A proposed settlement would prevent General Electric Company (GE) from interfering with the development of a key engine component designed by Italy’s Avio S.p.A. (Avio) for rival aircraft engine manufacturer Pratt & Whitney, resolving Federal Trade Commission charges that GE’s proposed $4.3 billion acquisition of Avio’s aviation business would be anticompetitive.
GE, based in Fairfield, Connecticut, proposes to acquire the AeroEngine division of Avio, which is headquartered in Torino, Italy. GE — through CFM International, its joint venture with France’s Snecma S.A. — and Pratt & Whitney are the only two firms that manufacture engines for Airbus’s A320neo aircraft. Avio currently designs a critical component — the accessory gearbox or AGB — for Pratt & Whitney’s PW1100G engine. Pratt & Whitney has no viable alternatives to Avio for development of the AGB for the PW1100G engine.
The FTC’s complaint alleges that GE’s acquisition of Avio would substantially lessen competition, giving GE the ability and incentive to disrupt the design and certification of Avio’s AGB for the PW1100G engine used on A320neo aircraft. This would diminish competition in the sale of engines for the A320neo, which would result in higher prices, reduced quality, and engine delivery delays for A320neo customers.
The proposed order settling the FTC’s charges builds on a commercial agreement GE, Avio, and Pratt & Whitney recently negotiated, as well as Pratt & Whitney’s original contract with Avio. Portions of these two contracts relating to the design and development of Avio’s AGB and related parts for the PW1100G engine are incorporated into the proposed order, and a breach by the combined firm of those aspects of the relevant agreements would violate the FTC’s consent agreement.
In addition, the proposed order prohibits GE from interfering with Avio staffing decisions as they relate to its work on the AGB for the PW1100G engine and allows Pratt & Whitney to have representatives on-site at the GE/Avio facility. If Pratt & Whitney terminates its agreement with Avio post-merger, GE must provide transitional services to help Pratt & Whitney manufacture AGBs and related parts for its PW1100G engine. The proposed order also prevents GE from accessing Pratt & Whitney’s proprietary information about the AGB that is shared with Avio. Finally, the proposed order allows the Commission to appoint a monitor to oversee GE’s compliance with its obligations.
FTC staff worked closely with the European Commission throughout the investigation. The FTC and the EC investigated in parallel how GE’s acquisition of Avio would change its commercial relationships with GE’s rival aircraft engine manufacturers. Both agencies recognize that the commercial agreement GE entered with Pratt & Whitney during the course of the investigation creates protections for future competition. Once GE and Pratt & Whitney reached their private agreement, the EC closed its investigation without taking additional action regarding the proposed merger’s impact on commercial aircraft engine competition.
The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 3-0-1, with Commissioner Joshua D. Wright recused. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through August 19, 2013, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.
Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions. Comments also can be submitted electronically.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.
The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., N.W., Room 7117, Washington, DC 20001. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.