2001/417/EC: Commission Decision of 1 December 1999 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.1601 — AlliedSignal/Honeywell) Council Regulation (EEC) No 4064/89 (Text with EEA relevance) (notified under document number C(1999) 4057)
7. 6. 2001 EN Official Journal of the European Communities L 152/1 II (Acts whose publication is not obligatory) COMMISSION COMMISSION DECISION of 1 December 1999 declaring a concentration compatible with the common market and the functioning of the EEA Agreement (Case COMP/M. 1601 - AlliedSignal/Honeywell) Council Regulation (EEC) No 4064/89 (notified under document number C(1999) 4057) (Only the English text is authentic) (Text with EEA relevance) (2001/417/EC) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the opinion of the Advisory Committee on Concentrations (4), Having regard to the Treaty establishing the European Community, Whereas: Having regard to the European Economic Area Agreement, and in particular Article 57(2)(a) thereof, (EEA) Having regard to Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (1), as last amended by Regulation (EC) No 1310/97 (2), and in particular Article 8(2) thereof, Having regard to the Agreement between the European Communities and the Government of the United States of America regarding the application of their competition law (3), and in particular Articles II and VI thereof, (1) (2) (3) Having regard to the Commission Decision of 30 August 1999 to initiate proceedings in this case, (4) the Commission received a On 15 July 1999, notification of a proposed concentration pursuant to Article 4 of Regulation (EEC) No 4064/89 (hereinafter referred to as áthe Merger Regulationí) by which AlliedSignal (US) Inc. (Allied Signal) and Honeywell (US) Inc. (Honeywell) proposed to enter into a full merger within the meaning of Article 3(1)(a) of the Merger Regulation. On 30 August 1999 the Commission decided in accordance with Article 6(1)(c) of the Merger Regulation to initiate proceedings in this case. proposed The for cooperation with the EFTA Surveillance Authority under the EEA Agreement. operation qualify does not I. THE PARTIES (US) AlliedSignal is a manufacturing company with operations in the businesses of aerospace, automotive products and engineered materials (polymers, specialised chemicals and electronic materials). (1) OJ L 395, 30. 12. 1989, p. 1; corrected version, OJ L 257, 21. 9. 1990, p. 13. (2) OJ L 180, 9. 7. 1997, p. 1. (3) OJ L 95, 27. 4. 1995, p. 47. (4) OJ C 164, 7. 6. 2001. L 152/2 EN Official Journal of the European Communities 7. 6. 2001 (5) (6) (US) develops Honeywell is an international controls company technology supplies that and products, systems and services to homes and buildings, industry, aviation and space. advanced II. THE OPERATION Pursuant to an agreement entered into on 4 June 1999, Honeywell and AlliedSignal will merge into AlliedSignal, but the latter’s name will be changed into Honeywell International Inc. Each share of Honeywell common stock will be exchanged for 1,875 shares of AlliedSignal common stock. The Board of Directors of the combined company will comprise nine members from the current AlliedSignal board and six members from the current Honeywell board. III. CONCENTRATION (7) The operation whereby AlliedSignal and Honeywell merge into AlliedSignal is a full merger within the meaning of Article 3(1)(a) of the Merger Regulation. the EEA are of a limited nature. It appears that effective competition within the EEA would not be significantly impeded as a result of the operation on any of the potential markets for avionics for military or space applications. Therefore, the effects of the operation are assessed only in relation to avionics having commercial applications. A. PRODUCT MARKET (10) Avionics products consist of a range of equipment, the controls of which are installed in the cockpit, and which are used for the control of the aircraft, for navigation and communication, and also for the assessment of flying conditions. AlliedSignal also manufactures other aerospace equipment (that is to say, non-avionics) such as auxiliary power units (APU), environmental control systems (ECS) aircraft lighting, landing systems (wheels and brakes) and engines for small business aircraft. (A full glossary of the technical terms and abbreviations used is given at Annex II). IV. COMMUNITY DIMENSION 1. General market characteristics (8) (9) than turnover The undertakings concerned have a combined aggregate worldwide EUR 5 000 of more million (5). (AlliedSignal EUR 14 100 million, Honeywell EUR 7 500 million). AlliedSignal and Honeywell each have a Community-wide turnover in excess of EUR 250 million (AlliedSignal EUR [ ] (*), million, Honeywell EUR [ ], million), but they do not achieve more than two thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension. V. COMPATIBILITY WITH THE COMMON MARKET This operation creates a company that will be active in the following sectors: aerospace, automotive products, engineered materials and home and industrial controls. The parties’ activities overlap in the area of avionics. Even though the parties have important sales in the military and space avionics markets, these latter sales in (5) Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission notice on the calculation of turnover (OJ C 66, 2. 3. 1998, p. 25). Where figures include turnover for the period before 1 January 1999, they are calculated on the basis of average ecu exchange rates and converted into euro on a one-for-one basis. (*) Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square brackets and marked with an asterisk. 1. 1. Different segments (11) (12) The avionics sector is generally divided into six demand that are defined by types of aircraft: air segments transport, regional transport, business aviation, general aviation, helicopters and military/space applications. The reason for this division lies in the non-homogeneous structure of supply and demand across these segments (integrated versus federated cockpit), in dissimilarities of technical interchangeability and prices of the products, and in the nature of the customers (airlines, original equipment manufacturers (OEMs) or individual owners) as well as in differentiation for the applicable regulatory safety requirements. The Commission’s market investigation has confirmed that there are different segments defined by the types of aircraft, that the avionics products/(or sub-)systems for each segment are different according to their price, their size and their capabilities, and that the players in each there is no clear segment are different. However, segmentation between the regional transport and the business aviation segments with regard to the avionics products/(sub-)systems that are offered, since the latter are the same in terms of price, size and capabilities. 7. 6. 2001 EN Official Journal of the European Communities L 152/3 Therefore, no further distinction will be drawn between the regional transport and business aviation segments (regional/business segment). such as AlliedSignal. products/(sub-)systems, (Some surveillance products, such as ACAS processors, which are currently not part of the core avionics suite, are purchased by the aircraft owners, mainly as retro-fit. ) As regards (such as avionics AlliedSignal, Universal Avionics, and BF Goodrich) provide stand-alone avionics products/(sub-)systems to their customers, the aircraft owners. suppliers retro-fit, the (13) Air transport includes large commercial planes (greater than 100 passengers) which cost between USD 35 million and USD 140 million, regional transport covers medium commercial planes that are worth between USD 5 million and USD 25 million, whereas business aviation includes small jets costing in general between USD 3 million and USD 35 million. General aviation is composed of light planes ranging in cost between USD 150 000 and USD 500 000. The cost of avionics sold patterns. for Helicopters consist of civil airborne vehicles with rotary wings. Military and space applications include every airborne military application as well satellites, as international space stations and space shuttles. follows aircraft similar these cost (14) (15) are suppliers the customers of the In the air transport segment, avionics two OEMs, namely Airbus Industry (Airbus) and Boeing, and the airlines. The products/(sub-)systems supplied in this segment are in general are stand-alone products/(sub-)systems federated into an avionics cockpit suite by the OEMs (as forward-fit products) or installed on existing aeroplanes by service áshopsí or the OEMs as retro-fit items (that is, as replacement parts or entirely novel products). The same avionics suppliers supply the same products/(sub-)systems used for in new aeroplanes and for retro-fit of existing aeroplanes. forward-fit that are is noted that (even though this would not cockpit. With respect the avionics In the regional and business segments, a somewhat clearer distinction can be drawn between forward-fit and justify their retro-fit designation as áseparate product marketsí), because of that more products are sold as part of an the fact integrated (forward-fitted) to suppliers it forward-fit, provide integrated avionics suites to the OEMs (such as Aerospatiale Matra ATR, Bombardier, Embraer, Dassault, Raytheon, Gulfstream, British Aerospace, Fairchild integrate the avionics Dornier). The latter do not rely on the products/(sub-)systems ásystem integrationí capabilities of the avionics suppliers (such as Honeywell, Rockwell Collins and Sextant Avionique (Sextant)). If such a system integrator does not dispose of an avionics product, he will purchase the missing product from a supplier of stand-alone avionics themselves, but (16) In the general aviation segment, the cockpit is federated and the customers are OEMs and distributors. The avionics products/(sub-)systems used for forward-fit and for retro-fit are supplied by the same avionics suppliers. 1. 2. Buyer furnished equipment (BFE)/supplier furnished equipment (SFE) (17) A further distinction often referred to in the industry is (BFE) and referring the that between ábuyer furnished equipmentí ásupplier (SFE), respectively to the buyer and the supplier of airframe. equipmentí furnished (18) (19) for two obtain in In the case of BFE, an airframe manufacturer will, general, three certification substitutable avionics products/(sub-)systems between which the airline can choose. The commercial terms are then set between the airline and the avionics supplier. The only role of the airframe manufacturer with regard to that the product/(sub-)system. certification relates BFE or to of two) SFE can either be Furthermore, SFE-standard or SFE-option. In the latter case, an airframe manufacturer will obtain certification for more than one (and in general avionics substitutable type and will products/(sub-)systems for that aircraft to to the buyer of leave it the airline, that aircraft, The other or one choose difference with (and is BFE SFE-standard) is purchased by the OEM and not by the airlines. SFE-option is found on Airbus aircraft. On Boeing and competition between the SFE-avionics suppliers only product/(sub-)system. SFE-option SFE-option aircraft, exist does that not L 152/4 EN Official Journal of the European Communities 7. 6. 2001 takes place at the design phase of an aircraft. If an avionics product/(sub-)system is SFE-standard, meaning that the airframe manufacturer has only certified one has product/(sub-)system, no opportunity avionics choose product/(sub-)system from another supplier. substitutable airline then the to a (20) The market investigation has pointed out that there is a trend towards SFE replacing BFE. (21) investigation has also shown that The market for retro-fit SFE, the airlines will negotiate directly with the avionics supplier, such as Honeywell. (22) Given the fact that the qualification of a product as BFE or SFE may differ depending on the client and may vary over time, distinct markets for BFE and SFE are not warranted. 1. 3. Certification (23) Each avionics product/(sub-)system to be installed on an aircraft has to be certified separately for each aircraft type on which it will be installed. Certificates for avionics equipment are granted in the USA by the FAA (Federal Aviation Administration) and in Europe via the JAA (Joint Aviation Authorities) by the national civil aviation authorities. The is normally granted on an aircraft-level basis, whereby all the aircraft are certified components and parts of For átype together, modifications on existing aircraft, a supplemental type certification (STC) will be granted. Both TC and STC are forms of design approval. OEMs apply for TC and occasionally Production apply certifications to the supplier are granted only after the issuance of the TC/STC. certification procedure certificationí known as suppliers (TC). STC. for (25) (26) 1. 4. Standardisation In the air transport segment, there is a considerable degree of standardisation in avionics products, at least for BFE sold to airlines. The airline operators depend on standardised avionics to create interchangeability of avionics in order to promote competition and freedom of choice. (AEEC). Committee Engineering The standardisation is carried out by the Airlines Electronic This organisation adopts standards that are formulated by the organisation ARINC (aeronautical radio incorporated) on behalf of the AEEC. The AEEC comprises representatives from, the European Airlines Electronics Committee (EAEC), and the Oriental Airlines Association. The major avionics suppliers and OEMs usually also take part in discussions on standardisation. the major US airlines, among others, (27) ARINC standards define the form, fit and function of the avionics products to be inserted in the aeroplane. They cover a range of component characteristics, bus (analogue including architecture), minimal interoperability, functionality, size, weight, voltage, cooling and even colour. interfaces digital and (28) ARINC standards apply foremost to BFE in the air transport segment. ARINC standardisation is carried out on a voluntary basis and is not a legal requirement; although it may help to obtain the necessary (FAA) certification, adherence to an ARINC standard is not required for certification purposes. ARINC standards currently exist for most of the avionics (BFE) equipment in air exception for EGPWS/TAWS (enhanced ground proximity warning system/terrain avoidance warning system) (see below). transport, with the notable (29) other does aviation not sold in generally segments, For products standardisation The organisation GAMMA (General Aviation Manufacturers Association) has a modest standardisation role in the segments. regional/business However, its standards cover a mere four-digital bus specification. aviation general apply. and (24) The certification procedure is lengthy (from one to three years for the avionics and other systems in a new aircraft and from one to six months in case of a supplemental certification where only a few components are being changed) and costly (between 5 % and 20 % of the development costs of for a new platform, that is, up to USD 10 million and between USD 0,1 and USD 1 million in case of a supplemental certification involving a change of a few components). the avionics 2. Affected product markets (30) The market investigation has shown that products that perform the functions necessary to operate an aircraft are constantly evolving as a result of product innovation and integration. Especially in the air transport segment, 7. 6. 2001 EN Official Journal of the European Communities L 152/5 such an integrated product: there is a trend towards product integration, whereby functions which were, for instance, carried out by two stand-alone avionics products are now being integrated into a single subsystem. The ADIRS/ADIRU (air data inertial reference system/air data inertial reference unit) it is an example of the IRS (inertial reference combines the functions of system) the data regional/business segment, the integration process has already led to fully integrated avionics suites, where all avionics functions are integrated into a system. In the general aviation segment the cockpit is federated, which means avionics products/(sub-)systems are wired together. stand-alone computer. different that and the air In (31) collision (airborne The parties have identified five product markets, which, due to the overlapping products of AlliedSignal and Honeywell, would be affected by the merger. In the air transport segment, the affected markets are the market for ACAS system) processors and mode S transponders and the market for CMU (communication management units) and ACARS (aircraft reporting systems). In the regional/business segment, the affected markets are also the market for ACAS processors and mode S transponders and the weather radar market. In the segment for civil helicopters, the market for weather radar is affected by this operation. communication addressing avoidance and aircraft segments. An ACAS processor is generally BFE. in the air transport and regional/business (33) (34) and speed altitude information. Mode The mode S transponder sends and receives signals to and from other aircraft, including unique identification and S transponders function together with ACAS processors for the identification of other planes and their bearing, as well as determining the appropriate response to a threat of collision. However, a mode S transponder also has than working with the ACAS processor, such as communication with the air traffic (ATC) system and for usage in the new FMS control (flight management system). The anti-collision avoidance system further consists of antennae, control heads and a display. functions other The parties further submit that ACAS processors and mode S transponders are generally bought together from the same avionics supplier. This has not been confirmed by the market investigation. It has become S apparent transponders although different the only suppliers of operating together. Moreover, mode S transponders in this segment are the suppliers of ACAS processors. that ACAS have and mode processors functions, 2. 1. ACAS processor and mode S transponder (35) On the basis of the above, it could be concluded that ACAS processors and mode S transponders belong to different product markets. However, given that the assessment of the case would not be different if ACAS processors and mode S transponders were considered as belonging to one market, the definition of the relevant product market can be left open. A i r t r a n s p o r t R e g i o n a l / b u s i n e s s a v i a t i o n (32) An ACAS processor is considered to be the brain of the collision avoidance system. It provides pilots with information on surrounding traffic and provides alerts when nearby traffic is (or has the potential to become) a hazard. An ACAS processor is mandatory in Europe and in the USA for certain types of aircraft (6), mainly, all (36) segment, ACAS processors and mode S In this transponders do not only have different functions; they are generally not sold together. The mode S transponder is in general integrated in the avionics suite, whereas the ACAS processor is supplied on a stand-alone basis. (6) Europe: an ACAS is mandatory by 1 January 2000 for all aircraft with more than 30 seats or weighing more than 15 000 kg cargo and by 1 January 2005 for all aircraft with more than 19 seats or carrying more than 5 700 kg. USA: an ACAS (called TCAS II), which provides audible resolution guidance, has been mandatory for all passenger aircraft in excess of 30 seats since 1993. A TCAS I (i. e. an ACAS without audible resolution guidance) has been mandatory since 1995 for passenger aircraft with more than 10 seats. (37) On the basis of the above, it could be concluded that ACAS processors and mode S transponders belong to different product markets. However, given that the assessment of the case would not be different if ACAS processors and mode S transponders were considered as belonging to one market, the definition of the relevant product market can be left open. L 152/6 EN Official Journal of the European Communities 7. 6. 2001 2. 2. CMU and ACARS other aviation segments. Weather radar in the general and lower aviation segment offers performance. features fewer (38) and text receives CMU provide the two-way communication link between an aircraft and the ground control centres. The system transmits data messages. According to the information provided by the parties, ACARS provide the same functionality as CMU, but a CMU has additional functions that allow for routing and prioritisation of incoming information. The parties have submitted that prices of both products, at least of those provided by AlliedSignal, are identical. and (39) The results of the market investigation have indicated that CMU are largely viewed as an evolution of ACARS, since the former have a higher level of functionality. According to others, the current version of ACARS now implements the CMU protocols and the costs of both systems would be similar. (40) One of the major airframe manufacturers (Airbus) by Aerospatiale Matra is installing the ATSU (air traffic services unit) system supplied includes CMU/ACARS functions) on new aircraft. The parties claim that this product competes directly with their own CMU/ACARS products, which has been confirmed by the investigation. (which (44) On the basis of the above, it can therefore be concluded that weather radar in the regional/business segment constitutes a different product market from weather radar in the other aviation segments. C i v i l h e l i c o p t e r s operations (45) Weather radar for civil helicopters includes specialised search and surveillance features (used in search and rescue destinations, particularly off-shore oil platforms). These products have historically been installed principally in helicopters. The weather detection capability plays only a secondary role. Weather radar used in other aviation segments does not have these search and rescue characteristics. identify and to (46) On the basis of the above, it can therefore be concluded that weather radar for civil helicopters constitutes a distinct product market. (41) On the basis of the above, it can therefore be concluded that CMU and ACARS belong to the same product market. 3. Other avionics and non-avionics products for commercial aviation 2. 3. Weather radar R e g i o n a l / b u s i n e s s a v i a t i o n (42) Weather radar provides pilots with detailed visual information on the weather surrounding and ahead of the aircraft, permitting the pilot to avoid dangerous weather conditions. It displays rainfall, turbulence and, in certain models, windshear. In the regional/business segment most weather radar is supplied as part of an integrated cockpit. (43) The market investigation has shown that weather radar in the different aviation segments clearly constitutes a different product in terms of size, functions and price. Weather is supplied as BFE, transport generally includes predictive windshear and has a much larger, heavier and more expensive antenna than in the in air radar (47) Within the avionics sector, a number of other product markets can be identified which, according to the parties and the market investigation, would constitute separate product markets, but on which the parties have no directly overlapping activities (see also the table preceding recital 62). Some of the products listed below further are in fact the distinguished decision whether they constitute different product markets or not can be left open (with the exception of TAWS), since the assessment would not be different if such a further distinction were made. (sub-)systems that into single products. However, could be (48) (49) their avionics functionality, Based on into four can be products/(sub-)systems categories: equipment for surveillance, communication, navigation and a last category containing all other remaining avionics. grouped these These avionics products/(sub-)systems are supplied in the air in the regional/business segment and some also in the general aviation segment. However, as mentioned in recital 12, the products and transport segment, 7. 6. 2001 EN Official Journal of the European Communities L 152/7 systems belonging constitute different product markets. to different aviation segments 3. 1. Surveillance products (50) TAWS (terrain avoidance warning system) is a system that provides the flight crew with a map-like display of nearby terrain and sounds an audible alert about a minute’s flight time or more away from the terrain (such as the ground, a mountain, etc. ). AlliedSignal is the only supplier of a certified TAWS, with its EGPWS (enhanced ground proximity warning system). TAWS is SFE. However, as there will be a mandate for TAWS, retro-fit. The many airlines are buying TAWS as the GPWS predecessor of AlliedSignal’s EGPWS is (ground proximity warning system). (51) On the basis of the above, there is a market for TAWS. it can be concluded that (52) Other surveillance products are ACAS processors and weather radar, respectively at recitals 32 to 37 and 42 to 46. inertial reference system/air data inertial reference unit) which combine the air data computer with the IRS, fly-by-wire, flight controls (automatic pilots) and flight management system (FMS). The latter consists of a and central processor, is display sensors. Based on data connected to the aircraft’s received from those sensors and the pilot, the FMS calculates the most fuel-efficient route, controls speed and thrust for optimum fuel economy, automatically complies with speed and altitude restrictions, advises the landing speed and makes other pilot of proper calculations for a safe and efficient flight. keyboard and 3. 4. Other avionics products (55) These are, inter alia, display, head-up displays, cockpit voice recorders (CVR) and flight data recorders (FDR). CVR and FDR are the áblack boxesí which safety investigators look for to determine the cause of an aircraft accident. Furthermore, there are still some other products, which the parties do not deal with (mainly controls). 3. 2. Communication equipment 3. 5. Other non-avionics aerospace products (53) Communication systems are a combination of avionics products that allow the flight crew to communicate with ground and air resources and to identify the aircraft to air traffic control systems and other aircraft. They include many products such as radios, satellite CMU/ACARS, communication provides multimode precision and guidance non-precision approach guidance using its built-in GPS, meaning global positioning system) and others. (SatCom), (MMR, which to systems radio/receiver approach airports (56) These include in-flight entertainment products, APUs and wheels and brakes. 4. New integrated products in surveillance avionics I H A S ( i n t e g r a t e d h a z a r d a w a r e n e s s s y s t e m ) 3. 3. Navigation equipment (54) This equipment navigates the aircraft to the appropriate destination and includes many products such as global positioning systems (GPS), the air data computer, which computes aircraft airspeed, altitude and vertical speed, IRS (inertial reference systems) which are the primary airframe motion sensors and navigation sensors used by a multitude of avionics systems, ADIRS/ADIRU (air data (57) that further product integration in avionics The market investigation has pointed out that the trend towards is the area of hazard surveillance is general, but particularly suited to further product integration. The product integration could be limited to ensuring a better interoperability of the stand-alone hazard surveillance (Examples of such improved interoperability products. is currently possible to show already exist since it L 152/8 EN Official Journal of the European Communities 7. 6. 2001 weather radar and EGPWS information on a single display; also, with the assistance of Boeing, AlliedSignal has developed a system that prioritises alerts in the cockpit). The integration of hazard surveillance products is actually expected to go much further, as far as the development of a new integrated black box which integrates the functionalities of the ACAS processor, weather radar and TAWS. AlliedSignal has announced its commitment to developing a complete integrated hazard awareness system (IHAS) which they would like to have as standard equipment on the new Airbus 3XX. It has IHAS set up a business unit especially for development. (58) Market investigation has shown that there would be a clear demand for such a product, as it would lead to increased flight safety. Therefore, it can be concluded that a future market for an integrated hazard awareness system exists. B. GEOGRAPHIC MARKET DEFINITION (59) The relevant geographic market for avionics products is, according to the parties, worldwide. This has been recognised by the Commission in prior decisions relating to the equipment for civil aircraft (7) and has been confirmed by the investigation. C. COMPETITIVE ASSESSMENT 1. General (60) (61) This operation will lead to the combination of the first- and third-largest worldwide suppliers of commercial avionics, namely Honeywell and AlliedSignal. The parties’ main competitors are Rockwell Collins and Sextant, but there are also smaller players such as Litton and Smiths Industries, who do not produce a range of avionics products. The parties’ turnover in commercial avionics would account for 40 % to 50 % of the overall turnover in commercial avionics, whereas Rockwell Collins and Sextant would have a share of 20 % to 30 % and 10 % to 20 % respectively. transport, The new entity will be present in all aviation segments: air regional/business aviation and general aviation. The air transport segment represents [between 50 % and 60 %]* of all sales of commercial avionics, whereas the regional/business segment and the general aviation segment represent [between 30 % and 40 %]* and [less than 10 %]* respectively. 1. 1. Air transport Table 1: Presence in the air transport segment Product AlliedSignal Honeywell Rockwell Collins Sextant Others Surveillance Weather radar (BFE) ACAS processor/mode S transponder (BFE) TAWS (SFE) Communication Com/Nav (BFE) X X X X SatCom (BFE) - (1) MMR (BFE) CMU/ACARS (BFE) X X - X - - X - - X X - - - - - - - X X X X X - - - X - - Teledyne/ Aerospatiale Matra (7) For example Case IV/M. 697 - Lockheed Martin/Loral Corporation, Commission Decision of 27 March 1996 (OJ C 314, 24. 10. 1996, IV/M. 290 - Sextant/BGT-VDO, Commission Decision of 21 December 1992 OJ C 9, 14. 1. 1993, p. 3). 9); Case p. 7. 6. 2001 EN Official Journal of the European Communities L 152/9 Product AlliedSignal Honeywell Rockwell Collins Sextant Others Navigation GPS (stand-alone) (BFE) IRS and ADIRS/ADIRU (SFE-option on Airbus) Air data computer (SFE) FMS (SFE-option on Airbus) Flight controls (SFE) Other avionics Head-up displays (SFE) Displays (SFE) Recorders (BFE) Controls, monitoring, measurement and warning systems Non-avionics In-flight entertainment APUs Wheels and brakes - - - - - - - X - - X X X X X X X - X - - - - - - - - - X X X - X X - - - Litton X (2) Litton - Smiths X (3) Smiths X X X - X X - - GEC - - L3Communications, Universal, SFIM BECO, Smiths, Eldec Sony, Matsushita UTC ABS, BF Goodrich, Dunlop, Snecma/ Messier-Bugatti (1) Although AlliedSignal has been a distributor of an antenna (made by Dassault), this agreement has now come to an end and AlliedSignal is no longer active with regard to SatCom. (2) Sextant is developing an ADIRU with Litton. This is a SFE-option on Airbus aircraft. Sextant/Litton have obtained half of the orders on new Airbus aircraft. (3) Sextant is developing an FMS with Smiths. This is a SFE-option on Airbus aircraft. Sextant/Smiths have obtained two thirds of the orders on new Airbus aircraft. (62) The merged entity will be able to provide a broader range of avionics products to the airlines (BFE) and to the two OEMs, Boeing and Airbus (SFE-avionics). As can already be seen from this Table (and as will be explained further), in comparison with its competitors, the parties will be particularly strong in safety avionics, namely products used for surveillance (ACAS processor, TAWS and weather radar). AlliedSignal and Honeywell are both strong suppliers of ACAS processors and mode S transponders. AlliedSignal is one of the two suppliers of weather radar and is the only company with TAWS. On Airbus aircraft AlliedSignal’s former product range offered to the airlines is extended with SatCom (BFE) and with SFE-option). and ADIRS Honeywell’s SFE product range is enlarged with TAWS (SFE). However, even after the merger there will be no (both FMS company that can supply aeroplanes to the airlines and to the OEMs all the avionics necessary to operate an air transport service. 1. 2. Regional and business aviation (63) As has already been mentioned, in this segment a further segmentation between forward-fit and retro-fit can be made. The system integrators supplying the forward-fit sub-segment, do not provide stand-alone products, whereas the suppliers of stand-alone products do not supply integrated avionics suites. The parties L 152/10 EN Official Journal of the European Communities 7. 6. 2001 system integrators: Honeywell therefore submit that there is no competitive overlap between them. As regards forward-fit, there are only and Rockwell three share of sales, with Collins, each having a similar Sextant as an emerging player. AlliedSignal is an important provider of stand-alone products to airlines for retro-fit, but also to system integrators. 2. 2. ACAS processors and mode S transponders A i r t r a n s p o r t 1. 3. General aviation (64) Only AlliedSignal is present in this aviation segment and is an important supplier for many products. 2. Effects of the operation on the affected markets 2. 1. General (65) since sales, actual future The market data referred to below are generally based on the market investigation and on the parties’ best estimates, acquired through their own market research. The parties have had to rely on such estimates owing to the absence of publicly available market research data. The parties have principally based their evaluation of the market on deliveries made of the product referred to, rather than on orders placed. The notifying parties submit that data based on orders are not reliable in determining customers frequently reduce or eliminate (or sometimes expand) orders after they have been placed. For the products of the affected product markets there is only a short time lag between the purchase order and the delivery, and therefore the parties are of the opinion that data based on differ orders would to properly significantly from deliveries. evaluate the market strength of the competitors in the market, the Commission considers it appropriate to look these would better also at orders placed, given that the current indicate producers. However, the market investigation did not allow an adequate picture to be drawn on the basis of orders, one of apparent discrepancies in what market operators consider áordersí (only fixed orders or those inclusive of options). For the above reasons (and especially because there is only a short time lag between purchase orders and deliveries) the data used in the assessment are based on deliveries. Nevertheless, the assessment (recitals 66 et seq. ) is also based on orders where appropriate. competitive potential of reasons being In order purchase probably not the the the (66) (67) (68) for expanded, these products, The total worldwide market for ACAS processors and following a mode S transponders has European mandate from USD [between 50 and 60]* million in 1996 to USD [between 130 and 140]* million in 1998. On this market the notifying parties would have a combined market share of [between 65 % and 75 %]* (AlliedSignal [between 30 % and 40 %]*; Honeywell [between 30 % and 40 %]*). The only competitor is Rockwell Collins, with [between 30 % and an estimated market share of 40 %]*. Since 1996 AlliedSignal’s market share has remained stable, whereas the market share of Honeywell has risen from [between 15 % and 25 %]* to [between 30 % and 40 %]*, leading to a decline of Rockwell Collins’ share from [between 40 % and 50 %]* in 1996 to [between 25 % and 35 %]* in 1998. The parties submit that Sextant has announced that it in conjunction with Dassault and Thomson-CSF, has, Sextant’s parent company, the technology to produce ACAS. According to the parties, BF Goodrich, which already has a TCAS I product, and GEC Marconi are also likely potential entrants. However, third parties have indicated that it is not clear whether these projects mentioned by the parties will materialise, especially if the present merger were to be completed. The parties argue that the large combined market share will not give them the chance to behave to any significant degree independently from competitors and customers, for the following reasons: (a) the shares of demand for ACAS fluctuate substantially between the world’s regions and are not an indicator of market power; (b) the ACAS market volume is decreasing; (c) customers exercise great buyer-power; (d) the barriers to entry are low and (e) ACAS is susceptible to technology leap-frogging. (69) With regard to the parties’ first argument, it has to be noted that the geographic scope of the market to be taken into account regional. Furthermore, transaction the market structure in each region will be very similar: the parties will have a market share of [more than two thirds]*. is worldwide and not following the (70) The parties submit as a second argument that the ACAS market volume is decreasing, since almost all passenger aircraft in the USA are equipped with ACAS and that approximately 90 % of the potential retro-fitting orders for air transport in Europe have already been placed. Since there is no aftermarket for ACAS, as the system has an extremely long lifecycle, the future market for 7. 6. 2001 EN Official Journal of the European Communities L 152/11 ACAS for air transport will accordingly be limited to new aircraft estimated to be 600 to 800 air transport aircraft per year worldwide. The parties submit that with decreasing demand, competition between the remaining suppliers is expected to become even more ferocious. (71) With regard to this argument it has to be noted that, given the decreasing volume, the likelihood that new suppliers will enter this market diminishes, since they will not be able to spread their development costs over a sufficient product volume. Furthermore, the market investigation has shown that are ACAS processors sophisticated high-technology products that have to match the environment in which they operate. transponders and mode S (75) Moreover, in order to enter the market and acquire a position on the market, the new entrant could offer the products at lower prices. However, this requires the new entrant to be able to sell at least large quantities of the products in order to amortise R & D costs. Given the presence of the combined entity, the new entrant may, however, be precluded from benefiting from the required economies of scale. (72) With regard to buying power, the parties have submitted that there is a high degree of purchasing power in the market. The parties submit that should they seek to exercise any market power, customers are strong enough to retaliate. In fact, the parties submit that them more vulnerable to such retaliation than smaller suppliers, since the effects of retaliation would have much greater consequences, by affecting the sale of all products in their range. large product range makes their (73) The Commission has considered whether the purchasing power is such that no competition concerns would arise, in spite of the high market share resulting from the merger. Demand in the air transport avionics market is indeed concentrated, as far as the OEMs are strong buying concerned. They undoubtedly have power. However, at the level of airlines this is much less the case, the group of customers being much larger and including many smaller (national) airlines. On the other is highly side, further concentrated. That the increase the merger. Consequently, following Commission has come to the conclusion that the purchasing power of the customers with regard to ACAS, which is bought by the airlines, would not outweigh the position of the new entity. supply in avionics level of concentration will the structure of (74) As regards barriers these are in general to entry, considered to be very high in the field of avionics, owing to the complex technical nature of the products. The market investigation has pointed out that market entry is not to be expected. With particular regard to ACAS processors and mode S transponders, the parties themselves submit takes some two years and around USD 10 million to develop an ACAS processor. that it to be it has susceptible to be noted that (76) With regard to the parties’ argument that the ACAS technological processor will leap-frogging, the market investigation has shown that it will take some 10 years dependent before surveillance-broadcast), situational include be awareness collision-avoidance functions and be certified by the civil aviation authorities. Therefore, this last argument cannot be accepted. satellite-based extended (automatic ADS-B could tool, to a (77) Furthermore, it has to be noted that the parties’ strong position on the market for ACAS processors also has an effect on the future market for IHAS, since the ACAS processor is one of the key elements of this system (see recitals 93 et seq. ). the compatibility of (78) On the basis of the above, there are serious doubts about the operation with the common market and the EEA Agreement, on the grounds that the operation would lead to the creation of a dominant position with regard to ACAS processors and mode S transponders in the air transport segment. However, the remedies described (see recitals 125 et seq. ) address this specific issue. R e g i o n a l / b u s i n e s s a v i a t i o n (79) The total worldwide market for ACAS processors and mode S transponders in this segment has expanded, following the European mandate, from USD [45 to 55]* million in 1996 to USD [95 to 105]* million in 1998. On this market the notifying parties have a combined market share of [70 % to 80 %]* (AlliedSignal [25 % to 35 %]* The competitors are Rockwell Collins with a market share of [20 % to 30 %]* and BF Goodrich with a [0 % to 5 %]* market latter however, has no ACAS conforming to the European mandate, but only has a and Honeywell share. The [40 % to 50 %]*). L 152/12 EN Official Journal of the European Communities 7. 6. 2001 I (see 67). recital product TCAS 1996 AlliedSignal’s and Honeywell’s market share has been increasing from [10 % to 20 %]* and [10 % to 20 %]* respectively, to [25 % to 35 %]* and [40 % to 50 %]*, leading to a decline in Rockwell Collins’ share from [60 % to 70 %]* in 1996 to [20 % to 30 %]* in 1998. Since (80) the execution of the that after The parties submit European mandate the market volume for ACAS in regional and business aviation will decrease and will consist only of 150 to 250 new aircraft annually worldwide. The parties submit that with decreasing demand, competition between the remaining suppliers is expected to become even more ferocious. (81) With regard to this argument, it has to be noted that, given the decreasing volume, the likelihood that new suppliers will enter this market diminishes, since they will not be able to spread their development costs over a sufficient product volume. (82) Further reference must also be made to the section on ACAS processors and mode S transponders in air transport, since the same reasons as regards barriers to entry and buying power apply to this aviation segment. the compatibility of (83) On the basis of the above, there are serious doubts about the operation with the common market and the EEA Agreement, on the grounds that the operation would lead to the creation of a dominant position with regard to ACAS and mode S transponders in the regional/business segment. However, the remedies described below (at recital 125 et seq. ) address this specific issue. (85) Aerospatiale Matra is offering the ATSU on Airbus aircraft. The parties expect that by the beginning of 2000 over 95 % of the Airbus aircraft with datalink will have the ATSU system and will therefore no longer need a CMU or ACARS. (86) (87) be reinforced, position will that The proposed operation will have the effect AlliedSignal’s since Honeywell has already been able to secure orders for its stand-alone CMU. However, given the fact that Rockwell Collins and Teledyne are now also offering a stand-alone CMU and that Aerospatiale Matra has launched the ATSU, the operation will not lead to the creation or strengthening of a dominant position with regard to CMU and ACARS. 2. 4. Weather radar R e g i o n a l / b u s i n e s s a v i a t i o n radar for weather The total worldwide market for regional/business aviation has grown from USD [25 to 35]* million in 1996 to USD [35 to 45]* million in 1998. On this market, the notifying parties have a combined market share of [35 % to 45 %]* (AlliedSignal [0 % to 10 %]*, Honeywell [30 % to 40 %]*). The only is Rockwell Collins, with an estimated competitor market share of [55 % to 65 %]* in 1998. (88) Given that the increment in market share is very small, that AlliedSignal is mainly a supplier of weather radar for retro-fit whereas Honeywell is a supplier of weather radar the parties’ only competitor has a market share of more than 50 %, it can be concluded that no dominant position will be created or strengthened on the market for weather radar for regional/business aviation. forward-fit, and that for 2. 3. CMU/ACARS (84) CMU is generally BFE. In 1998 the market was worth USD [15 to 25]* million. According to the information provided by the parties, AlliedSignal had a share of sales of [45 % to 55 %]* worldwide in 1998. Honeywell has not yet started to supply its stand-alone CMU, but has already been able to secure orders for it. Rockwell Collins has a [30 % to 40 %]* and Teledyne a [5 % to 15 %]* estimated market share. This information has been largely confirmed by the market investigation, although the share of the new entity is even smaller. C i v i l h e l i c o p t e r s (89) The total worldwide market for weather radar for civil helicopters amounts to USD [5 to 15]* million in 1998. On this market, the notifying parties have a combined market share of 100 % (AlliedSignal [75 % to 85 %]*; is Honeywell [15 % to 25 %]*), whereby AlliedSignal supplying a stand-alone weather radar for retro-fit and federated cockpits and Honeywell focuses on forward-fit integrated cockpits. (90) The parties submit that Fiar is competing for new programs and that Rockwell Collins has a weather radar product designed for military aviation that could be certified for use in civil helicopters. 7. 6. 2001 EN Official Journal of the European Communities L 152/13 (91) submit further that as The parties the beaconing capabilities of weather radar will no longer be needed on account of the elimination of beacon technology and its in civil helicopters can be replaced by weather radar for general aviation or by higher-end avionics suites. replacement by GPS, weather radar (92) However, given the fact that there are no other actual suppliers of weather radar for civil helicopters, there are serious doubts about the compatibility of the operation with the common market and the EEA Agreement, on the grounds the operation would lead to a strengthening of a dominant position on the market for the weather remedies described below (at recital 125 et seq. ) address this specific issue. civil helicopters. However, radar that for 3. Effects of the operation on other markets TAWS and IHAS (93) raises about doubts The merger the serious compatibility of the operation with the common market that a and the EEA Agreement, on the grounds dominant position would be strengthened on the market for TAWS and would be created on the future market for integrated hazard awareness systems (IHAS), for the reasons set out below. Although, as explained in the section on product market definition, one may distinguish the TAWS market according to the aviation segment in which it is sold, the analysis below covers all aviation segments where AlliedSignal is currently active. The new entity currently has a dominant position on the market for TAWS (94) With its enhanced ground proximity warning system (EGPWS), AlliedSignal currently has a 100 % market share. (97) (98) The parties have submitted, however, that some five companies have TAWS products in development. These are BF Goodrich, EuroTelematik GmbH (ETG) and British Aerospace. Sextant, Universal Avionics, (95) (96) product on the market. Certification procedures are underway for Sextant’s and Universal Avionics’ TAWS products (8). BF Goodrich is developing a product that will be suited to a smaller number of business aircraft. ETG has a TAWS product available, although it is only aviation segment. British suited Aerospace’s TAWS only has applications on military aircraft, so it is questionable how far their product would be suited for commercial applications. general the for The above shows that although currently AlliedSignal has a dominant position in TAWS, and any market entry will not be immediate, several companies may attempt to enter the market in the coming years and challenge the position of the new entity as the sole supplier. The expected growth in the market for TAWS (see below) makes attractive. However, as explained below, the merger will have the effect of increasing barriers to entry for such new entrants. such market entry The anticipated growth in the market for TAWS leaves significant scope for market entry in for Europe the USA and Considerable market growth is anticipated for TAWS. That growth will be supported by the fact that mandates for TAWS will come into place. The earlier generation ground-proximity warning systems (GPWS) are currently mandated all turbine-powered commercial aircraft and for turbine powered aircraft for 10 passengers or more. For TAWS (EGPWS), currently no mandate exists but there is a proposed FAA mandate which will make TAWS mandatory in 2002/2003 for new aircraft and by 2005 for existing aircraft respectively (for aircraft with a In anticipation of those minimum of six passengers). mandates, and because of the safety improvement which the product confers, the number of orders is expected to increase strongly. Currently, AlliedSignal has already taken orders for some 8 000 EGPWS. The parties have submitted that the current market for TAWS may cover as many as [10 000 to 20 000]* aircraft. The size of the market may be expected to attract new entrants. A further driver for market entry is that AlliedSignal has been until now the only supplier of TAWS, and market (including the parties) are expecting new operators The market investigation has pointed out that, although these companies have competing TAWS products in development and are anticipating their market entry, them has an established TAWS currently none of (8) The parties have provided information that Universal has in fact already sold its TAWS to an Indonesian (regional) airline company. However, type certification still has to be obtained. L 152/14 EN Official Journal of the European Communities 7. 6. 2001 TAWS suppliers to push market prices downwards, to the benefit of customers. However, in spite of (future) demand, new entrants, which already have to face certain hurdles in entering the market, are confronted with additional barriers to entry created by the merger. As a result of the merger market entry barriers for competing TAWS are increased (99) As described in recitals 97 and 98, a number of potential entrants exist on the market for TAWS. Even without the merger, these potential competitors would have a number of hurdles to overcome in order to enter the market. For instance, new entrants face the problem that they do not have a reputation with an established TAWS product. Moreover, not all of the potential suppliers mentioned above have an established position both in air transport and in the regional/business aviation segment. For example, Universal Avionics is in the air historically not a supplier of avionics transport in contrast with In addition, AlliedSignal, newcomers do not have an installed base of an earlier-generation product (i. e. the GPWS), which, it provides, can be apart for retro-fit sales with existing customers. beneficial Finally, a new supplier would face (initially at least) disadvantages relating to economies of scale. from the reputation that segment. (100) From the fact that the abovementioned suppliers are indeed working towards market entry, it may be concluded that although certain obstacles already existed prior considered insurmountable. However, the investigation has pointed out that as a result of the merger, further obstacles are created, to the detriment of new entrants. to the merger, are not these equipment, it would have to have access to the technical interface information of that other equipment, so as to be able to make its TAWS interoperable. The new entity could such essential information (to the advantage of its own EGPWS), and thereby significantly limit the scope for market entry, both for retro-fit and for for-wardfit TAWS. any newcomer deprive of (102) The requisite interface information not only involves hardware specifications (for example, as regards the size of the the LRU (line replaceable unit) and form of such as data on the connections), but also data, electrical specifications. software the signals Although a piece of the interface data may be defined in a public format, a large part of the interface information may be of a proprietary nature. It is noted that in the regional/business segments ARINC standards that would ensure an open infrastructure do not apply and that the interface data are completely of a proprietary nature (9). and be see (at detrimental integration), recital 112 et area of (103) Therefore, whereas, in general, the technical bundling of to avionics products would not competition (owing to the role of the OEMs and ARINC seq. ) under standardisation: technical surveillance in the products, and notably as regards TAWS, such negative effects could indeed occur. However, the undertakings submitted adequate safeguards they will ensure that Honeywell products and systems will have open standards so that future TAWS providers will not be further hampered in their attempts to enter the market. These undertakings are further described (at recital 125 et seq. ). by in the sense that the parties will provide (101) The new entity will be able technically to link its EGPWS to other avionics equipment, so as to reduce Indeed, (potential) competition on the TAWS market. Honeywell has a considerable market share for products with which a TAWS must interoperate (on the input as well as on the output side), both in air transport and in the regional/business segment. Those products are, the GPS, FMC (flight management among others, computer), the segment, Honeywell has delivered regional/business around half of the integrated cockpits, into which a TAWS is to be retro-fitted. If a new TAWS competitor were to wish to connect its product to such Honeywell displays. controls flight and In integration of (EFIS-display), AlliedSignal (9) In this regard, an example provided by the parties may serve as an illustration: the parties have submitted a contract which shows that the EGPWS with a Honeywell for previous a had display-product considerable amount of money to Honeywell to obtain the it could make the technical specification of EGPWS compatible. Now, to the detriment of competitors of EGPWS, which either would not obtain the specifications or would have to pay large amounts of money for them. the EFIS, so that these costs would fall away, pay to 7. 6. 2001 EN Official Journal of the European Communities L 152/15 In the absence of alternative TAWS suppliers, the merged entity will be in a position to foreclose competition on the future market for IHAS (integrated hazard awareness surveillance system) it (104) As was described in recitals 97 and 98, a number of companies are expected to try to enter the market with is not a competing TAWS technology. However, certain that their entry will be successful. It may be, for example, that their technology proves to be inferior to the EGPWS. For the time being, there is no alternative TAWS available. In the investigation, market operators have stated that they feel that market entry may still take several years. They have expressed the view that if EGPWS technology remains the only established TAWS technology available, the new entity would, as a result the merger, be able to foreclose competition for of IHAS. (105) Although AlliedSignal already had available in-house the three products necessary for an integrated hazard surveillance system, Honeywell’s engineering know-how the new entity to develop an IHAS will permit successfully for the following reasons. According to its statements, AlliedSignal is primarily a provider of stand-alone products. Until now, AlliedSignal, although it has already announced the IHAS development, has had to rely on third parties (Boeing and Airbus) for further product in the integration. The negotiations with Rockwell Collins for the supply of the EGPWS, AlliedSignal has insisted on a development in cooperative form and has insisted on obtaining a grant-back licence for newly developed integration the more limited technology, is an illustration of engineering capacity of AlliedSignal. Honeywell is a company that has in integrating products and even supplying fully integrated cockpits. That experience is regarded as essential in designing an IHAS [reference to internal document]*. long experience that fact hazard integrated surveillance (106) As has been stated, a systems integration potential (engineering know-how) is required to further develop That an integration capability, in the general sense, is available with at least two other suppliers on the market, Sextant and Rockwell Collins, and, to a considerable degree, also with the air transport OEMs. Rockwell Collins has shown its interest in obtaining the EGPWS functionality for product further development. integration product system. and (107) At present, the EGPWS of AlliedSignal is an essential element of an IHAS. Therefore the new entity will be able to control the future IHAS market. The parties have submitted that there are already a number of alternative suppliers of TAWS technology on the market. However, as explained in recital 96, there is, as yet, no established alternative for the EGPWS, and any third party wishing to rely on to develop an IHAS currently has technology is AlliedSignal’s EGPWS technology. That protected by several hundreds of patents, some of which are considered ákey patentsí, further product development. especially for (see (108) Before the merger, AlliedSignal has shown a willingness to provide the EGPWS to third parties with a system as integration the above capacity regards Memorandum of Understanding negotiated with Rockwell Collins), which would allow such product development. After the merger, the new entity will have input to its no incentive to supply such an essential IHAS in a competitors. The product development of more be restricted, and as a result the new entity would have the capacity and capability to become dominant on the future market for IHAS. environment will competitive therefore Conclusion for the TAWS market and the future market for IHAS (109) For the above reasons, the Commission considers that there are serious doubts as to the compatibility of the operation with the common market and the EEA Agreement, on the grounds that the merger will lead to the strengthening of a dominant position for TAWS and to the creation of a dominant position on the future market for IHAS. However, the undertakings provided by the parties discussed below (at recital 125 et seq. ) will provide an adequate remedy. 4. Range-effects (110) Third parties, and in particular competitors, have complained that the merger would harm competition because of foreclosure effects that would occur. Such effects would be due to the fact that the new entity would be in a position to offer a broader product range (of avionics as well as non-avionics products) than any other competitor. That broader product range would give the new entity an increased ability to technically integrate products and to offer packages of avionics L 152/16 EN Official Journal of the European Communities 7. 6. 2001 products (multi-product bids). According to those third parties, the consequence would be that competitors who offer (stand-alone) products in competition with the new entity, but who cannot benefit from a similar product range, would be put at such a competitive disadvantage that clients would no longer consider buying products from them. In the end, this would lead to a loss of competitors, which, in an industry which is already highly concentrated, would work to the detriment of customers of avionics. would supply, (with the exception of TAWS; see recital 114), so that there is scope for customers to retaliate in the event of any unwanted technical bundling. Lastly, for the regional/business segment the technical bundling issue would not manifest itself to the same extent, since competition already takes place for complete integrated cockpits, and in the general aviation segment, cockpits are no are indications that to the merger. (non-integrated) this will change subsequent federated there and (111) Given the these allegations, has investigated how far the merger would offer the new entity such competitive advantages and if these would result in the creation or strengthening of a dominant position. Commission and mode S transponders. The (114) A notable exception to the above, however, is the area of TAWS and surveillance equipment, where the new entity would be the only supplier with a TAWS. Also it will be in a strong position for weather radar and ACAS processors above description of TAWS and IHAS makes clear that, in the absence of the undertakings discussed below, foreclosure effects might occur as a result of technical bundling practices, the regional/business remedies described below (at recital 125 et seq. ) will serve to prevent such a situation from occurring. the segments. The transport both and air in 4. 1. Technical integration (112) The market investigation has shown that, in general, it is considered an advantage that a company is able to supply a larger range of products. A supplier can thereby ensure a certain common core in its product range and ensure an enhanced interoperability of such products, especially where these products are within the same category of avionics products (communication, navigation, and surveillance). From internal documents supplied by the parties it appears that they themselves see respective avionics products as a particular opportunity resulting from the merger. As long as such technical integration does not lead to foreclosure effects, improved technical interoperability may generally be considered to be in the interest of in the air transport segment in many instance prefer to carry out technical integration themselves and therefore do not necessarily see this as a benefit). (although OEMs between their customers improved interfaces a (113) The investigation has shown it to be unlikely that the potential of the new post-merger entity to technically bundle products will significantly impede competition. First, this is because, in the air transport segment, the OEMs have capability themselves and would only allow the technical bundling to their own of avionics advantage. is widespread in air transport, so that the potential to link products through proprietary interface technology is very limited. Thirdly, there are third-party suppliers the products which the new entity available for all to take place if Secondly, standardisation considerable engineering ARINC it was 4. 2. Commercial aspects Range-effect in relation to the OEMs in air transport (115) The market indicated that investigation has any range-effect relating to multi-product bids is not likely to arise in relation to the OEMs, who are the customers for SFE and SFE-option. In developing a new aircraft, the OEMs request separate bids for non-avionics and avionics products, which take place at different stages in the development phase of an aircraft, as well as separate bids for the individual avionics products. R a n g e - e f f e c t i n r e l a t i o n t o t h e a i r l i n e s (116) As was mentioned in recitals 17 to 21, airlines buy BFE avionics and choose SFE-option avionics, which are in fact purchased by the OEMs. Following the merger, the product range that the new entity will have on offer to airlines will not be significantly extended. The focus of Honeywell’s activities has been on the OEMs (SFE sales), with the exception of ACAS/mode S transponders and 7. 6. 2001 EN Official Journal of the European Communities L 152/17 below, SatCom. Following implementation of the undertakings S Honeywell’s described transponders will be divested, while SatCom represents a relatively modest value, the overall worldwide market representing a value of some USD [30 to 40]* million. ACAS/mode and matching is facilitated by the fact that ARINC standards make products interchangeable. The parties have provided data, which show that only [20 % to 30 %]* of AlliedSignal’s multi-product bids (representing [less than 10 %]* of the total bid value) are not broken - that is, where airlines have decided to buy the whole package from the same supplier. (117) The new entity will have a larger product range than its competitors. However, Rockwell Collins has an almost equivalent product range to be sold to airlines, and in the value of all BFE avionics sold by Rockwell fact Collins is higher. Sextant also has a product range that is sold to airlines and it has a growing presence for SFE-option avionics (FMS and IRS/ADIRS/ADIRU (10)). (118) In addition, there is scope for competitors to extend their product range, either via internal development of products or by áteamingí with other competitors. Although competitors have pointed out that teaming is not an alternative, on account of the extra cost and organisation involved, it is considered that teaming can still be a realistic alternative. This is for instance the case for technical teaming, if an OEM asks avionics suppliers to cooperate in order to develop a new product (for example: Airbus has requested Sextant and Smiths to develop a new FMS and Sextant and Litton to make an ADIRU). With regard to commercial teaming it is true that disadvantages exist, but there are several examples where commercial teaming has been successful. (119) In relation to the airline customers, the investigation has shown that the practice of negotiating packages of avionics products is relatively common in the industry, although data obtained from the parties show that such bids occur only in a minority of cases. Where such packaging has occurred, it has mostly taken place for forward-fit on new aircraft. (120) Moreover, the investigation has shown that customers can and do break the packages by ámixing and matchingí products from various suppliers. That mixing (121) As to the option the new entity will have, are The in-flight annual market there is no natural entertainment, which just as AlliedSignal does at present, of offering packages of it must be noted that avionics and non-avionics, although packages of non-avionics and avionics have existed, they nevertheless are rare. In this respect the merger does not change the situation to any great degree. Moreover, link between avionics and non-avionics. The airlines are sophisticated buyers who seek to purchase the best products from the various suppliers. likely that their It is therefore not choice of avionics products will be determined by the non-avionics products. In addition, Rockwell Collins and Sextant are both engaged in the rapidly growing market of high-value products, whereas the new entity is not active in this respect. in-flight entertainment is estimated to be USD [1 000 to 2 000]* million, whereas the annual market value of APUs and wheels and brakes is estimated to be USD [150 to 250]* million and USD [800 to 1 300]* million respectively. In terms of and non-avionics, these competitors would therefore be able to offer significant competition to the new entity. In any event, the parties have they will not bundle avionics and undertaken that non-avionics products to any aerospace customer unless (i) the customer to whom the proposal (ii) a competitor has offered a similar bundle of products and the offer is intended to meet competition. If a customer requests alternative sources for any avionics product included in the bundle of products the parties will include alternative sources in its offering. the Commission notes that ability to supply avionics in a single proposal requested this or submitted has that product value the for of is (122) In addition, the packages sold to airlines are likely to decrease in importance, given the increasing trend for supplies to be made on an SFE-basis rather than on a BFE-basis. This trend, which has been widely confirmed by the investigation, will have the effect that the OEMs, which already enjoy buying power, will be able to ensure the availability of choice. (10) The ADIRU developed jointly by Sextant and Litton has obtained half of the orders on new Airbus aircraft. On FMS, Sextant is developing, together with Smiths, a new FMS for Airbus aircraft and they have secured two thirds of the orders for new aircraft. (123) As regards the airlines, therefore, it can be concluded that the proposed operation will not give the new entity the scope to create or strengthen a dominant position. L 152/18 EN Official Journal of the European Communities 7. 6. 2001 R e g i o n a l / B u s i n e s s A v i a t i o n for which AlliedSignal Consequently, Honeywell will (124) The market investigation also made it clear that in this segment Honeywell’s product range is extended with is currently the only TAWS, a supplier. commercial and Sextant, the only two competitors supplying integrated the latter are dependent on avionics suites. supplies of AlliedSignal/Honeywell in order to be able to supply an avionics suite, which includes TAWS. However, the remedies described below address this specific issue. advantage over Rockwell Collins Indeed, have VI. UNDERTAKINGS SUBMITTED BY THE PARTIES (125) the Merger Regulation. This proposal In order to remove the serious doubts raised by the operation, on 15 October 1999, AlliedSignal and Honeywell submitted a proposal for modification of the operation in accordance with the terms of Article 8(2) involved of undertakings for ACAS processors and mode S transponders (for air transport and regional/business aviation) weather radar for aviation and civil segments) (11). related to the worldwide markets helicopters TAWS (all 1. Description of the undertakings (including mode S transponders) (126) As regards ACAS processors and mode S transponders, the parties have undertaken to divest Honeywell’s entire TCAS business in favour of a viable and independent third party, within the Commission’s decision. Once six months of implemented, this will remove the overlap between the parties’ activities in ACAS processors and mode S transponders. An independent trustee will be appointed the to report hold-separate obligation, the suitability of the purchaser, the conduct of the agreements with the purchaser properly provide for the divestiture of the relevant assets and business. the negotiations and whether to the Commission, on, inter alia, (127) With respect to weather radar, the parties undertake to radar business which divest AlliedSignal’s weather (11) The parties have also submitted undertakings to the United States Department of Justice (DoJ). These commitments are the same as the ones submitted to the Commission, with two exceptions: the undertakings on TAWS are not included, but a divestiture of the parties’ overlapping activities as regards their space and military activities is foreseen. In particular the parties have undertaken to divest AlliedSignal’s Teterboro Space and Navigation business its Cheshire (gyroscopes and navigation and pointing systems), Operations its MicroSCIRAS Technology. gyroscopes), (IMU and and a radar, viable in favour of third party within six months of consists of the RDR-1400 and RDR-1500 series search and and weather independent this Decision. Once executed, this will remove the overlap between the parties’ activities with regard to weather radar for civil helicopters. As for ACAS processors and mode S transponders, an independent trustee will be appointed to report to the Commission on the issues mentioned above. (128) In respect of TAWS, the parties undertake to provide any supplier of TAWS seeking to make its TAWS product interface with any of the parties’ other avionics products with all licences and interface specification data necessary to enable the TAWS product to interface with the parties’ avionics products. These undertakings will be of unlimited duration. The parties also undertake to supply EGPWS boxes, EGPWS modules (that is, a circuit card assembly module with a standard or a customised interface) and future products with TAWS functionality on a non-discriminatory basis to other (potential) avionics suppliers and aircraft manufacturers. The parties will also provide them with all licences and interface specification data necessary to enable them to interface their products with the EGPWS boxes, EGPWS modules and future products with TAWS functionality supplied by the parties. This undertaking will remain in effect for a period of eight years from the date of the Commission’s decision. However, supplies of EGPWS boxes, EGPWS modules or other implementations of to the undertakings, as TAWS functionality pursuant well as interface data, will be provided as long as an is aircraft and/or platform in which that product installed or designed to be in installed remains production. To ensure compliance with the undertaking relating to TAWS, an independent expert will be nominated and an arbitration procedure will be established. (129) The Commission conducted a market test to verify that the proposed undertakings were sufficient to remove the competitive concerns raised by this operation. In view of the market test certain modifications to the proposed undertakings were submitted on 27 October 1999. The final divestment proposal is set out in more detail in the text of the modification as accepted, which is annexed hereto and forms an integral part of this Decision. 2. Assessment of the undertakingsg (130) The undertakings have the effect of eliminating the overlap created by the merger for ACAS processors and 7. 6. 2001 EN Official Journal of the European Communities L 152/19 S air in the transport transponders helicopters. With mode and regional/business segments and for weather radar for civil the undertakings have the effect of removing the barriers to entry created by the merger and will ensure that further product integration and future product development by third parties remains possible. TAWS, respect to (131) the first phase, parties submitted also In the to ACAS processors and undertakings with respect for civil radar mode S transponders and weather helicopters. However, these undertakings were not considered to be sufficient to remove serious doubts, for to ACAS the following reasons. First, with respect processors the parties and mode S transponders, undertook to divest AlliedSignal’s business. According to investigation, AlliedSignal’s products were the market the the parties’ ACAS processors and mode S transponders. Secondly, as regards weather radar for civil helicopters, the parties line, which, undertook to divest only one product according to the market investigation, did not constitute a viable business. less-advanced products of (132) The proposed divestment, submitted in the second phase, of Honeywell’s TCAS business, including ACAS processors and mode S transponders, which are according to the market investigation the state-of-the-art products, corresponds to a market share of [30 % to 40 %]* in the air transport segment and of [40 % to 50 %]* in the regional/business segment and removes all overlap between the parties on these markets. Moreover, the TCAS divestment, together with the undertakings concerning TAWS, will influence the parties’ position in the area of surveillance avionics. This divestment will also allow the purchaser of this business to extend its scope for offering packages of avionics products. (133) With to the proposed divestment of respect civil for AlliedSignal’s weather this divestment helicopters, represents a market share of [75 % to 85 %]* and eliminates all overlap between the parties on this market. it has to be noted that business radar the merger. The new entrant will be able to hold, free of charge and for an unlimited period, all the information needed to make its TAWS product interoperate with the merged entity’s products. (135) With respect and aircraft manufacturers to the parties’ commitment to supply EGPWS boxes, EGPWS modules and future products with TAWS functionality to other (potential) avionics suppliers (including all licences and interface specification data necessary for interface purposes), this undertaking has the effect that (potential) avionics suppliers and aircraft manufacturers desiring to integrate the merged entity’s TAWS products into their into a new integrated surveillance system can do so on equal terms. Further product integrated systems, including IHAS, will therefore remain possible, both technically and commercially. development of more integrated avionics suite or VII. CONCLUSION (136) Consequently, the Commission concludes that, subject to full compliance by AlliedSignal and Honeywell, their including the new subsidiaries, successors and assigns, company created by the merger, namely Honeywell International Inc. , with the conditions and obligations laid down in Annex I, the proposed concentration will not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market, or in a substantial part of it, or in the EEA, HAS ADOPTED THIS DECISION: Article 1 (134) As regards TAWS, the parties’ commitment to provide any supplier of TAWS with all licences and interface specification data necessary to enable its TAWS product to interface with the parties’ avionics products, will have the effect of removing the barriers to entry created by Subject to full compliance by AlliedSignal and Honeywell, their subsidiaries, successors and assigns including the new company created by the merger, Honeywell International Inc. , with the conditions and obligations contained in the commitments laid down in Annex I, the concentration by which AlliedSignal and Honeywell propose to enter into a full merger is declared compatible with the common market and the functioning of the EEA Agreement. L 152/20 EN Official Journal of the European Communities 7. 6. 2001 Article 2 This Decision is addressed to: AlliedSignal Inc. 101 Columbia Road PO Box 1087 Morristown New Jersey 07962-1087 USA and Honeywell Inc. Honeywell Plaza PO Box 524 Minneapolis Minnesota 55440-0524 USA Done at Brussels, 1 December 1999. For the Commission Mario MONTI Member of the Commission 7. 6. 2001 EN Official Journal of the European Communities L 152/21 The full English text of the commitments referred to in Article 1 may be consulted on the following Commission website: ANNEX I http://europa. eu. int/comm/competition/index_en. html L 152/22 EN Official Journal of the European Communities 7. 6. 2001 ANNEX II GLOSSARY Product Description ACARS aircraft communication addressing and reporting system ACAS processor airborne collision avoidance system: helps prevent collisions by identifying and displaying the location of surrounding aircraft providing audible warnings and in advanced versions manoeuvering instructions ADIRS/ADIRU air data inertial reference system/unit: device that combines the functions air data computer and inertial reference system AEEC Airlines Electronic Engineering Committee Air data computer the air data computer computes aircraft átrue í airspeed, altitude and vertical speed APU ARINC ATC BFE CMU Com/Nav CVR Displays EAEC ECS auxiliary power unit: generates the electrical power on the aircraft aeronautical radio incorporated air traffic control buyer furnished equipment: refers to the buyer of the aircraft communication management two-way communication link between an aircraft and ground control centres unit: manages the text and data pilot communication/navigation: communications to/from ground or airborne operation centres transmits receives and voice and other cockpit voice recorder electronic instrument systems that display information from avionics subsystems European Airlines Electronics Committee environmental control systems: air-conditioning systems, blend air control systems, cabin-pressure systems and smoke-detection systems EGPWS/GPWS (enhanced) ground proximity warning system: displays nearby terrain and warns of potential impact FAA FDR Federal Aviation Administration (USA) flight data recorder Flight controls autopilot systems FMC flight management computer 7. 6. 2001 EN Official Journal of the European Communities L 152/23 FMS GPS IHAS IRS JAA LRU MMR Product Description flight management system: helps flight crews compute the most efficient flight profile and automatically navigates the aircraft global positioning system (satellite based) integrated hazard awareness (or avoidance) system inertial reference system: are airframe motion sensors and navigation sensors that are used by other navigation systems (autopilot/flight director, attitude/heading display, flight management system weather radar antenna stabilisation and SatCom antenna pointing) Joint Aviation Authorities (Europe) line replaceable unit: standardised equipment áblack boxí multimode radio/receiver: provides precision approach guidance to airports that have traditional ground-based instrument and satellite-based non-precision approach guidance using a built-in global positioning system (GPS) landing systems (ILS) Mode S transponder functions together with ACAS processors for the identification of other planes and their bearing, as well as determining the appropriate response to a threat of collision OEM Recorders SatCom SFE STC TAWS TC TCAS original equipment manufacturer: the aircraft manufacturer in this industry record flight data information and cockpit voice (satellite communications): sends and receives data and voice telephony to the ground via satellite supplier furnished equipment: refers to the seller of the aircraft supplementary type certification terrain avoidance warning system type certification traffic alert and collision avoidance system: the American term for ACAS Weather radar displays rainfall, turbulence and, in certain models, wind shear