162) Both UTC and Raytheon produce military P(Y)-code GPS receivers114 and are
        currently being funded by the DoD to develop military M-code GPS receivers. […].
(163) Both UTC and Raytheon produce ASICs (chips) for use in their own military GPS
        receiver cards. Raytheon also supplies ASICs to third parties, but UTC does not.115
        UTC produces military GPS receiver cards for use in embedded systems or other
        circuitry (e.g., that does not require the interface or chassis provided by a navigation
        box) and for its own navigation boxes or those of third parties. Raytheon produces
        military GPS receiver cards for incorporation into its own navigation boxes but does
        not sell any receiver cards as stand-alone products to third parties. Both UTC and
        Raytheon manufacture military navigation boxes that include receiver cards and use
        the US GPS satellite constellation to sell them to third parties.
(164) For the purposes of the competitive assessment of the Transaction, military GPS
        receivers refer to military GPS receiver cards, including (i) those for use in
        embedded systems or other circuitry, and (ii) navigation boxes.
(165) The Commission assesses in the following section the impact of the combination of
        the Parties’ production and supply of military GPS receivers in the EEA.
7.1.1.2. Market structure
(166) According to the Parties, and apart from them, there are a number of suppliers of
        military GPS receivers in the EEA and worldwide. These include L3Harris, Trimble,
        Mayflower and Thales.
112     Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
        concentrations between undertakings (“Horizontal Merger Guidelines”), OJ C 31, 05.02,2014.
113     Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control
        of concentrations between undertakings (“Non-Horizontal Merger Guidelines”) (2008/C 265/07).
114     UTC also supplies commercial GPS receivers but Raytheon does not.
115     Raytheon sells ASICs (chips) to third parties in the EEA. Raytheon’s sales of ASICS in the EEA
        amounted to USD […], USD […] and USD […] in 2016, 2017 and 2018, respectively.
                                                        33
 ---pagebreak---  ---pagebreak--- (172) According to the Notifying Party, the Transaction should not give rise to competitive
      concerns in the EEA in respect of military GPS receivers as post-Transaction the
      merged entity will remain constrained by several established DoD authorised
      competitors including L3Harris, Trimble and Mayflower.116
(173) However, in the EEA, the market shares of such of alternative manufacturers of
      military GPS receivers remains well below the combined market share of the Parties.
      In 2018, for instance, the market share of Trimble and L3Harris only amounted
      to [10-20]% and [0-5]%, respectively. In addition, it appears that in the past years
      Trimble’s and L3Harris’ market shares have declined. Moreover, as reported by the
      Notifying Party, Mayflower [confidential insight into the Parties’ knowledge of the
      market].
(174) The Notifying Party further claims that, as M-code GPS receivers are still in
      development and military Galileo receivers have not yet been fielded, current market
      shares would essentially reflect sales of P(Y)-code GPS receivers, which are
      becoming obsolete, and likely overstate the Parties’ position going forward.117
(175) However, as also explained by the Notifying Party, the DoD has awarded funding
      only to three companies, including the Parties, to produce M-code GPS receivers for
      ground equipment, aviation, maritime equipment, PGMs and handheld
      applications.118 Thus, following the Transaction, only the merged entity and
      L3Harris would be receiving DoD funding to develop the future generation of GPS
      receivers. As a respondent to the market investigation pointed, ‘it is difficult to
      predict as of now the market positions on M-code which can evolve during the next
      four years’.119 Nonetheless, when M-Code GPS receivers will be operational, the
      market would be even more concentrated and the merged entity would likely be in a
      similar dominant position as it is for P(Y)-code GPS receivers, if not more.
      Precisely, a market participant indicated that ‘absent a remedy, the proposed
      transaction would eliminate competition for airborne, maritime and ground M-Code
      receivers’ as ‘UTC and Raytheon are two of only three suppliers, along with
      L3Harris (…), developing new, congressionally mandated ASIC based M-Code
      receivers’.120
(176) Moreover, contrary to what the Notifying Party argues, the results of the market
      investigation suggest that military Galileo PRS receivers, when fully operational,
      will be a complementary, rather than a competing product in the EEA compared to
      military GPS receivers.121
(177) Lastly, the Notifying Party claims that the Parties’ customers (the DoD, prime
      contractors, etc.) are powerful, sophisticated entities that can – and do – determine
      competitive conditions for military GPS receivers. Therefore, according to the
      Notifying Party, should the merged entity attempt to increase its prices for military
      GPS receivers post-Transaction, the DoD could simply authorize more companies to
116   Form CO, Chapter D, para. 47.
117   Form CO, Chapter D, paras. 49-51.
118   Form CO, Chapter D, para. 20.
119   Questionnaire to suppliers of military equipment Q1, question 110.3.1.
120   Letter from a market participant, 07.02.2020.
121   Questionnaire to suppliers of military equipment Q1, question 101.1.
                                                       35
 ---pagebreak---       produce such products.122 For this, third parties could produce military GPS
      receivers using ASICs (sourced from the US) provided they have US DoD
      authorization to do so.
(178) In this regard, whereas suppliers of GPS receivers producing ASICs internally
      (e.g., the Parties, Trimble) appear to compete with suppliers of GPS receivers
      sourcing ASICs externally (e.g., Thales),123 the latter are inherently dependent on the
      former. Conversely, one market participant indicated that ‘the price of ASICs (sold
      from GPS receivers producing ASICs internally to suppliers of GPS receivers
      sourcing ASICs externally) is regulated by the government’.124
(179) In any event, for existing platforms, most customers indicated during the market
      investigation that, when sourcing military GPS receivers, it is not possible to switch
      to an alternative supplier in a cost efficient and timely manner and without
      integration and interoperability constraints.125
(180) In particular, a respondent to the market investigation explained that:126 ‘[s]witching
      to a new GPS receiver will require many changes to the platform to accommodate
      differences between the current and new GPS receivers, such as: power
      requirements, weight, physical volume (height / width), the precise timing of its
      processing and outputs, and many others’. Therefore, ‘[s]ystem integrators cannot
      simply “swap in” off-the-shelf receivers from alternative suppliers’. The same
      market participant indicated that ‘once a GPS receiver has been designed into a
      platform such as a missile, switching to an alternative supplier will be difficult,
      expensive and time consuming’ and ‘[i]n some cases, it may be impossible’.
(181) In addition to the necessary changes for existing platforms, adding a new supplier
      generally implies costly and lengthy qualification processes. In this regard, one
      respondent to the market investigation indicated that there are ‘significant costs and
      schedule impacts associated with qualifying a new source’.127
(182) Overall, the Transaction is likely to result in both direct and indirect effects in the
      EEA. In turn, the significant industry concentration resulting from the combination
      of the Parties’ activities raises serious doubts in relation to the supply of military
      GPS receivers.
(183) The Transaction will give rise to direct anti-competitive effects in the EEA as it is
      clear from the market investigation that the Parties are the two main suppliers of the
      core military GPS receiver technology in the EEA. Such technology constitutes
      critical input for a broad range of systems with ground, sea, airborne or weapon
      applications, as well as for competing suppliers of GPS receivers sourcing ASICs
      externally. Direct effects would primarily affect EEA-based OEMs acquiring
      military GPS receivers for the manufacture of new military platforms (as there is no
      material competition for existing platforms) or PGMs.
122   Form CO, Chapter D, paras. 54-55.
123   Questionnaire to suppliers of military equipment Q1, question 111.
124   Questionnaire to suppliers of military equipment Q1, question 111.1.
125   Questionnaire to suppliers of military equipment Q1, question 119.
126   Questionnaire to suppliers of military equipment Q1, question 119.1.
127   Questionnaire to suppliers of military equipment Q1, question 119.1.
                                                       36
 ---pagebreak--- (184) In this regard, one market participant expressed that the combination of the Parties’
        capabilities in the supply of GPS receivers would result in ‘fewer choices of supply
        for customers, a reduction in the incentive and ability to innovate, giving the
        customers fewer options, and less of a constraint on price increases’.128
(185) Further to the direct anti-competitive effects of the Transaction in the supply of GPS
        receivers in the EEA, the merger between UTC and Raytheon will also give rise to
        indirect effects in the EEA. Indirect effects would result from purchases by EEA
        armed forces of military platforms or PGMs containing military GPS receivers
        manufactured by US OEMs (through the FMS program or DCS). One market
        participant indicated that ‘European armed forces do rely on US platforms
        significantly, and increasingly so for some of them’.129 In this regard, the results of
        the market investigation show that most armed forces generally procure military
        equipment “as a complete package” (with all systems/subsystems/components
        selected by the OEM/DoD)130 and that only exceptionally could they buy GPS
        receivers on a standalone basis.131
(186) The results of the market investigation suggest that the majority of the EEA armed
        forces consider it either possible or very likely that an increase in the price of GPS
        receivers would typically be reflected in the price of the platform in question (and
        therefore “passed on” to the customers of such platform, i.e., armed forces).132 In this
        regard, the highly concentrated nature of the market at OEM level and the critical
        nature of GPS receivers in military platforms makes it more likely that any price
        increase of such products will be passed on to the acquirers of the platforms.
        Moreover, armed forces and OEMs would not have sufficient countervailing buyer
        power to avoid it. Furthermore, as one competitor expressed during the market
        investigation, GPS receivers are used every day by European armed forces and any
        supply-chain disruption would be “highly catastrophic”.133
(187) Based on the combined market shares of the Parties and further qualitative evidence
        available to the Commission as explained in this Section, the Commission concludes
        that the Transaction raises serious doubts as to its compatibility with the internal
        market due to the creation or strengthening of a dominant position in the supply of
        military GPS receivers in the EEA.
7.1.2. Military communication systems
7.1.2.1. Introduction
(188) Both UTC and Raytheon supply military airborne radios, military ground radios and
        military data links devices in the EEA, either through the US FMS program or via
        DCS. The Parties integrate SATCOM capabilities in their military airborne radios
        but do not supply such systems as stand-alone systems.
128     Letter from a market participant, 21.10.2019.
129     Minutes of a call with a market participant, 30.09.2019.
130     Questionnaire to European (EEA) armed forces Q2, question 11.
131     Questionnaire to European (EEA) armed forces Q2, question 19.
132     Questionnaire to European (EEA) armed forces Q2, question 21.
133     Questionnaire to suppliers of military equipment Q1, question 119.1.
                                                          37
 ---pagebreak--- (189) UTC manufactures and supplies military airborne radios operating at HF and
        VHF/UHF frequencies, certain of which include narrowband SATCOM
        capabilities.134 UTC provides military narrowband SATCOM capabilities integrated
        in its airborne radios but does not supply stand-alone Narrowband SATCOM for
        military applications.135 In addition, UTC manufactures fixed HF and VHF/UHF
        ground radios and a deployable VHF/UHF ground radio. Lastly, UTC produces
        military Link 16 SA data links and owns the ARINC network.136
(190) Raytheon manufactures and supplies VHF/UHF military airborne radios, certain of
        which include Narrowband SATCOM capabilities. Raytheon also manufactures and
        supplies military ground radios. However, according to the information made
        available to the Commission,137 it is Raytheon’s intention to exit the segment and it
        has ceased responding to tenders for military ground radios opportunities both
        globally and in the EEA. Moreover, Raytheon […]. Lastly, Raytheon produces SA
        data links that use SADL and EPLRS protocols138 (which cannot communicate
        directly with data links using more advanced protocols such as Link 16 data links
        produced by UTC) and it manufactures and supplies military wideband SATCOM
        products.
(191) According to the Notifying Party, there are no affected markets in the area of
        military communication systems.
(192) The Commission assesses in section 7.1.2.3 the impact of the combination of the
        Parties’ production and supply of military airborne radios, military ground radios
        and data links in the EEA.
7.1.2.2. Market structure
        (A)       Military airborne radios
(193) Apart from the Parties, there are a number of suppliers of military airborne radios in
        the EEA and the US. These include Thales, Leonardo, Rohde & Schwarz, Cobham
        and Viasat, among others.
(194) The Notifying Party submitted EEA estimated market shares for military airborne
        radios expressed in sales value of the Parties and their rivals. Total sales include
        direct sales of military airborne radios made by US and EEA-based suppliers to
        EEA-based OEMs and armed forces. EEA market shares provided by the Notifying
        Party cover the period 2014 to 2018.
(195) Table 3 shows the Parties’ and their competitors’ EEA market shares (value) in the
        supply of military airborne radios for 2014 to 2018 period.
134     UTC also supplies radios for civil applications, although Raytheon does not.
135     UTC does not produce military Wideband or protected SATCOM. UTC only produces stand-alone
        Wideband SATCOM transceivers for commercial applications.
136     UTC produces and sells most of its data links through Data Link Solutions (“DLS”), a joint venture
        formed with BAE Systems.
137     Form CO, Chapter C, paras. 53-56.
138     Raytheon […].
                                                          38
 ---pagebreak---  ---pagebreak---  ---pagebreak---       military airborne radios in Europe is low and they will remain far behind the market
      leaders in Europe. Second, the Notifying Party argues that the Parties have not
      competed against each other for the supply of any military communication systems
      in the EEA within at least the last five years. Third, the Notifying Party argues that
      the Transaction would have no material effect on procurement for existing
      applications, as competition for upgrades to existing platforms is limited. Fourth,
      according to the Notifying Party, competition for future opportunities is robust and
      market entry is likely. Lastly, sophisticated buyers for these products would have
      significant buyer power.
(206) According to the Parties’ estimates, their combined EEA market shares in the supply
      of military airborne radios remained below 20% in the past years (2014-2018).
      Moreover, there are at least three other EEA-based competitors with similar or
      higher market shares compared to the Parties, namely, Rohde & Schwarz, Thales and
      Leonardo. Rohde & Schwarz and Thales would seem to have particularly strong
      positions in the supply of military airborne radios in the EEA, with Rohde &
      Schwarz holding near half of the sales value.
(207) Notwithstanding the above, in the US market for the supply of military airborne
      radios, the combined market share of the Parties would remain well above 50%, at
      almost 70%, with the next competitor, Northrop Grumman, with a fifth of the market
      share of the merged entity. Post-Transaction, the Parties would have a prevailing
      position in the US market for the supply of military airborne radios, being the only
      real supplier option for some US based OEMs. In this context, most respondents
      pointed to the fact that US based OEMs generally favour US based suppliers.141
(208) Indeed, although there are alternative EEA-based suppliers serving EEA-based
      OEMs with military airborne radios, the US market is de facto closed to those EEA
      suppliers. As one competitor of the Parties has explained, ‘it is impossible for
      European suppliers to be awarded projects for radio or other communication
      systems for US platforms’.142 At the same time, EEA armed forces procure a variety
      of US military aircraft platforms via the FMS program or DCS. Consequently, it is
      likely that the Transaction may result at least in indirect harm to European armed
      forces, notably as they consider likely that an increase in the price of military
      airborne radios would typically be reflected in the price of the platform in question
      (and therefore “passed on” to the customers of such platform, i.e., armed forces).143
      In this regard, as for military GPS receivers, the highly concentrated nature of the
      market at OEM level and the critical nature of radios in military aircrafts makes it
      more likely that any price increase of such products will be passed on to the
      acquirers of the aircrafts. Moreover, armed forces and OEMs would not have
      sufficient countervailing buyer power to avoid it.
(209) Regarding the overall buyer power of customers of military airborne radios, one
      competitor of the Parties explained during the market investigation that ‘[f]or small
      quantities the buyer power is very limited’ and that ‘[i]f the supplier base reduces
      buyer power will only be given to customers who order large quantities’.144 With
141   Questionnaire to suppliers of military equipment Q1, question 89.3.
142   Minutes of a call with a EEA-based competitor, 30.09.2019.
143   Questionnaire to European (EEA) armed forces Q2, question 21.
144   Questionnaire to suppliers of military equipment Q1, question 83.
                                                       41
 ---pagebreak---       regard to existing platforms in particular, one respondent explained that ‘[a]n
      aircraft integrator cannot simply “swap in” a radio from a new supplier without
      make other changes to the aircraft’ and that ‘[t]he time and cost required to switch
      to a new supplier of airborne radios depends on the platform and the degree of
      difference between the old and new radios’.145
(210) In addition, the market investigation confirms that there has not been any new
      supplier of military radios to EEA-based customers over the last five years and there
      are no alternative suppliers likely to start supplying military radios to EEA-based
      customers in the coming future.146
(211) Therefore, with regard to military airborne radios, it cannot be excluded that the
      Transaction gives rise to indirect effects in the EEA that would result from
      purchases by EEA armed forces of military platforms containing military airborne
      radios manufactured by US OEMs (through the FMS program or DCS).
(212) With regard to military ground radios, the combined market share of the Parties
      would remain well below 20% in the EEA. In particular, UTC’s market share only
      amounts to [0-5]% at EEA level (period 2016-2018), and it appears that Raytheon is
      no longer competing in the market. A number of alternative suppliers with higher
      market shares would compete with the merged entity in the supply of military
      ground radios post-Transaction, including L3Harris, Rohde & Schwarz, Thales and
      Leonardo. Consequently, the Transaction does not raise serious doubts as to its
      compatibility with the internal market with regard to military ground radios.
(213) With regard to military data links, the combined market share of the Parties would
      remain below 20% in the EEA. Furthermore, the data links products offered by the
      Parties do not use the same protocols, as UTC’s data links use the Link 16 NATO
      protocol and Raytheon’s data links use SADL and EPLRS protocols. A number of
      alternative suppliers would compete with the merged entity in the supply of data
      links post-Transaction, including L3Harris, EuroMIDS and Viasat (at least
      EuroMIDS and Viasat supply Link 16 data links). At EEA level,
      EuroMIDS ([50-60]%),              L3Harris      ([10-20]%),        Viasat ([10-20]%) and
      TransDigm ([5-10]%) would have larger market shares than the merged entity.
      Consequently, the Transaction does not raise serious doubts as to its compatibility
      with the internal market with regard to military data links.
(214) One market participant indicated that the Parties are the two primary Identification
      Friend-or-Foe (“IFF”) transponder manufacturers serving the US and two of the
      three major IFF transponder manufacturers in the EEA.147 IFF transponders perform
      identification friend or foe functionality and thus serve to determine whether other
      platforms are ally or enemy operated. According to this market participant, the
      Transaction would effectively reduce the major players in the supply of IFF
      transponders. However, according to the information provided by the Parties, UTC
      does not develop or supply such technology.148 The same market participant
      indicated that there is a potential horizontal concern as the Parties have important
145   Questionnaire to suppliers of military equipment Q1, question 73.
146   Questionnaire to suppliers of military equipment Q1, questions 84 and 85.
147   Letter from a market participant, 21.10.2019.
148   Form CO, Chapter C, para. 42.
                                                       42
 ---pagebreak---  ---pagebreak---  ---pagebreak---         unchanged or would further reduce, because such a distinction would entail an
        narrower definition of the relevant markets.
7.1.3.3. The Commission’s assessment
(229) The Transaction gives rise to a horizontal overlap between the activities of the
        Parties with regard to long-range EO/IR sensors or EO/IR sensors for surveillance
        missions. However, the Transaction would result in limited impact on the EEA
        markets for EO/IR sensors because the Parties’ EO/IR sensors are complementary in
        nature and because, pre-Transaction, no close competition took place between them.
(230) According to the Notifying Party, the overlap between the Parties’ activities in
        relation to EO/IR sensors is limited as UTC only supplies short- and long-range
        EO/IR sensors and Raytheon mainly supplies mid-range EO/IR sensors, and, to a
        limited extent, long-range EO/IR capabilities.153 Alternatively, UTC would only
        supply EO/IR sensors for reconnaissance and surveillance missions, while Raytheon
        would mainly supply EO/IR sensors for targeting missions.
(231) In this respect, Raytheon has only one product that includes long-range EO/IR and
        surveillance functionalities, which is the EISS sensor. According to the Notifying
        Party,154 this product cannot be offered as a stand-alone EO/IR sensor, but is part of
        a sensor suite that has a synthetic-aperture radar as its primary element. Further, the
        Notifying Party explains that Raytheon has never sold EISS to the EEA market, […].
(232) Therefore, although an overlap between the Parties exists in terms of products
        offering, no material overlap in terms of sales occurred over the period 2016-2018
        because, […],155 […] at EEA-level [Raytheon] never sold any [long-range EO/IR]
        sensors at all.156
(233) According to the market shares estimates provided by the Notifying Party, UTC’s
        market share in the EEA amounts only to [5-10]%. Table 7 also shows that in the
        EEA Thales had the largest sales in the period 2016-2018, representing [70-80]%
        market share, followed by Rafael with a market share of [20-30]%.
(234) Therefore, the combination of the Parties’ capabilities in long-range EO/IR sensors
        will have no impact on the EEA as pre-Transaction Raytheon has never sold any
        EISS sensor in the EEA […].
(235) In addition, the market investigation has confirmed that the Parties’ EO/IR sensor
        capabilities are complementary.157 Thus, the Transaction will result in the merged
        entity having a full range of sensor capabilities but this will not result in a direct
        and/or significant loss of competition. In this regard, whereas customers do
        sometimes procure different types of sensors together or as part of a suite of mission
        systems, other suppliers appear to be able to offer the same range of sensors.158
153     Form CO, Chapter B, Table 2.
154     Form CO, Chapter B, paragraph 28.
155     Form CO, Chapter B, paragraph 86.
156     Form CO, Chapter B, paragraph 68.
157     Questionnaire to suppliers of military equipment Q1, question 22.
158     Questionnaire to suppliers of military equipment Q1, question 2.
                                                         45
 ---pagebreak--- (236) Furthermore, the majority of the respondents to the market investigation indicated
       that EEA-based customers would have sufficient alternative suppliers of EO/IR
       sensors available upon completion of the proposed acquisition of Raytheon by
       UTC.159
(237) Lastly, the majority of the Parties’ customers that expressed a view in the market
       investigation consider that the Transaction would not have any impact on their
       businesses with regard to the supply of EO/IR sensors.160
(238) Based on the information available as explained in this section, the Commission
       concludes that Transaction does not raise serious doubts as to its compatibility with
       the internal market with regard to EO/IR sensors.
7.1.4. Conclusion on horizontal non-coordinated effects
(239) In light of the considerations in section 7.1 and based on the results of the market
       investigation and on all the information available to it, the Commission concludes
       that the Concentration raises serious doubts as to its compatibility with internal
       market with respect to horizontal non-coordinated effects in the markets for the
       supply of military GPS receivers and military airborne radios. The Commission
       considers that the commitments offered by UTC as described in Section 8 are
       adequate and sufficient to eliminate any serious doubts as to the compatibility of the
       Transaction with the internal market in relation to those markets.
7.2.   Vertical non-coordinated effects
(240) This section considers the following vertical relationships: UTC's (upstream)
       manufacture and supply of:
       (a)     GNSS receivers;
       (b)     actuation systems;
       (c)     lower performance tactical grade IMUs;
       (d)     And the supply of ARINC certification for military equipment; and
       (e)     Raytheon’s (downstream) integration of these systems into PGMs.
(241) As shown in Table 4 below, the Transaction only results in one affected market in
       the EEA for the supply of GPS Receivers used in PGMs. In effect, UTC’s market
       shares in the upstream markets are negligible in the EEA and modest on a worldwide
       basis, with the exception of GPS receivers ([30-40]% EEA and [40-50]%
       worldwide).
(242) Equally, Raytheon’s downstream market shares in the manufacture of PGMs are low
       in the EEA [5-10]% and modest worldwide [10-20]%. This picture holds true for the
       relevant individual narrower segments within PGMs. Raytheon’s estimated EEA and
       worldwide shares remains below 30% in all cases.
159    Questionnaire to suppliers of military equipment Q1, question 24.
160    Questionnaire to suppliers of military equipment Q1, question 32.
                                                        46
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (254) The specific components or subsystems that raised concerns are further assessed in
        the following sections.
7.2.1.2. Customer foreclosure ability: PGM
(255) A market participant mentioned that post-transaction, the merged entity would have
        no incentive to source from alternative suppliers (contrary to Raytheon pre-
        transaction), foreclosing UTCs competitors from a significant part of the market and
        reduction in incentives to innovate and develop products to the detriment of
        customers.
(256) First, Raytheon’s estimated market share for PGMs in the EEA is limited. In 2018
        Raytheon had an estimated market share for all PGMs of [5-10]% in the EEA and
        [10-20]% worldwide.
(257) Raytheon’s estimated EEA shares are also below 30% in the narrower segments
        within PGMs: [0-5]% for precision guided projectiles, [20-30]% for precision guided
        bombs and [0-5]% for precision guided missiles.
(258) Second, there are a number of competitors producing PGMs, on both an EEA and a
        global basis, which suppliers could turn to in order to frustrate a customer
        foreclosure strategy. These include MBDA (the largest guided missile prime
        contractor in Europe) and Lockheed Martin (the largest guided missile prime
        contractor globally), as well as other smaller competitors.
(259) Third, for existing contracts the ability to switch is limited. Contracts between
        Raytheon and the customer (typically the U.S. Government) for a PGM will specify
        that a change in certain components (including GPS receivers) are classified as a
        ‘Class 1’ change. All Class 1 changes require buyer approval prior to
        implementation. This reflects the importance of these components in the
        performance of PGMs. As such, Raytheon is not authorized to make this change
        without first submitting an engineering change proposal for prior customer approval.
        Raytheon is therefore not able to foreclose demand on any of its GPS receiver
        suppliers
(260) Fourth, more specifically on the components mentioned by the complainants such as
        IMUs and Actuators Raytheon’s spend on this components does only provide limited
        downstream market power. As a result, it is unlikely that Raytheon is a sufficiently
        important customer to suppliers in the EEA to foreclose demand.
7.2.2. Upstream components and subsystems
7.2.2.1. Introduction
(261) A market participant raised concerns about the impact of the vertical integration on
        some components and subsystems for PGMs stating that ‘Raytheon could become
        more competitive and aggressive downstream due to the vertical integration
        resulting from the transaction. On this point, the Company believes that issues may
        potentially arise at the supply chain level as the new company resulting from the
        merger could stop supplying the Company, could do so at worse conditions, based
        on the influence that Raytheon could have on this activity.’ However the same
        market participant specifies that ‘[o]n balance, however, the Company believes that
                                                  49
 ---pagebreak---         the risks that may arise post-transaction are manageable. There are alternative
        suppliers [...].’165
(262) The coming sections will further assess the incentives and ability of the merged
        entity to engage into input foreclosure in components and subsystems for PGMs.
7.2.2.2. Input foreclosure ability: GPS Receivers
        (A)       Description of the vertical relationship and market context
(263) The market structure of GPS receivers is further described in detail in section 7.1.1.
(264) The Parties’ combined market share in the supply of military GPS receivers is
        particularly high and has constantly been above 50% for the past years.
(265) The Transaction results in a vertically affected market in the EEA – the supply of
        GPS receivers which are used in precision guided bombs, precision guided
        projectiles, and precision guided missiles.
(266) Both UTC and Raytheon produce P(Y)-code military GPS receivers. Both are also
        being funded by the DoD to develop M-code GPS receivers.
(267) In 2018, UTC generated military GPS receiver revenues of USD […] million, of
        which USD […] million were generated in the EEA. UTC supplies GPS receivers to
        third parties, […], for incorporation into a range of different military applications.
(268) Raytheon produces military GPS receivers through its Space and Airborne Systems
        business unit. Raytheon has historically focused on the supply of GPS customized
        for high performance weapons. Raytheon’s military GPS receiver activity is
        vertically integrated […], with approximately […]% of its GPS receiver production
        used internally ([…]% for Raytheon’s guided weapons alone). As well as sourcing
        internally, Raytheon purchases GPS receivers from various third parties, including
        UTC.
        (B)       Commission assessment
(269) First Raytheon’s PGMs are predominantly sold to the U.S. Government, which
        controls the suppliers of GPS receivers. Some of Raytheon’s PGMs are sold to
        customers in the EEA through the FMS channels. Raytheon is unable to sell PGMs
        to any customer without DoD approval and the vast majority of its sales in PGM are
        made through FMS. The DoD therefore plays an important, if not decisive role in
        defining product characteristics and specifications.
(270) The DoD funds new product development and determines which suppliers will to
        produce these products. Indeed, the development of a significant proportion of
        military products are directly funded by the U.S. Government. The DoD’s significant
        role in the market, makes it significantly more difficult to successfully adopt
        foreclosure strategies. The U.S. Government’s ability to influence the competitive
        landscape mean any such strategies could result in intervention by the DoD.
165     Minutes of a call with a market participant, 11.10.2019 and Questionnaire to suppliers of military
        equipment Q1, question 166.1.
                                                       50
 ---pagebreak--- (271) Second, the procurement process makes it difficult to engage into foreclosure
        strategies. PGM prime contractor will issue a competitive tender for various
        components and request associated pricing over a series of production lots and
        quantities over multi-year timeframes. These typically mirror the duration of the
        contract the customer has negotiated for the supply of PGMs, so that the components
        supplier remains consistent for the duration of the contract. Moreover, GPS receivers
        are classified as a ‘Class 1’ change as further explained in paragraph xx. All Class 1
        changes require buyer approval prior to implementation. As a result, in respect to
        PGMs supplied to a customer under an existing contract, a components supplier
        would not be able to engage in foreclosure strategies as this would be in breach of
        contract.
(272) Third, with regard to PGMs produced for the U.S. Government, while a prime
        contractor will typically determine the suppliers it uses (so long as the product and
        components meet the required specifications of the U.S. Government), under the
        Federal Acquisitions Regulation ‘FAR’, the U.S. Government is permitted to direct
        procurement when it has a requirement for a particular subsystem or component (or
        supplier).
(273) The regulatory rights of the U.S. Government under FAR, allows the U.S.
        Government to prevent an input foreclosure strategy. This legislation also benefits
        European customers as it means that when the original PGM procurement occurs, it
        occurs competitively and subsequent sales of already designed off-the-shelf PGM
        products yields competitively influenced pricing.
(274) Fourth, although the Parties are currently the two main suppliers of the core military
        GPS receiver technology worldwide however, the commitments further developed in
        section 8.3.4 will result in the divestment of the entirety of UTC’s military GPS
        receiver activities. Accordingly, it will alleviate the merged entity market power and
        ability to engage in input foreclosure strategies.
7.2.2.3. Input foreclosure ability: Actuators
        (A)       Description of the vertical relationship and market context
(275) As described in section 5.5, actuation systems control the altitude or angular velocity
        of the PGM and effectively steer the PGM. There is a distinction between:
        (i) fin-based actuation systems; and (ii) TVA systems.
(276) Raytheon uses all types of actuation systems across its PGM portfolio. Raytheon
        uses TVA in its high-end guided missiles, such as its ballistic missile intercept
        systems, and fin-based actuation in a number of guided missiles. UTC is active in the
        supply of both TVA and fin-based actuation systems and supplies Raytheon with
        both of these for integration into various PGMs.
(277) However, considering the market for actuators, UTC has limited market shares in
        actuators under any plausible market definition.
        (B)       Commission assessment
(278) First, considering fin-based actuation systems, in Europe UTC does not supply
        actuation systems. Its market share in this segment is therefore [0-5]%. In the United
        States the market share is [10-20]% in 2019 and there are other competitors
                                                    51
 ---pagebreak---         including Woodward ([40-50]%), Parker ([20-30]%), Moog ([10-20]%), and
        GD-OTS ([0-5]%).
(279) Considering thrust vector-based actuation systems, in Europe UTC does not supply
        actuation. Its market share in this segment is therefore [0-5]%. In the United States
        UTC only supplies thrust vector-based actuation systems for […]. Accordingly, it
        has no significant market share in this area.
(280) Second, there are several credible competitors are active in the supply of each of
        TVA and fin-based actuation systems, both globally and the EEA. These players are
        well-established and sophisticated defence contractors. The main competitors to
        UTC in the supply of each of TVA and fin-based actuation systems include:
        -   Parker Hannifin Corporation - Parker Hannifin is a U.S. based company. It is one
            of the largest companies in the world in motion control technologies, Parker’s
            Aerospace actuator and cylinder selection comprises hydraulic, pneumatic, and
            electromechanical actuators and cylinders.
        -   Woodward Inc. Woodward is one of the oldest and largest designers,
            manufacturers and service providers of control systems and control system
            components in the world. The company delivers an array of actuation
            technologies, systems and components for a broad range of U.S. missile
            programs.
        -   Nordic Ammunition Company (Nammo). Nammo is a Norwegian/Finnish
            aerospace and defence group specialising in ammunition, rocket engines and
            space applications. Nammo provides missile actuation systems for various
            applications and platforms.
(281) Therefore, such that any attempt at input foreclosure would be frustrated by the
        ability of downstream competitors to switch to an alternative supplier.
(282) Third, UTC does not supply any actuation products directly to customers in the
        EEA. As such, the merger cannot give rise to input foreclosure in respect of PGM
        prime contractors in the EEA. The PGM actuation systems produced by UTC are
        [details of UTC’s PGM actuation sales].
(283) The respective market shares in the US and in the EEA indicates that input
        foreclosure concerns is unlikely to arise, due to the lack of market power on the
        upstream market and the availability of alternative sources of supply for customers.
        Moreover, other purchasers of each of TVA and fin-based actuation systems include
        major missile primes with strong buyer power such as MBDA, Lockheed Martin,
        Northrop Grumman, Boeing, BAE Systems, etc.
7.2.2.4. Input foreclosure ability: IMUs
        (A)       Description of the vertical relationship and market context
(284) As described in section 5.6, there are two segments of IMUs for PGMs: (i) high
        performance navigation grade; (ii) lower performance tactical grade.
(285) UTC is […] active in the supply of lower performance tactical grade IMUs, and
        currently supplies […] with this grade of IMU.
                                                    52
 ---pagebreak--- (286) Raytheon purchases both high performance navigation grade IMUs, which it
      incorporates into products such as its ballistic missile defence systems and cruise
      missiles; and lower performance tactical grade IMUs, which it integrates within a
      number of different products, including guided missiles.
      (B)       The Commission’s assessment
(287) First, considering tactical grade IMUs, UTC’s market share in the United States
      was [20-30]% in 2019. Considering a product market including all tactical grade
      IMUs irrespective of their application (missiles, land vehicles, UAVs, etc.), UTC’s
      market share is lower than 20%.
(288) Although UTC supplies tactical IMUs to certain European missile manufacturers, its
      market position is […]. UTC market share in the European segment of tactical IMUs
      for missiles to be below [10-20]%.
(289) Second, there are a number of alternative providers for tactical IMUs, which UTC
      competes with on a regular basis. These competitors include Honeywell, Northrop
      Grumman, Analog Devices, L3, Emcore (which acquired Systron Donner in
      June 2019), Sensonor, Safran (Sagem brand), and SBG Systems. The existence of
      these competitors means that UTC’s customers can switch their IMU demand to any
      one of a wide range of alternative suppliers, thus frustrating any attempt at an input
      foreclosure strategy.
(290) Third, some of Raytheon’s largest competitors with regard to the supply of PGMs,
      including Lockheed Martin and Northrop Grumman, are vertically integrated with
      regard to the supply of IMUs, meaning that they also have the option of diverting
      some of their demand to in-house supply.
(291) Fourth, lower performance tactical IMUs are largely similar and allow for demand
      side substitution across a number of applications. As such, competition between
      suppliers at a given performance requirements is typically based around price,
      delivery and quality performance of the supplier.
      (C)       Input foreclosure incentive: components and subsystems for PGMs
(292) There are several reasons why the merged entity would have no incentive to engage
      in any foreclosure strategies, regardless of the nature of the vertical relationships.
(293) First, a fear of retaliation as PGM systems are comprised of a large number of highly
      technical subsystems and components and the market is characterized by significant
      cross-supply between competitors.
(294) Raytheon estimates that it relies on third party sourcing for over [50-60]% of its
      PGM subsystems and components; which is equivalent to between USD […] worth
      of expenditure across the business. This includes individual components across a
      range of applications (e.g., guidance and control, propulsion, etc.) as well as
      subsystems and assemblies, and notably, includes a number of components for
      which it also manufactures and supplies.
(295) Raytheon spends an estimated USD […] on subsystems and components for its PGM
      business each year. In this context, UTC is only a mid-sized supplier to Raytheon,
                                                 53
 ---pagebreak---       supplying components worth approximately […] per year – approximately […]% of
      its total annual component spend for PGMs.
(296) In this context, the merged company would not stand to gain by adopting any
      foreclosure strategies. If the merged entity engaged in input or customer foreclosure
      towards its competitors, it would risk facing similar retaliation strategies.
(297) Retaliation from competitors may occur, including exclusion by a PGM prime
      contractor from bidding for a future opportunity to supply components for a
      program, or an active move by a PGM prime contractor to introduce an additional or
      alternative supplier, subject to DoD’s approval in respect of existing programs
      involving UTC components.
(298) Moreover, PGMs prime contractors such as Raytheon typically have a number of
      customer-supplier commercial relationships with their competitors. If the merged
      company were to engage in foreclosure strategies, it would risk missing the contracts
      for PGM systems to its downstream competitors, who would still be sourcing
      components based on the most advantageous quality and price.
(299) Second, foreclosure strategies would undermine existing business strategies as UTC
      supplies PGM components to many different PGM prime contractors. Indeed a
      significant proportion of UTC’s business is dedicated to supplying various
      components to PGM prime contractors with well-established relations and strong
      reputation in the market. UTC has significant historical relationships with a number
      of PGM prime contractors. Changing business strategy and diminishing the business
      relationships would impact UTC’s position as a PGM components supplier.
(300) The merged entity could also expect to lose profits as a result of withholding PGM
      subsystems and components in the upstream market without any confidence that
      they could be recouped through increased business in the downstream business. The
      relatively small downstream market share of Raytheon in PGMs in the EEA
      ([5-10]% for all PGMs in 2018 as further developed in section 7.2.1) and the
      competitive dynamics in the downstream PGM market makes it unlikely that the
      Parties would have incentive to engage in a foreclosure strategy.
(301) Similarly, Raytheon seems to have followed a strategy that is not or not always
      based on vertically integrating components. To obtain the highest quality
      components for the most competitive price, Raytheon has moved to sourcing PGM
      components from third parties notwithstanding that it is already has vertically
      integrated capabilities, for example:
      -    moving from in-house supply to purchase from […] of […], to obtain a higher
           quality product and to lower the cost of production; and
      -    moving from in-house supply to third party supply of […] on […], to increase
           quality and lower cost.166
(302) Third, the merged entity would face the risk of reputational damage by attempting to
      engage in such a strategy. The impact on the merged entities reputation would be
      particularly important in the market given the importance of cross-supplies.
166   Form CO, Chapter E, para. 201.
                                                 54
 ---pagebreak---         Attempting to engage in foreclosure strategies would do lasting damage to the
        reputation of the merged entity.
(303) The reputational damage could not only influence competitors and suppliers, but also
        the U.S. Government and its allies rely on the Parties for elements of their national
        defence infrastructure. They have the ability to punish the companies and divert
        future business elsewhere if they consider a party’s actions are undermining their
        defence capabilities and national security. Therefore, risking the market reputation
        by engaging into foreclosure strategies would be a very high risk for the Parties
        given the specifies of national security and defence industry.
7.2.3. ARINC
(304) As explained above in Section 5.7, ARINC is a commercial datalink network that is
        owned and operated by UTC. As operator of the ARINC network, UTC is
        responsible for testing and approving aircraft communications equipment that send
        and receive data via ARINC, including testing and approving other manufacturers’
        products for compatibility with the network.
(305) One market participant expressed concerns that post-merger the merged entity would
        deprioritise competitors’ ARINC testing and approvals, and that the combined entity
        would have an increased ability and incentive to influence the testing data centres to
        this end. This would put competitors’ products at a disadvantage in terms of testing
        out some products, including new products, which will involve incorporation with
        the ARINC network.
(306) Raytheon is a defence contractor. According to the Notifying Party, none of
        Raytheon’s existing products are developed or sold for use with ARINC167, and
        Raytheon is not aware of any of its products having been tested and qualified to
        enable use with ARINC.
7.2.3.1. Input foreclosure ability
(307) First, as regards the testing of equipment for compatibility with the ARINC network,
        the procedure known as Aviation Qualification Procedures (“AQP”) testing treats all
        manufacturers equally and is explicitly provided for in ARINC’s AQP policy:
        ARINC does not discriminate among avionics manufacturers in connection with the
        testing processes described in this Policy.
(308) This means that (a) ARINC processes testing requests on a “first in, first out” basis;
        (b) ARINC provides all parties with the same level of service; and (c) ARINC grants
        the same official AQP status or classification designation to avionics that achieve the
        same AQP testing results.
(309) Second, as regards the operation of the ARINC network, UTC is contractually bound
        to neutrality and quality requirements, which can be monitored by airlines
        (i.e., ARINC customers) through regular performance reports. For example:
        (a)     Open standards. Airlines require that ARINC adhere to strict open access
                standards to ensure complete interoperability on all aircraft. UTC’s contracts
167     Form CO, Chapter E, para. 347.
                                                   55
 ---pagebreak---                  with these airlines require, for instance, that the exchange of data messages
                 from aircrafts conform to the industry-wide standards.
        (b)      Quality requirements. UTC is bound by strict quality requirements set out in
                 its contracts with airlines. These requirements include a series of high-
                 standard service goals such as >[90-100]% availability rate of the datalink
                 network services and >[90-100]% success delivery rate of uplink messages.
                 UTC is required to provide airlines on a regular basis with performance
                 reports, which identify the actual performance statistics compared to these
                 overall service goals. Failure to achieve the service goals typically gives
                 airlines the right to rebates or early termination.
(310) UTC therefore does not have the ability to discriminate between ARINC data flows.
        As explained above, ARINC directly competes with SITA as confirmed by a market
        participant ‘[the company] considers that SITA is the alternative to ARINC’168. Any
        attempt by UTC to reduce the performance of data flows related to third party
        aircraft components (or in any other way to discriminate against such third parties,
        e.g., through its pricing policy) would likely result in ARINC data traffic being
        diverted to SITA.
7.2.3.2. Input foreclosure incentive
(311) UTC has no incentive to engage into input foreclosure strategies post-Transaction as
        Raytheon’s portfolio does not include products that could benefit from
        discriminatory treatment and could potentially result into traffic diverted from
        ARINC to SITA.
7.2.4. Conclusion
(312) The Commission finds that the merged entity would have no ability and incentive to
        foreclose competitors through the input foreclosure of components and subsystems
        for PGMs or testing and certification of ARINC products.
(313) The downstream shares of PGMs are not indicative of the significant degree of
        market power required to have the ability to foreclose competitors through input
        foreclosure strategies. The merged entity will continue to face at strong competitors
        with equivalent alternative products. Moreover, US DoD control of the procurement
        process make successful foreclosure strategies unlikely.
(314) Furthermore, potential retaliation, business strategy rational and reputational damage
        are a combination of factors that remove the incentive to engage into foreclosure
        strategies. This indicates that the merged entity is unlikely to have the incentives to
        engage in foreclosure after the Transaction.
(315) Based on the assessment laid down in paragraphs (244) to (313) and in view of the
        results of the market investigation and of all the evidence available to it, the
        Commission concludes that the Transaction does not raise serious doubts as to its
        compatibility with the internal market with regard to vertical non-coordinated
        effects.
168     Questionnaire to suppliers of military equipment Q1, question 57.1.
                                                         56
 ---pagebreak--- 7.3.  Conglomerate effects
(316) Considering the complementary nature of the product portfolio of the Parties a
      market participant expressed concerns that ‘[r]egarding electro-optical sensors and
      GPS receivers, the Company does not anticipate any horizontal issue but rather
      conglomerate effects as the Parties would be able to supply combination of
      components, such combination being expected to be more and more required by
      customers.’169
(317) While the combination of UTC and Raytheon will increase the number of systems
      that both Parties can supply to OEMs, this is unlikely to give rise to harm to
      competition.
(318) First, the customers for the Parties’ products are largely different. Raytheon’s focus
      is guided weapons manufactured by its five business units, among which Raytheon
      Missile Systems generates the most global sales. While these guided weapons are
      deployed by aircraft, it is unlikely that they could form the basis for any bundling or
      other foreclosure strategy with UTC aircraft components and systems, as Raytheon’s
      guided weapons are directly sold to armed forces, not aircraft OEMs.
(319) Second, UTC’s flight-critical systems and Raytheon’s mission-critical systems are
      not procured simultaneously. UTC’s flight-critical systems are procured early in an
      aircraft’s development, while Raytheon’s mission-critical systems are procured at a
      later stage.
(320) Third, OEMs select systems suppliers and control the procurement process,
      determining supply opportunities, as well as who will be the supplier. OEMs set the
      specifications of each component and system being procured, bidding timing and
      process, and the suppliers participating in each procurement opportunity.
(321) Generally, the Parties will increase scale, engineering capabilities and financial
      strength from the transaction. However, the combined entity will not become
      uniquely placed in that respect. In fact, the market investigation has revealed that the
      Transaction will enable the Parties to gain the critical size to compete with other
      large Tier 1 suppliers and OEMs. As further explained by the same market
      participant that mentioned potential conglomerate effects: ‘the proposed transaction
      will enable the Parties to become a premier defence contractor, on par with the likes
      of Boeing, Northrop Grumman or Lockheed Martin. Their combined size,
      capabilities and capacities will impact their competitiveness, for example by limiting
      their exposure to safety risks and by spreading qualification costs. It will also give
      the Parties a wider portfolio of systems, which will further enable them to expand
      their combined systems’ range and functions in the areas of, e.g., surveillance,
      targeting, reconnaissance (so-called “ISR”), as well as, communication and
      ammunition.’170
(322) Based on the information available and the outcome of the market investigation, the
      Commission concludes that the Transaction does not raise serious doubts as to its
      compatibility with the internal market in relation to possible conglomerate effects.
169   Minutes of a call with a market participant, 25.09.2019.
170   Minutes of a call with a market participant, 25.09.2019.
                                                        57
 ---pagebreak--- 8.    MODIFICATIONS TO THE TRANSACTION
8.1.  Framework of assessment
(323) The Commission recalls that the following principles apply where parties to a
      concentration offer commitments in order to have the transaction approved in Phase
      1 after serious doubts have been identified by the Commission. Those principles are
      referred to in Commission Regulation (EC) No 802/2004 and in the Commission
      Notice on remedies acceptable under the Merger Regulation (the “Remedies
      Notice”).171
(324) In Phase I commitments offered by the parties can only be accepted where the
      competition problem is readily identifiable and can be remedied easily. The
      competition problem therefore needs to be so straightforward and the remedies so
      clear-cut that it is not necessary to enter into an in-depth investigation. The
      commitments should be sufficient to clearly rule out serious doubts within the
      meaning of Article 6(1)(c) of the Merger Regulation. Where the assessment confirms
      that the proposed commitments remove the grounds for serious doubts on this basis,
      the Commission clears the merger in Phase I.
(325) In assessing whether the proposed commitments will likely eliminate the
      competition concerns identified, the Commission considers all relevant factors
      including the type, scale and scope of the proposed commitments. It does so on the
      basis of the structure and particular characteristics of the market in which the
      competition concerns arise, including the position of the parties and other
      participants on the market. As set out in the Remedies Notice, the commitments have
      to eliminate the competition concerns entirely, and have to be comprehensive and
      effective from all points of view. The Commission only has power to accept
      commitments that can make the concentration compatible with the internal market.
      In order to do so, they need to prevent the significant impediment to effective
      competition in all relevant markets where competition concerns have been identified.
(326) In order for the commitments to comply with those principles, they must be able to
      be implemented effectively within a short period of time. The Commission must
      determine with the requisite degree of certainty, at the time of its decision, that they
      will be implemented fully and that they are likely to maintain effective competition
      in the market.
(327) As regards the form of acceptable commitments, the Merger Regulation leaves
      discretion to the Commission as long as the commitments meet the requisite
      standard.
(328) Divestiture commitments are often the most effective way to eliminate competition
      concerns resulting from horizontal overlaps. The intended effects of a divestiture
      will only be achieved if and once the business to divest is transferred to a suitable
      purchaser in whose hands it will become an active competitive force in the market.
(329) In order to ensure that the business is divested to a suitable purchaser, the
      commitments have to include criteria to define its suitability, which will allow the
171   Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under
      Commission Regulation (EC) No 802/2004.
                                                  58
 ---pagebreak---        Commission to conclude that the divestiture of the business to such a purchaser will
       likely remove the competition concerns identified.
8.2.   Procedure
(330) In order to render the Concentration compatible with the internal market, the Parties
       modified the notified concentration by proposing remedies, which were originally
       the result of discussions between the Parties and the US DOJ, with which the case
       team has been cooperating closely.
(331) On 21 February 2020 the Parties submitted commitments pursuant to Article 6(2) of
       the Merger Regulation (the “Initial Commitments”). The Commission launched a
       market test of the Initial Commitments on 25 February 2020, seeking responses from
       competitors and customers. On 3 March 2020 the Commission informed the
       Notifying Party of the results of the market test.
(332) On 5 March 2020 a number of items were clarified with the Parties, notably about:
       (i) the appropriateness of the list of key personnel who need to be specifically
       incentivised to remain with the divestment businesses and are subject to a non-
       solicitation requirement; and (ii) the transfer of the active security clearances of the
       relevant Raytheon employees to BAE.
(333) On 11 March 2020 the Parties submitted a revised set of commitments addressing
       the Commission’s comments, notably regarding Key Personnel (the “Final
       Commitments”).
(334) The Initial Commitments submitted by the Notifying Party were conceived as a pure
       fix-it-first remedy as described in paragraphs 56 and 57 of the Remedies Notice. The
       Final Commitments are structured in a more conventional way, providing for a
       post-closing buyer approval. However, the new approach still includes elements of a
       fix-it-first solution in that the Parties have already signed agreements with BAE as
       the purchaser of the Divestment Businesses.
(335) The Final Commitments are annexed to, and form an integral part of, this decision.
8.3.   Initial Commitments
8.3.1. Description of the Initial Commitments
(336) The Initial Commitments provide for the divestiture of two different businesses (the
       “Divestment Businesses”):
       (a)      Raytheon’s military airborne radios (the “Radios Divestment Business”);
       (b)      UTC’s GPS receivers business (the “GPS Divestment Business”).
(337) The Radios Divestment Business consists of Raytheon’s existing military airborne
       radios business, which develops, assembles, tests, markets, sells, and repairs airborne
       radios for military aircraft together with the necessary crypto capabilities to encrypt
       these products for military use.
(338) The GPS Divestment Business consists of UTC’s military GPS receiver and anti-
       jamming business located in Cedar Rapids and Coralville, Iowa, United States,
                                                   59
 ---pagebreak---        which designs, develops, manufactures, assembles, tests, certifies, and provides
       support for its military GPS receivers and anti-jamming products.
(339) The Divestment Businesses include all assets and staff that contribute to the current
       operation or are necessary to ensure the viability and competitiveness of the
       Divestment Businesses, in particular:
       (a)      all tangible and intangible assets (including intellectual property rights);
       (b)      all licences, permits and authorisations issued by any governmental
                organisation for the benefit of the Divestment Businesses, to the extent
                transferable;
       (c)      all contracts, leases, commitments and customer orders of the Divestment
                Businesses; all customer, credit and other records of the Divestment
                Businesses;
       (d)      the Personnel, including Key Personnel; and
       (e)      transitional service agreements with UTC and Raytheon to ensure the orderly
                separation of the Divestment Businesses.
(340) In addition, the Parties have entered into related commitments regarding matters
       such as the separation of the divested businesses from their retained businesses, the
       preservation of the viability, marketability and competitiveness of the divested
       businesses, including the appointment of a monitoring trustee.
(341) The Initial Commitments include a proposal to sell both Divestment Businesses to
       BAE Systems Information and Electronic Systems Integration Inc. (“BAE”), with
       whom UTC and Raytheon entered into binding asset purchase agreements
       on January 17, 2020.
8.3.2. The Parties’ arguments
(342) With regard to the Radios Divestment Business the Parties submit that the Initial
       Commitments (i) will remove the entire horizontal overlap between the Parties for
       military airborne radios globally; (ii) create the conditions for the emergence of a
       new competitive entity in military airborne radios with the necessary resources and
       capabilities to operate the divested business as a standalone viable competitor and
       (iii), as a result, effectively and comprehensively eliminate any potential loss of
       competition as a result of combining the Parties’ military airborne radios businesses.
(343) As for the GPS Divestment Business the Parties contend that the Initial
       Commitments (i) will remove all overlap between UTC and Raytheon in the area of
       military GPS receivers on a global basis; (ii) allow for the emergence of a new
       competitive entity in military GPS receivers with the necessary resources and
       capabilities to compete; (iii) eliminate any concerns in this area and (iv) can be
       implemented effectively within a short period of time.
                                                    60
 ---pagebreak--- 8.3.3. Commission’s assessment of the commitments regarding military airborne radios
8.3.3.1. Results of the market test
(344) On 25 February 2020, the Commission launched a market test on the Initial
        Commitments and the suitability of BAE as a purchaser, seeking responses from
        both competitors and customers.
(345) With regard to the elimination of competition concerns, a large majority of
        respondents expressing an opinion considered that the Initial Commitments
        regarding Radios are suitable to effectively remove any competition concerns raised
        by the Transaction in the supply of military airborne radios.172
(346) As regards the viability of the remedy, a large majority of those expressing an
        opinion considered the Initial Commitments regarding Radios to be sufficient in
        scale and scope to ensure the immediate viability and competitiveness of the Radios
        Divestment Business.173
(347) A large majority of respondents expressing an opinion considered that the
        Commitments regarding Radios include all necessary tangible and intangible assets
        to ensure the viability and competitiveness of the Radios Divestment Business on a
        lasting basis.174
(348) With regard to personnel, a large majority of respondents expressing an opinion
        considered that the transfer of the personnel specified in the Initial Commitments
        would be sufficient to ensure the viability and competitiveness of the Radios
        Divestment Business.175
(349) As for the transitional agreements for the supply of services, a large majority of
        those expressing an opinion considered that the proposed arrangements would enable
        BAE to operate the Radios Divestment Business as a viable and competitive force.176
8.3.3.2. Assessment of the Initial Commitments regarding Radios
        (A)      Suitability to remove serious doubts
(350) In the EEA the Parties’ combined market share for military airborne radios
        amounted to [10-20]% (UTC: [10-20]%; Raytheon: [5-10]%) in 2018. The
        Commission’s investigation has confirmed that the Parties are two major suppliers of
        airborne radios worldwide and that it is likely that the Transaction will result in at
        least indirect harm to competition. This is notably because any price increases on
        US-based platforms will also affect the procurement conditions for EEA-based
        customers. The Commission has therefore concluded that the combination of the
        Parties’ activities raised potential serious doubts as to its compatibility with the
        internal market with regard to the supply of military airborne radios in the EEA.
172     Questionnaire on Commitments offered by UTC and Raytheon, Question 1.
173     Questionnaire on Commitments offered by UTC and Raytheon, Question 3.
174     Questionnaire on Commitments offered by UTC and Raytheon, Questions 5 and 6.
175     Questionnaire on Commitments offered by UTC and Raytheon, Question 7.
176     Questionnaire on Commitments offered by UTC and Raytheon, Question 24.
                                                    61
 ---pagebreak--- (351) The Initial Commitments offer a structural remedy encompassing the entirety of
        Raytheon’s military airborne radios business. This covers the developing,
        assembling, testing, marketing, selling and repairing of airborne radios for military
        aircraft along with rights to the necessary crypto capabilities required to encrypt
        these products for military use. The Initial Commitments will therefore remove the
        entire horizontal overlap between the Parties for military airborne radios globally.
(352) The Commission considers that the Initial Commitments create the conditions for the
        emergence of a new competitive entity in military airborne radios with the necessary
        resources and capabilities to operate the divested business as a standalone viable
        competitor following completion of the Proposed Transaction.
(353) On the basis of its assessment and taking into account the results of the market test
        and its investigation, the Commission concludes that the Initial Commitments are
        sufficient to remove any serious doubts with regard to the supply of military airborne
        radios in the EEA.
        (B)       Viability and competitiveness of the Radios Divestment Business
(354) The Radios Divestment Business consists of (i) the full suite of Raytheon’s existing
        military airborne radio product portfolio; (ii) access to product engineering and
        product testing, repair and assembly facilities; (iii) supply and transitional support
        arrangements, where necessary; (iv) about […] highly skilled, full-time employees
        with significant prior experience across the entire military airborne radio product and
        process spectrum including Key Personnel; (v) rights in related IP and know-how;
        (vi) existing R&D projects (both internal and customer funded); and (vii) the transfer
        of all existing customer relationships worldwide.
(355) The Commission considers that this set of products, assets, personnel and
        transitional support will be suitable to enable the Radios Divestment Business to
        continue to compete in the military airborne radios sector on a viable basis. The
        Radios Divestment Business will have access to the expertise and resources that
        Raytheon currently accesses and will be able to build on the R&D efforts already
        undertaken by Raytheon.
(356) In addition, the Commission considers that the transitional arrangements are
        sufficient to ensure a smooth and effective transition of all assets, equipment and
        personnel from Raytheon’s existing multi-use facilities to the new location operated
        by the Purchaser. This will limit the risk of disruption to the Radios Divestment
        Business and ensure that it can operate as a viable standalone business as soon as
        possible.
(357) On the basis of its assessment and taking into account the results of the market test
        and its investigation, the Commission concludes that the Commitments are sufficient
        to ensure the viability and competitiveness of the Radios Divestment Business.
8.3.4. Commission’s assessment of the commitments regarding military GPS
8.3.4.1. Results of the market test
(358) With regard to the elimination of competition concerns, a large majority of
        respondents expressing an opinion considered that the Initial Commitments are
                                                  62
 ---pagebreak---         suitable to effectively remove any competition concerns raised by the Transaction in
        the supply of GPS receivers.177
(359) As regards the viability of the remedy, a large majority of those expressing an
        opinion considered the Commitments to be sufficient in scale and scope to ensure
        the immediate viability and competitiveness of the GPS Divestment Business.178
(360) A large majority of respondents expressing an opinion considered that the
        Commitments regarding GPS include all necessary tangible and intangible assets to
        ensure the viability and competitiveness of the GPS Divestment Business on a
        lasting basis.179
(361) With regard to personnel, a large majority of respondents expressing an opinion
        considered that the transfer of the personnel specified in the Commitments would be
        sufficient to ensure the viability and competitiveness of the GPS Divestment
        Business.180
(362) As for the transitional agreements for the supply of services, a large majority of
        those expressing an opinion consider that the proposed arrangements would enable
        BAE to operate the GPS Divestment Business as a viable and competitive force.181
8.3.4.2. Assessment of the Commitments regarding GPS
        (A)       Suitability to remove serious doubts
(363) The combined market share of the Parties in the supply of military GPS receivers
        amounted to [80-90]% (UTC: [70-80]%; Raytheon: [10-20]%) in the EEA in 2018.
        The Commission’s investigation has confirmed that the Parties are the two main
        suppliers of the core military GPS receiver technology worldwide and that the
        Transaction would be likely to result in both direct and indirect effects in the EEA.
        The Commission has therefore concluded that the combination of the Parties’
        activities raises serious doubts as to its compatibility with the internal market due to
        the creation or strengthening of a dominant position in the supply of military GPS
        receivers in the EEA.
(364) The GPS Commitments provide for the divestment of the entirety of UTC’s military
        GPS receiver activities to BAE. The GPS Divestment Business designs, develops,
        manufactures, assembles, tests, certifies, and provides support for its military GPS
        receivers and anti-jamming products. Accordingly, they remove all overlap between
        the Parties in this area on a global basis.
(365) The Commission considers that the Commitments regarding GPS will also enable a
        new competitive entity to emerge in military GPS receivers with the necessary
        resources and capabilities to compete.
177     Questionnaire on Commitments offered by UTC and Raytheon, Question 14.
178     Questionnaire on Commitments offered by UTC and Raytheon, Question 16.
179     Questionnaire on Commitments offered by UTC and Raytheon, Questions 18 and 19.
180     Questionnaire on Commitments offered by UTC and Raytheon, Question 20.
181     Questionnaire on Commitments offered by UTC and Raytheon, Question 24.
                                                    63
 ---pagebreak--- (366) On the basis of its assessment and taking into account the results of the market test
       and its investigation, the Commission concludes that the Commitments are sufficient
       to remove the serious doubts with regard to the supply of military GPS receivers in
       the EEA.
       (B)       Viability and competitiveness of the Divestment Business
(367) The GPS Divestment Business includes (i) UTC’s existing military GPS receiver
       product portfolio; (ii) access to product engineering and product testing, repair and
       assembly facilities; (iii) transitional support arrangements, where necessary;
       (iv) c. […] highly skilled, full-time employees with significant prior experience
       across the entire military GPS receiver product and process spectrum; (v) rights in
       related IP and know-how; (vi) existing R&D projects; and (vii) the transfer of
       existing customer relationships worldwide.
(368) The Commission considers that this set of products, assets, personnel and
       transitional support will be suitable to enable the GPS Divestment Business to
       continue to compete in the military GPS sector on a viable basis. The GPS
       Divestment Business will have access to the expertise and resources that Raytheon
       currently accesses and will be able to build on the R&D efforts already undertaken
       by Raytheon.
(369) In addition, the Commission considers that the transitional arrangements will ensure
       a smooth and effective transition of all assets, equipment and personnel from
       Raytheon’s existing multi-use facilities to the new location operated by the
       Purchaser. This will limit the risk of disruption to the GPS Divestment Business and
       ensure that it can operate as a viable standalone business as soon as possible.
(370) On the basis of its assessment and taking into account the results of the market test
       and its investigation, the Commission concludes that the Commitments are sufficient
       to ensure the viability and competitiveness of the GPS Divestment Business.
8.4.   Final Commitments
8.4.1. Description of the Final Commitments
(371) In addition to the extension of the list of Key Personnel for both Divestment
       Businesses, the Final Commitments reflect the Parties’ change of approach in opting
       for a post-closing buyer approval instead of a pure fix-it-first solution. This means
       that the Final Commitments now include standard clauses on potential purchasers
       and standard clauses on the Closing Period, the Divestiture Period and the
       Divestiture Trustee, and that BAE is no longer referred to as the Purchaser.
       However, the new approach still includes aspects of a fix-it-first in that the Parties
       have already signed asset purchase agreements to transfer both Divestment
       Businesses to BAE.
8.4.2. Assessment of the Final Commitments
(372) The Commission takes note of the Parties’ change of approach and considers that the
       Final Commitments are in line with a conventional remedy solution whereby the
       Commission approves the buyer after the transaction has been closed. In addition,
       the Commission understands from the Parties and from BAE that they continue to
                                                  64
 ---pagebreak---       have full confidence in their ability to complete the sale of the Divestment
      Businesses as currently contemplated.
(373) Likewise, materials submitted by the Parties over the course of the proceedings
      reveal that the sale of the Divestment Businesses has attracted interest from a broad
      range of market participants. The potential of a business to attract suitable purchasers
      is relevant for the Commission’s assessment of the appropriateness of the proposed
      commitment.
(374) In any event, the appropriateness of the Divestment Businesses has been tested on a
      standalone basis and the suitability, viability and competitiveness thereof are not
      related to, let alone dependent on, a purchase by BAE. In other words, the
      Commission has not taken a particular purchaser’s resources into account in its
      assessment. Thus, in determining to what extent the divestiture of the business will
      likely remove the competition concerns identified, the Commission has assessed the
      sufficiency of the commitments irrespective of BAE’s characteristics.
(375) In particular, the Commission’s questions on the scale, scope and viability of the
      Initial Commitments in the market test, both for Radios and GPS, did not contain a
      reference to BAE as the buyer.182 Moreover, a large majority of respondents
      expressing an opinion considered that the scale and scope of the Divestment
      Businesses and related commitments, as described in Section 8.3.1 above, are
      sufficient to ensure the immediate viability and competitiveness of both the Radios
      and the GPS Divestment Business.183
(376) The Commission has made its assessment in the light of the usual principles that
      apply where parties to a concentration offer commitments to restore effective
      competition, as set out in the Remedies Notice. In particular, the divested activities
      must consist of a viable business that, if operated by a suitable 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 competitiveness.
(377) Paragraph 17 of the Final Commitments reflects the standard criteria for a
      purchaser’s suitability as set out in the Remedies Notice, while specifying that the
      purchaser should have proven expertise in the supply of military aerospace systems.
      Under the Final Commitments, in order to be approved by the Commission, the
      Purchaser must be (i) independent of and unconnected to the Notifying Party and its
      Affiliated Undertakings; (ii) have the financial resources, proven expertise in the
      supply of military aerospace systems and incentive to maintain and develop the
      Divestment Businesses as viable and active competitive forces; and (iii) its
      acquisition of the Divestment Business must not give rise to prima facie competition
      concerns or a risk that the implementation of the Commitments will be delayed.
(378) As the assessment of the Initial Commitments was carried out on a stand-alone basis,
      the removal of the buyer’s identity from the Final Commitments does not affect the
182   Questionnaire on Commitments offered by UTC and Raytheon, Questions 3 to 7 (Radios) and
      Questions 16 to 20 (GPS).
183   Questionnaire on Commitments offered by UTC and Raytheon, Questions 3 (Radios) and 16 (GPS).
                                                  65
 ---pagebreak---       validity of the Commission’s conclusions set out in paragraphs (366) and (370).
      Therefore, the Commission maintains its conclusion that the Commitments are
      sufficient to ensure the viability and competitiveness of the Radios and GPS
      Divestment Businesses.
8.5.  Prima facie suitability of BAE as a buyer of the Divestment Businesses
(379) On the basis of the Initial Commitments, which expressly referred to BAE as the
      Purchaser, the Commission assessed prima facie its suitability as a buyer of the
      Divestment Businesses. BAE’s suitability was also market-tested.
(380) In accordance with paragraph 48 of the Remedies Notice BAE must fulfil the
      following criteria:
      (a)       be independent of and unconnected to the Parties;
      (b)       possess the financial resources, proven relevant expertise and have the
                incentive and ability to maintain and develop the Divestment Businesses as a
                viable and active competitive force in competition with the Parties and other
                competitors; and
      (c)       the acquisition of the Divestment Businesses by BAE must neither be likely
                to create new competition problems nor give rise to a risk that the
                implementation of the commitments will be delayed. Therefore, BAE must
                reasonably be expected to obtain all necessary approvals from the relevant
                regulatory authorities for the acquisition of the Divestment Businesses.
(381) The Commitments submitted on 21 February 2020 proposed BAE as a purchaser of
      both Divestment Businesses and included copies of the Radios Purchase Agreement
      between Raytheon and BAE and the GPS Purchase Agreement between UTC and
      BAE. Therefore, in accordance with paragraph 56 of the Remedies Notice, the
      Commission assessed the suitability of BAE as a purchaser of the Divestment
      Businesses.
(382) On 5 March 2020, audit and accountancy services provider Mazars submitted to the
      Commission, at the request of the Parties,184 a report on BAE’s suitability as a
      purchaser (“the Mazars Report”) in which it concluded that BAE fulfils the criteria
      of the purchaser requirements. In its report, Mazars also concluded from its review
      of the Radios and GPS Purchase Agreements that the Divestment Businesses would
      be sold in a manner consistent with the Commitments.
(383) On 5 March 2020, a number of items were clarified with BAE, notably about BAE’s
      suitability as a purchaser, including past supply chain management issues and
      allegations of possible vertical issues arising from the acquisition of the Divestment
      Businesses.
184   On 19 February 2020, UTC appointed Mazars to prepare a report assessing the proposed purchaser’s
      suitability and independence, the Divestment Businesses’ viability and whether the Divestment
      Businesses will be sold in a manner consistent with the proposed Commitments. Under the terms of
      the agreement between UTC and Mazars, the report was to be delivered to the European Commission
      without prior review or amendment by UTC. In addition, Mazars confirmed that it is independent of
      UTC, Raytheon, and BAE, and that neither it, nor any of its employees or experts have any direct or
      indirect work, consulting or other relationship with either of the Parties.
                                                        66
 ---pagebreak--- 8.5.1. The Commission’s assessment of BAE’s suitability
(384) BAE appears, prima facie, to be a suitable buyer. It is a well-established,
        multinational defence, security and aerospace company with extensive experience in
        the full range of defence and security products. BAE is a publicly listed company
        with its common stock listed on the London Stock Exchange and FTSE 100. It is the
        largest defence contractor in Europe and among the world's largest defence
        companies. Its largest operations are in the UK and United States (“US”), where its
        BAE Systems Inc. subsidiary is one of the six largest suppliers to the US Department
        of Defence. Other major markets include Australia, India, and Saudi Arabia. BAE
        plays a significant role in the production of military equipment. The company has a
        diverse portfolio, broadly balanced between an enduring services and support
        business, long-term platform and product programmes, electronic systems, and
        activities in cyber and intelligence.
(385) A large majority of respondents to the market test considered that (i) BAE is
        currently independent of and unconnected to UTC and Raytheon 185; and (ii) has the
        financial resources186; (iii) the relevant expertise187; (iv) the R&D capabilities and
        resources/assets188; (v) the sales organisation189; and (vi) the incentives190 to
        maintain and develop the Divestment Businesses in a viable and competitive way so
        as to replicate UTC’s and Raytheon’s respective constraints in the markets where the
        Commission has identified concerns.
8.5.1.1. Independence from the Parties
(386) A number of ownership, cooperation and commercial links exist among UTC,
        Raytheon and BAE.
(387) In particular, UTC participates with BAE in the Data Link Solutions Joint Venture,
        while Raytheon participates with BAE in the Exostar B to B Joint Venture.
(388) The existing commercial relationships between BAE and any of UTC or Raytheon
        appear to be immaterial to BAE in view of their overall size in terms of revenues.
(389) The Mazars Report indicates that it is a feature of the military aerospace production
        and defence industry to have supplier relationships and that cooperation among
        manufacturers is common.
(390) Based on the Mazars Report, and the information provided, the Commission does
        not consider that any of these relationships impede BAE’s independence from UTC
        or Raytheon.
(391) On the basis of the information provided by the Parties, the Mazars Report and the
        results of the market test, BAE appears, prima facie, to be independent of, and
        unconnected to, the Parties and their affiliates.
185     Questionnaire on Commitments offered by UTC and Raytheon, Question 27.
186     Questionnaire on Commitments offered by UTC and Raytheon, Question 28.
187     Questionnaire on Commitments offered by UTC and Raytheon, Question 29.
188     Questionnaire on Commitments offered by UTC and Raytheon, Question 31.
189     Questionnaire on Commitments offered by UTC and Raytheon, Question 32.
190     Questionnaire on Commitments offered by UTC and Raytheon, Question 30.
                                                    67
 ---pagebreak--- 8.5.1.2. Financial resources, proven expertise and incentive to maintain and develop the
          Divested Business as a viable and active competitor
(392) With regard to financial resources, BAE recorded net sales of GBP 20 109 million
        in 2019. The company has been [BAE financial data].
(393) As regards proven expertise, both Divestment Businesses will fit well into existing
        BAE operations. […].
(394) As for incentives, the GPS technology of the Divestment Business would contribute
        towards achieving BAE’s strategic aim to target the market for precision guided
        munitions and offers significant commonality with BAE’s own customer base,
        particularly in relation to […].
(395) In addition, the product offering of the Radios Business complements BAE’s
        existing airborne radio product portfolio and BAE has identified a number of its own
        products into which the technologies of the Radios Business may be incorporated.
(396) On the basis of the information provided by the Parties, the Mazars Report and the
        results of the market test, BAE appears, prima facie, to have the financial resources,
        proven expertise and incentive to maintain and develop the Divestment Business as a
        viable business and active competitor in competition with the Parties and other
        competitors.
8.5.1.3. Absence of prima facie competition problems
(397) The Commission considers that the divestiture to BAE does not appear to give rise to
        any significant competition concerns. There do not seem to be any direct horizontal
        overlaps between BAE and the Divestment Businesses. The vertical relationships
        identified so far, such as between GPS receivers and precision guided munitions
        (“PGM”), seem unlikely to be problematic either.
(398) On the basis of the information provided by the Parties, the Mazars Report and the
        results of the market test, prima facie competition concerns are not likely to arise as
        a result of the acquisition of the Divestment Businesses by BAE.
(399) The Commission notes that this prima facie assessment is based on the information
        available for the purpose of the Commission’s assessment of BAE’s suitability and
        does not prejudge the competition assessment of the acquisition of the Divestment
        Businesses by BAE by another competent competition authority under applicable
        merger control rules.
8.5.2. Assessment of the Purchase Agreements
(400) Paragraph 101 of the Commission’s Remedies Notice requires that the Divestment
        Businesses be divested in a manner consistent with the Commission’s decision and
        the commitments.
(401) On 17 January 2020 Raytheon and BAE signed the Radios Purchase Agreement
        selling Raytheon’s military airborne radios business to BAE and on the same day
        UTC and BAE signed the GPS Purchase Agreement transferring UTC’s GPS
        Business to BAE. Both transactions take the form of an asset sale.
                                                  68
 ---pagebreak--- (402) Mazars reviewed both Purchase Agreements and indicated in its draft report of
      25 February 2020 that it would seek clarification from the Parties on a number of
      subjects, including:
      (a)     conditions precedent in the GPS and the Radios Purchase Agreements;
      (b)     the termination right by the seller in the GPS and the Radios Purchase
              Agreements;
      (c)     non-solicitation periods for Key Personnel in the GPS and Radios Purchase
              Agreements;
      (d)     assets not related to the Military GPS Business but necessary for a transfer of
              the business pursuant to the Commitments;
      (e)     the exclusion of Export Control Authorizations from the GPS Purchase
              Agreement, the transfer of Key Personnel in the GPS and Radio Purchase
              Agreements;
      (f)     the catch-all clause covering all other assets practiced or used (or held for
              practice or use) exclusively in the operation or conduct of the Military GPS
              Business;
      (g)     the relocation of the GPS Divestment Business.
(403) After receiving clarifications from the Parties, Mazars stated in its report of 4 March
      2020 that it was satisfied that the relevant sections of the Radios and GPS Purchase
      Agreements were in line with the Commitments.
(404) In the same report, Mazars concluded from its review of the Radios and GPS
      Purchase Agreements that the agreements were broadly in line with the
      Commitments and that, as a result, the Divestment Businesses would be sold in a
      manner consistent with the Commitments.
(405) Based on Mazars’s review of the Radios and GPS Purchase Agreements, it appears,
      prima facie, that the Divestment Businesses would be sold in a manner consistent
      with the Commitments.
8.6.  Conclusion on the modifications to the Transaction
(406) In view of the above, the Commission considers that the Final Commitments will
      enable the Radios and GPS Divestment Businesses to compete effectively and viably
      in the relevant markets. These commitments therefore ensure that the Transaction
      will not result in adverse effect on competition in the relevant markets.
(407) The Commission thus concludes that the Final Commitments are adequate and
      sufficient to eliminate the significant impediment to effective competition in the
      markets for (i) military airborne radios and (ii) GPS receivers.
8.7.  Conditions and obligations
(408) Under the first sentence of the second subparagraph of Article 6(2) of the Merger
      Regulation, the Commission may attach to its decision conditions and obligations
                                                 69
 ---pagebreak---       intended to ensure that the undertakings concerned comply with the commitments
      they have entered into vis-à-vis the Commission with a view to rendering the
      concentration compatible with the internal market.
(409) The fulfilment of the measures that give rise to the structural change of the market is
      a condition, whereas the implementing steps which are necessary to achieve this
      result are generally obligations on the parties. Where a condition is not fulfilled, the
      Commission’s decision declaring the concentration compatible with the internal
      market is no longer applicable. Where the undertakings concerned commit a breach
      of an obligation, the Commission may revoke the clearance decision in accordance
      with Article 6(3) of the Merger Regulation. The undertakings concerned may also be
      subject to fines and periodic penalty payments under Articles 14(2) and 15(1) of the
      Merger Regulation.
(410) In accordance with the distinction between conditions and obligations described in
      the preceding recital, this Decision should be made conditional on full compliance
      with the requirements set out in Sections B and D of the Final Commitments
      (including the Schedules), which should constitute conditions. The remaining
      requirements set out in other Sections of the Final Commitments should constitute
      obligations imposed on the Parties.
9.    CONCLUSION
(411) 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 Sections B and D of the Final Commitments
      annexed to the present Decision and with the obligations contained in Sections A, C,
      E, F and G of the said commitments. 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
                                                     Executive Vice-President
                                                70
 ---pagebreak---                                                                                  March 11, 2020
                              Case M.9434 – UTC/Raytheon
           COMMITMENTS TO THE EUROPEAN COMMISSION
Pursuant to Article 6(2) of Council Regulation (EC) No 139/2004 (the “Merger Regulation”),
United Technologies Corporation (“UTC”) (the “Notifying Party”) hereby enters into the
following Commitments (the “Commitments”) vis-à-vis the European Commission (the
“Commission”) with a view to rendering the acquisition of Raytheon Company (“Raytheon”
and, 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 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:
       Affiliated Undertakings: undertakings controlled by the Parties and/or by the
       ultimate parents of 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 Businesses as indicated in
       Section B, paragraphs ‎5 to ‎7 and described more in detail in the Schedules.
       Closing: the transfer of the legal title to the Divestment Businesses to the
       purchaser(s).
       Closing Period: each period of […] from the approval of the purchaser and the terms
       of sale by the Commission in relation to a Divestment Business.
       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.
 ---pagebreak--- Divestment Businesses: the GPS Divestment Business and the Radios Divestment
Business, as defined in Section B and in the Schedules which the Notifying Party
commits to divest.
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 Business(es) 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.
GPS Divestment Business: the business defined in Section B and in the GPS
Schedule which the Notifying Party commits to divest.
GPS Schedule: the schedule to these Commitments describing more in detail the GPS
Divestment Businesses.
Hold Separate Managers: the persons appointed by UTC for the Divestment
Businesses 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 Businesses, as listed in the Schedules, including the Hold Separate
Managers.
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: the Notifying Party and the undertaking that is the target of the concentration.
Personnel: all staff currently employed by the Divestment Businesses, including staff
seconded to the Divestment Businesses, shared personnel as well as the additional
personnel listed in the Schedules.
Purchaser(s): one or more entities approved by the Commission as the acquirer(s) of
the Divestment Businesses in accordance with the criteria set out in Section D.
Purchaser Criteria: the criteria laid down in paragraph ‎17 of these Commitments
that the purchaser(s) must fulfil in order to be approved by the Commission.
Radios Divestment Business: the business defined in Section B and in the Radios
Schedule which the Notifying Party commits to divest.
Radios Schedule: the schedule to these Commitments describing more in detail the
Radios Divestment Businesses.
Schedules: the GPS Schedule and the Radios Schedule, describing more in detail the
Divestment Businesses.
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.
                                             2
 ---pagebreak--- Section B.      The commitment to divest and the Divestment Businesses
Commitment to divest
2.     In order to maintain effective competition, UTC commits to divest, or procure the
       divestiture of the Divestment Businesses by the end of the Trustee Divestiture Period
       as going concerns to the purchaser(s) and on terms of sale approved by the
       Commission in accordance with the procedure described in paragraph ‎18 of these
       Commitments. To carry out the divestiture, UTC commits to find one or more
       purchasers and to enter into final binding sale and purchase agreement(s) for the sale
       of the Divestment Businesses within the First Divestiture Period. If UTC has not
       entered into such an agreement at the end of the First Divestiture Period in relation to
       any Divestment Business, UTC shall grant the Divestiture Trustee an exclusive
       mandate to sell that Divestment Business in accordance with the procedure described
       in paragraph ‎30 in the Trustee Divestiture Period.
3.     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 final binding sale and purchase agreement(s) and the
                Commission approves the proposed purchaser(s) and the terms of sale as being
                consistent with the Commitments in accordance with the procedure described
                in paragraph ‎18; and
           b) the Closing of the sale(s) of the Divestment Businesses to the purchaser(s)
                takes place within the Closing Period(s).
4.     In order to maintain the structural effect of the Commitments, the Notifying Party
       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 Businesses, unless,
       following the submission of a reasoned request from the Notifying Party showing
       good cause and accompanied by a report from the Monitoring Trustee (as provided in
       paragraph ‎44 of these Commitments), the Commission finds that the structure of the
       market has changed to such an extent that the absence of influence over one or both
       the Divestment Businesses is no longer necessary to render the proposed
       concentration compatible with the internal market.
Structure and definition of the Divestment Businesses
5.     The GPS Divestment Business consists of UTC’s military GPS receiver and anti-
       jamming business located in Cedar Rapids and Coralville, Iowa, United States, which
       designs, develops, manufactures, assembles, tests, certifies, and provides support for
       its military GPS receivers and anti-jamming products.
6.     The Radios Divestment Business consists of Raytheon’s existing military airborne
       radios business which develops, assembles, tests, markets, sells, and repairs airborne
       radios for military aircraft together with the necessary crypto capabilities to encrypt
       these products for military use.
7.     The legal and functional structure of the Divestment Businesses as operated to date is
       described in the Schedules. The Divestment Businesses, described in more detail in
                                                   3
 ---pagebreak---        the Schedules, include all assets and staff that contribute to the current operation or
       are necessary to ensure the viability and competitiveness of the Divestment
       Businesses, in particular:
       (a)     all tangible and intangible assets (including intellectual property rights);
       (b)     all licences, permits and authorisations issued by any governmental
               organisation for the benefit of the Divestment Businesses, to the extent
               transferable;
       (c)     all contracts, leases, commitments and customer orders of the Divestment
               Businesses; all customer, credit and other records of the Divestment
               Businesses; and
       (d)     the Personnel;
8.     In addition, the Divestment Businesses include the benefit, for certain transitional
       periods on terms and conditions equivalent to those at present afforded to the
       Divestment Businesses, of all current arrangements under which UTC or its Affiliated
       Undertakings supply products or services to the Divestment Businesses, as detailed in
       the Schedules, unless otherwise agreed with the purchaser(s). Strict firewall
       procedures will be adopted so as to ensure that any competitively sensitive
       information related to, or arising from such supply arrangements (for example,
       product roadmaps) will not be shared with, or passed on to, anyone outside the
       business units/divisions providing the product/service.
Section C.     Related commitments
Preservation of viability, marketability and competitiveness
9.     From the Effective Date until Closing, the Notifying Party shall preserve or procure
       the preservation of the economic viability, marketability and competitiveness of the
       Divestment Businesses, in accordance with good business practice, and shall
       minimise as far as possible any risk of loss of competitive potential of the Divestment
       Businesses. 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 Businesses or that
               might alter the nature and scope of activity, or the industrial or commercial
               strategy or the investment policy of the Divestment Businesses;
       (b)     to make available, or procure to make available, sufficient resources for the
               development of the Divestment Businesses, 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 Businesses, and
               not to solicit or move any Personnel to UTC’s remaining business. Where,
               nevertheless, individual members of the Key Personnel exceptionally leave the
               Divestment Businesses, UTC shall provide a reasoned proposal to replace the
               person or persons concerned to the Commission and the Monitoring Trustee.
                                                    4
 ---pagebreak---                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
10.    The Notifying Party commits, from the Effective Date until Closing, to keep the
       Divestment Businesses separate from the business(es) it is retaining and to ensure that
       unless explicitly permitted under these Commitments: (i) management and staff of the
       business(es) retained by UTC have no involvement in the Divestment Businesses; (ii)
       the Key Personnel and Personnel of the Divestment Businesses have no involvement
       in any business retained by UTC and do not report to any individual outside the
       Divestment Businesses.
11.    Until Closing, UTC shall assist the Monitoring Trustee in ensuring that the
       Divestment Businesses are managed as distinct and saleable entities separate from the
       business(es) which UTC is retaining. Immediately after the adoption of the Decision,
       UTC shall appoint the Hold Separate Managers. The Hold Separate Managers, who
       shall be part of the Key Personnel, shall manage the Divestment Businesses
       independently and in the best interest of the businesses with a view to ensuring their
       continued economic viability, marketability and competitiveness and their
       independence from the businesses retained by UTC. The Hold Separate Managers
       shall closely cooperate with and report to the Monitoring Trustee and, if applicable,
       the Divestiture Trustee. Any replacement of the Hold Separate Managers shall be
       subject to the procedure laid down in paragraph ‎9(c) of these Commitments. The
       Commission may, after having heard UTC, require UTC to replace one or both Hold
       Separate Managers.
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 Businesses 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 Businesses in any central information
       technology network shall be severed to the extent possible, without compromising the
       viability of the Divestment Businesses. UTC may obtain or keep information relating
       to the Divestment Businesses which is reasonably necessary for the divestiture of the
       Divestment Businesses or the disclosure of which to UTC is required by law.
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 Businesses 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 Businesses, 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 Businesses; (b) provide to
                                                   5
 ---pagebreak---        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
       Businesses 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 Businesses 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(s) must fulfil the following
       criteria:
       (a)      The purchaser(s) shall be independent of and unconnected to the Notifying
                Party and its Affiliated Undertakings (this being assessed having regard to the
                situation following the divestiture).
       (b)      The purchaser(s) shall have the financial resources, proven expertise in the
                supply of military aerospace systems and incentive to maintain and develop
                the Divestment Businesses as viable and active competitive forces in
                competition with the Parties and other competitors;
       (c)      The acquisition of the Divestment Businesses by the purchaser(s) 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(s) must reasonably be expected to obtain all necessary approvals
                from the relevant regulatory authorities for the acquisition of the Divestment
                Businesses.
18.    The final binding sale and purchase agreement(s) (as well as ancillary agreements)
       relating to the divestment of the Divestment Businesses 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(s) fulfil(s) the
       Purchaser Criteria and that the Divestment Businesses 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(s) fulfil(s) the Purchaser Criteria and
       that the Divestment Businesses is being sold in a manner consistent with the
                                                    6
 ---pagebreak---        Commitments including their objective to bring about a lasting structural change in
       the market. The Commission may approve the sale of the Divestment Businesses
       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
       Businesses after the sale, taking account of the proposed purchaser(s).
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. The Notifying Party 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 any of
       the Divestment Businesses one month before the end of the First Divestiture Period or
       if the Commission has rejected the purchaser(s) proposed by UTC at that time or
       thereafter, UTC shall appoint a Divestiture Trustee for the Divestment Business(es) in
       relation to which UTC has not entered into a final and binding sale and purchase
       agreement or in relation to which the Commission has rejected the purchaser(s)
       proposed by UTC. The appointment of the Divestiture Trustee shall take effect upon
       the commencement of the Trustee Divestiture Period.
21.    The Trustee shall:
       (a)     at the time of appointment, be independent of the Notifying Party and its
               Affiliated Undertakings;
       (b)     possess the necessary qualifications to carry out its mandate, for example have
               sufficient relevant experience as an investment banker or consultant or auditor;
               and
       (c)     neither have nor become exposed to a Conflict of Interest.
22.    The Trustee shall be remunerated by the Notifying Party 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 Businesses, such success premium may only
       be earned if the divestiture takes place within the Trustee Divestiture Period.
                                                   7
 ---pagebreak--- 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 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 ‎21 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 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 ‎19 and ‎24 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:
       (a)    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.
       (b)    oversee, in close co-operation with the Hold Separate Manager, the on-going
              management of the Divestment Businesses 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:
              (i)     monitor the preservation of the economic viability, marketability and
                      competitiveness of the Divestment Businesses, and the keeping
                      separate of the Divestment Businesses from the business retained by
                      the Parties, in accordance with paragraphs ‎9 and ‎10 of these
                      Commitments;
              (ii)    supervise the management of the Divestment Businesses as distinct
                      and saleable entities, in accordance with paragraph ‎11 of these
                      Commitments;
              (iii)   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 Businesses,
                      –       in particular strive for the severing of the Divestment
                              Businesses’ participation in a central information technology
                              network to the extent possible, without compromising the
                              viability of the Divestment Businesses,
                      –       make sure that any Confidential Information relating to the
                              Divestment Businesses 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;
              (iv)    monitor the splitting of assets and the allocation of Personnel between
                      the Divestment Businesses and UTC or Affiliated Undertakings;
       (c)    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 Businesses, the holding
              separate of the Divestment Businesses and the nondisclosure of competitively
              sensitive information;
                                                  9
 ---pagebreak---        (d)     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:
               (i)     potential purchasers receive sufficient and correct information relating
                       to the Divestment Businesses and the Personnel in particular by
                       reviewing, if available, the data room documentation, the information
                       memorandum and the due diligence process, and
               (ii)    potential purchasers are granted reasonable access to the Personnel;
       (e)     act as a contact point for any requests by third parties, in particular potential
               purchasers, in relation to the Commitments;
       (f)     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 Businesses as well as
               the splitting of assets and the allocation of Personnel so that the Commission
               can assess whether the businesses are held in a manner consistent with the
               Commitments and the progress of the divestiture process as well as potential
               purchasers;
       (g)     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;
       (h)     within one week after receipt of the documented proposal referred to in
               paragraph ‎18 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(s) and the viability of
               the Divestment Businesses after the Sale and as to whether the Divestment
               Businesses 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 Businesses without one or more Assets or not all of the Personnel
               affects the viability of the Divestment Businesses after the sale, taking account
               of the proposed purchaser(s);
       (i)     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 Business(es) in relation to which UTC has not entered
       into a final and binding sale and purchase agreement or in relation to which the
       Commission has rejected the purchaser(s) proposed by UTC, to one or more
                                                   10
 ---pagebreak---     purchasers, provided that the Commission has approved both the purchaser(s) and the
    final binding sale and purchase agreement(s) (and ancillary agreements) as in line
    with the Commission’s Decision and the Commitments in accordance with
    paragraphs ‎17 and ‎18 of these Commitments. The Divestiture Trustee shall include in
    the sale and purchase agreement(s) (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(s) 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 the Notifying Party’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 the Notifying Party.
    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 Businesses’ 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 Businesses shall provide the
    Trustee upon request with copies of any document, as permitted by law. UTC and the
    Divestment Businesses 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
    Businesses. This shall include all administrative support functions relating to the
    Divestment Businesses 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.
                                                11
 ---pagebreak--- 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.
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 ‎35 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. The Notifying Party agree 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 ‎40 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 ‎19-‎26 of these Commitments.
                                               12
 ---pagebreak--- 42.     Unless removed according to paragraph ‎40 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 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 Notifying
        Party. 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 the Notifying
        Party 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 Notifying Party. 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)
   duly authorised for and on behalf of UTC
   (signed)
   duly authorized for and on behalf of Raytheon
                                                 13
 ---pagebreak---  GPS SCHEDULE
      […]
RADIOS SCHEDULE
      […]
         14