GE denies air engines deal broke EU terms as Welch flies in

Date: 07/06/01

By Laurence Frost

GENERAL Electric (GE) has denied claims that it broke EU conditions for a lucrative aircraft engine venture, as it enters a crucial stage of talks with Union regulators on its planned €48 billion merger with Honeywell.

The company said there was "no foundation" to the allegations, which it attributes to rival engine-maker Rolls Royce.

The European Commission's approval of the Engine Alliance venture between GE and Pratt & Whitney in September 1999 was restricted to the production of engines for aeroplanes with more than 450 seats.

But insiders at a leading GE-Honeywell competitor told European Voice that the joint venture had breached the terms laid down by the regulation. "Engine Alliance was clearly promoting its engines for aircraft which lie outside that category," said one. "They were marketing these engines without permission."

Reports in specialist title Flight International have also suggested that the GE offshoot offered engines for smaller planes, including Boeing's planned 767-400 ERX and a new version of the Airbus A330.

GE's engine division reacted angrily to the claims. "We've been hearing this from Rolls Royce," said spokesman Rick Kennedy. "There's no foundation to it."

Kennedy concedes there were plans to build engines for the new 767 - since suspended by Boeing - but maintains they did not breach any conditions. "If an aircraft manufacturer approaches us with a request to provide an engine proposal we're allowed to notify the EC to get permission," he said, adding that a request had been filed for the 767.

The allegations come on the eve of a visit to Brussels by GE's chairman and chief executive Jack Welch to discuss possible remedies to win approval for its merger with Honeywell.

According to reports, Competition Commissioner Mario Monti will urge him at a meeting tomorrow (8 June) to separate GE's aircraft leasing arm, Gecas, as a condition for the go-ahead. The Commission is also believed to be keen for Honeywell to sell part of its avionics and regional jet business.

It is concerned that GE can 'bundle' its products to airlines by offering engines at a lower price if customers take Honeywell avionics as part of the package. The Commission says Gecas is also used to influence airlines' purchasing decisions.

Welch, who has a reputation as a boss who can't take no for an answer, is instead said to be offering mainly 'behavioural' remedies - promises to avoid certain commercial practices which are deemed anti-competitive in a bid to address the Commission's concerns.

GE's competitors, who have been pressing for structural divestments, warn that any behavioural solution would be unenforceable.

Rolls Royce said it had no no official comment to make on the allegations against GE's joint venture with Pratt & Whitney. "This is purely a matter for the Commission to consider in the light of its decision of September 1999," a spokesman said.

Monti's spokeswoman, Amelia Torres, could not confirm whether the Engine Alliance was being investigated for non-compliance with the conditions of its approval.

The Commission must decide by 12 July whether to approve the GE-Honeywell deal, reject it, or demand concessions.

General Electric has denied claims that it broke EU conditions for a lucrative aircraft engine venture, as it enters a crucial stage of talks with Union regulators on its planned €48 billion merger with Honeywell. The allegations come on the eve of a visit to Brussels by GE's chairman and chief executive Jack Welch.