2013-17947. General Electric Company; Analysis of Proposed Agreement Containing Consent Order To Aid Public Comment

AGENCY:

Federal Trade Commission.

ACTION:

Proposed consent agreement.

SUMMARY:

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the draft complaint and the terms of the consent order—embodied in the consent agreement—that would settle these allegations.

DATES:

Comments must be received on or before August 19, 2013.

ADDRESSES:

Interested parties may file a comment at https://ftcpublic.commentworks.com/​ftc/​geavioconsent online or on paper, by following the instructions in the Request for Comment part of the SUPPLEMENTARY INFORMATION section below. Write “General Electric, File No. 131 0069” on your comment and file your comment online at https://ftcpublic.commentworks.com/​ftc/​geavioconsent, by following the instructions on the web-based form. If you prefer to file your comment on paper, mail or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Stephen W. Rodger (202-326-3643), FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Pursuant to Section 6(f) of the Federal Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, notice is hereby given that the above-captioned consent agreement containing a consent order to cease and desist, having been filed with and accepted, subject to final approval, by the Commission, has been placed on the public record for a period of thirty (30) days. The following Analysis to Aid Public Comment describes the terms of the consent agreement, and the allegations in the complaint. An electronic copy of the full text of the consent agreement package can be obtained from the FTC Home Page (for July 19, 2013), on the World Wide Web, at http://www.ftc.gov/​os/​actions.shtm. A paper copy can be obtained from the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue NW, Washington, DC 20580, either in person or by calling [phone].

You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before August 19, 2013. Write AGeneral Electric, File No. 131 0069” on your comment. Your comment B including your name and your state B will be placed on the public record of this proceeding, including, to the extent practicable, on the public Commission Web site, at http://www.ftc.gov/​os/​publiccomments.shtm. As a matter of discretion, the Commission tries to remove individuals' home contact information from comments before placing them on the Commission Web site.

Because your comment will be made public, you are solely responsible for making sure that your comment does not include any sensitive personal information, like anyone's Social Security number, date of birth, driver's license number or other state identification number or foreign country equivalent, passport number, financial account number, or credit or debit card number. You are also solely responsible for making sure that your comment does not include any sensitive health information, like medical records or other individually identifiable health information. In addition, do not include any A[t]rade secret or any commercial or financial information which * * * is privileged or confidential,” as discussed in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do not include competitively sensitive information such as costs, sales statistics, inventories, formulas, patterns, devices, manufacturing processes, or customer names.

If you want the Commission to give your comment confidential treatment, you must file it in paper form, with a request for confidential treatment, and you have to follow the procedure explained in FTC Rule 4.9(c), 16 CFR 4.9(c).^[1] Your comment will be kept confidential only if the FTC General Counsel, in his or her sole discretion, grants your request in accordance with the law and the public interest.

Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a result, we encourage you to submit your comments online. To make sure that the Commission considers your online comment, you must file it at https://ftcpublic.commentworks.com/​ftc/​geavioconsent by following the instructions on the web-based form. If this Notice appears at http://www.regulations.gov/​#!home. you also may file a comment through that Web site.

If you file your comment on paper, write AGeneral Electric, File No. 131 0069” on your comment and on the envelope, and mail or deliver it to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW, Washington, DC 20580. If possible, submit your paper comment to the Commission by courier or overnight service.

Visit the Commission Web site at http://www.ftc.gov to read this Notice and the news release describing it. The FTC Act and other laws that the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments that it receives on or before August 19, 2013. You can find more information, including routine uses permitted by the Privacy Act, in the Commission=s privacy policy, at http://www.ftc.gov/​ftc/​privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

The Federal Trade Commission (“Commission”) has accepted, subject to final approval, an Agreement Containing Consent Order (“Consent Agreement”) with General Electric Company (“GE”), which is designed to remedy the anticompetitive effects of its proposed acquisition of the aviation business of Avio S.p.A. (“Avio”). Under the terms of the proposed Consent Agreement, GE would be required, among other things, to avoid interference with Avio's design and development work on a critical engine component—the accessory gearbox (“AGB”)—on the Pratt & Whitney PW1100G engine for the Airbus S.A.S. (“Airbus”) A320neo aircraft. GE and Pratt & Whitney are the only manufacturers of engines for the A320neo, and compete head-to-head for sales of engines to purchasers of that aircraft.

The proposed Consent Agreement has been placed on the public record for thirty days for receipt of comments by interested persons. Comments received during this period will become part of the public record. After thirty days, the Commission will again review the proposed Consent Agreement and the comments received, and will decide whether it should withdraw from the proposed Consent Agreement, modify it, or make final the accompanying Decision and Order (“Order”).

Pursuant to an Agreement dated December 21, 2012, GE proposes to acquire Avio's aviation business for approximately $4.3 billion. The Commission's Complaint alleges that the proposed acquisition is in violation of Section 5 of the FTC Act, as amended, 15 U.S.C 45, and that the acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. 45, by lessening the competition in the worldwide market for engine sales on the A320neo aircraft. That is because the acquisition would provide GE with the ability and incentive to disrupt the design and certification of the AGB for the Pratt & Whitney PW1100G engine, which in turn would provide GE with market power in the market for engines for the A320neo aircraft, allowing it to raise prices, reduce quality, or delay delivery of engines to A320neo customers. The proposed Consent Agreement will remedy the alleged violations by eliminating GE's ability and incentive to engage in such anticompetitive conduct post-merger.

II. The Parties

GE, headquartered in Connecticut, is one of the world's largest companies, with business segments serving a wide variety of industries throughout the globe. GE's aviation segment, among other things, designs and manufactures jet engines for commercial and military aircraft. GE sells narrow-body commercial aircraft engines through its 50% stake in CFM International (“CFM”), a joint venture with the French engine manufacturer Snecma S.A.

Avio is headquartered in Torino, Italy, and is an important designer and manufacturer of component parts for civil and military aircraft engines. Avio provides, among other things, structural parts, gearboxes, and electrical systems for aircraft engines. Avio is currently the sole designer of the AGB on the Pratt & Whitney PW1100G engine.

III. The Products and Structure of the Markets

AGBs use the mechanical power of the rotating turbine shaft in a jet engine to power various accessory systems needed by the engine and the aircraft, including oil and hydraulic pumps and electrical systems. Although AGBs on different aircraft engines perform similar functions, AGBs are designed for the specific engine in which it will be used to account for the shape of that engine, the position of the AGB in the engine, and the configuration and specifications of the various accessory systems the gearbox will power. Because AGBs require significant cost and time to develop, and because the aircraft engine—with its AGB—must be tested extensively and certified for flight by aviation authorities before it can be put into service, an engine manufacturer cannot quickly or easily replace an engine's AGB if it encounters difficulties with its component supplier.

Avio has the sole design responsibility for the AGB on the forthcoming Pratt & Whitney PW1100G engine, which will be one of two engines available on the Airbus A320neo aircraft. While Avio is in the advanced stages of designing this AGB, further development and testing must be completed before the AGB and the PW1100G engine will be certified for use by aviation authorities. Beyond that, further design work may be necessary even after the AGB and engine receive certification. Pratt & Whitney has no viable alternative to continuing to work with Avio to develop the AGB for the PW1100G, even after its rival engine manufacturer, GE, acquires Avio.

Aircraft engines provide the thrust necessary for flight and must be specifically engineered for the requirements and mission profile of the aircraft on which they are to be installed. When designing a new airplane, an aircraft manufacturer typically approaches engine manufacturers as potential suppliers and selects one or more to provide engines for the aircraft under development. These engines become customers' only options for that aircraft platform. Airbus chose to work with only Pratt & Whitney and CFM to develop engines for the A320neo platform. Aside from the PW1100G, the only other engine available for the Airbus A320neo is the CFM Leap 1-A engine, in which GE has a 50% interest. These two engines compete for sales on the A320neo aircraft platform, and because other engine manufacturers could not design, or attain certification for, an alternate A320neo engine within several years, purchasers of this aircraft do not have other viable substitutes for these engines.

The relevant geographic market in which to analyze the effects of the proposed transaction is the entire world. Engine component developers located around the world supply components to engine manufacturers who are also located worldwide. The aircraft manufacturers themselves are located across the globe, sell to customers worldwide, and do not significantly alter aircraft features for specific national markets.

IV. Entry

Entry into the relevant markets would not be timely, likely, or sufficient in magnitude to deter or counteract the anticompetitive effects likely to result from the proposed transaction. AGB design for large commercial aircraft like the A320neo requires significant experience and resources, and it would take several years for a third-party provider to complete the development process and begin supplying AGBs for the PW1100G. This delay would make such third-party entry insufficient to prevent any potential anticompetitive effects from the proposed transaction. Similarly, entry into the market for engines powering the A320neo is also unlikely to deter or counter the anticompetitive effects of the proposed transaction. The design and production of an aircraft engine, along with the necessary certification of that engine on the aircraft platform, takes many years and a large financial investment.

V. Effects of the Acquisition

The proposed transaction, if consummated, would provide GE with both the ability and the incentive to disrupt the design and certification of the Avio-supplied AGB for the Pratt & Whitney PW1100G engine. A delay in the development of the PW1100G engine would substantially increase GE's market power for the sale of engines for the A320neo, as it manufactures the only other engine option for that aircraft. In response to such a delay, a significant number of Pratt &Whitney customers would likely switch to the CFM Leap 1-A, and GE would likely use its increased market power to raise price, reduce quality, or delay delivery of engines to customers of the A320neo aircraft.

VI. The Consent Agreement

The proposed Consent Agreement remedies the acquisition's likely anticompetitive effects by removing GE's ability and incentive to disrupt Avio's AGB work during the design, certification, and initial production ramp-up phase. The proposed Consent Agreement incorporates portions of a recent commercial agreement between GE, Avio, and Pratt & Whitney and Pratt & Whitney's original contract with Avio that relate to the design and development of the AGB and related parts for the PW1100G. A breach by GE of these aspects of these agreements therefore would constitute a violation of the Consent Agreement.

The Consent Agreement further requires GE not to interfere with Avio staffing decisions as they relate to work on the AGB for the PW1100G. It allows Pratt & Whitney to have a technical representative and a customer representative on-site at GE/Avio's facility to observe work on the PW1100G AGB. In addition, should Pratt & Whitney terminate its agreement with Avio, GE will be required to provide certain transition services, including licenses to intellectual property and access to specialized Avio tools, to help Pratt & Whitney or a third-party supplier produce AGBs and related parts for the PW1100G. The Consent Agreement also contains a firewall provision that limits GE's access, through Avio, to Pratt & Whitney's proprietary information relating to the AGB. Finally, the Consent Agreement allows for the appointment of an FTC-approved monitor to oversee GE's compliance with its obligations under the Consent Agreement.

The purpose of this analysis is to facilitate public comment on the proposed Consent Agreement, and it is not intended to constitute an official interpretation of the proposed Consent Agreement or to modify its terms in any way.

By direction of the Commission, Commissioner Wright recused.

Donald S. Clark

Secretary.

Footnotes

1.  In particular, the written request for confidential treatment that accompanies the comment must include the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. See FTC Rule 4.9(c), 16 CFR 4.9(c).