Boeing Lands Its Merger, EU Cleared to Compete

If you're planning a transatlantic trip anytime soon, you can stop worrying that a trade dispute between the US and Europe might cancel the flight.

The mother of all trade wars between the United States and Europe was narrowly averted this week, after the Seattle-based Boeing Co. offered to amend a controversial contract, which committed three American airlines to buy aircraft exclusively from Boeing. But not before heads of state on both sides of the Atlantic threatened to cancel flights, slap on penalties, or clamp down on competition if a compromise was not reached.

The 15-member European Union has bitterly opposed a proposed $15-billion merger between Boeing and St. Louis-based McDonnell Douglas, the world's No. 1 and No. 3 aircraft manufacturers, since its proposal last December.

For Europeans, the prospects of this merger, expected to be approved tomorrow by Boeing and McDonnell Douglas stockholders, puts the European consortium Airbus Industrie at a disadvantage.

Americans insisted that European objections masked a bid to protect Airbus. A merged Boeing-McDonnell Douglas would control some 80 percent of the civilian aircraft market, industry analysts say.

Moreover, Boeing's exclusive contracts with American Airlines, Delta Airlines, and Continental Airlines would have locked Airbus out of 12 percent of the market and may have put its proposed super-jumbo jet out of the running before it got off the ground. Airbus Industrie officials describe the super-jumbo as the key to their company's bid to capture 50 percent of the airline market, up from 30 percent today.

In an 11th-hour compromise late Tuesday evening, Boeing proposed suspending such exclusive contracts for the next 10 years.

"This was a vital battle in terms of competition policy," Karel Van Miert, Europe's top antitrust official, said yesterday in Brussels. "There was a broad agreement. The remedies the [European] Commission was striving for have largely been supplied."

Secret negotiations leading up to this compromise reached to the highest levels of government. After the US Senate unanimously condemned EU for threatening to scuttle the merger last week, President Clinton said it would be "unfortunate" if the dispute led to a "trade stand-off" with Europe.

Possible US reprisals included restricting flights between Paris and the US and slapping penalties on Airbus aircraft sold in the US. Europe threatened levies on European companies that buy Boeing.

Last week French President Jacques Chirac dubbed the merger "extremely dangerous" and called on his European partners to resist "strong psychological pressure" from the US to agree to it. Yesterday, French diplomats said France would need to study the Boeing concessions before deciding to vote with the Commission to finalize the agreement next week.

The US and Europe have had trade disputes before. What distinguished this one was the sector's importance. "The stakes were huge for both sides," says J. Paul Horne, managing director of the Paris office of Smith Barney, Inc.

"In the past, most of the important trade disputes have been in agriculture. Manufacturing has been less of a problem because American manufacturers have become so Europeanized. But government involvement in key aircraft industries has been very large," he adds.

The US and the EU signed an antitrust cooperation pact in 1991 that commits both sides to agreeing to such large-scale mergers. But this dispute raises new concerns over whether such bilateral agreements are adequate to deal with global competition.

"The world has gradually eliminated or brought under control all of the trade barriers ... including tariffs, dumping, import licenses. If we're going to have a fair playing field, we need global rules for competition as well," says a Geneva-based trade official close to these deliberations.