FTC Intervenes in Formation of ULA Joint Venture by Boeing and Lockheed Martin

image

To Protect Competition, While Allowing Unique National Security Benefits, Commission Requires Parties to Adopt Non-Discriminatory Terms in Order to Proceed with Launch Vehicle Joint Venture

The Federal Trade Commission today announced its decision to intervene in the formation of United Launch Alliance, L.L.C. (ULA), a proposed joint venture between The Boeing Company and Lockheed Martin Corporation. The FTC's complaint alleges that by combining the only two suppliers of U.S. government medium to heavy (MTH) launch services the joint venture as originally structured would have reduced competition in the markets for MTH launch services and space vehicles. In settling the Commission's charges, the parties must take the following actions:

(1) ULA must cooperate on equivalent terms with all providers of government space vehicles;

(2) Boeing and Lockheed's space vehicle businesses must provide equal consideration and support to all launch services providers when seeking any U.S. government delivery in orbit contract; and

(3) Boeing, Lockheed, and ULA must safeguard competitively sensitive information obtained from other space vehicle and launch services providers.

The Commission worked closely with the Department of Defense (DoD) at each stage of the investigation of ULA and in fashioning the relief in this case. The Commission's proposed consent order does not attempt to remedy the loss of direct competition between Boeing and Lockheed Martin in MTH launch services because DoD has concluded that ULA would improve national security and that the unique national security benefits from the joint venture would exceed any anticompetitive harm. Therefore, the proposed consent order addresses the ancillary competitive harms that DoD has identified as not inextricably tied to the national security benefits of ULA.

The Proposed Transaction: Announced in May 2005, Boeing and Lockheed's ULA joint venture is designed to consolidate manufacturing and development of the companies' expendable launch vehicles (ELV). The sale of launch services to the U.S. government also will be merged into ULA. While Boeing and Lockheed will not exchange cash in the transaction, each party's contributed businesses are valued at more than $530.7 million.

The Relevant Markets: The Commission defined two relevant product markets: government MTH launch services and government space vehicles. For both product markets, the Commission determined that the relevant geographic market is the United States, as federal law and national security imperatives require that the government buy launch services and space vehicles from domestic companies.

Boeing, the world's largest aerospace company and second-largest supplier to the DoD, is based in Chicago. Lockheed, based in Bethesda, Maryland, is the largest defense contractor in the United States and the largest supplier of government space vehicles. Boeing provides MTH launch services to the U.S. government with its Delta II and Delta IV launch vehicle. Lockheed provides such services with its Atlas V launch vehicle.

The FTC's Complaint: According to the Commission's complaint, the proposed joint venture would violate Section 7 of the Clayton Act and Section 5 of the FTC Act, as amended, by substantially lessening competition in the U.S. markets for government MTH launch services and government space vehicles. Both of these markets are highly concentrated, the FTC contends. In the U.S. market for government MTH launch services, Boeing and Lockheed are the only competitors. In the U.S. market for space vehicles, three firms, Boeing, Lockheed, and Northrop Grumman account for the large majority of sales.

The consolidation of the nation's only two suppliers of government MTH launch services is likely to cause significant anticompetitive harm. In its analysis of the transaction, however, the Commission also noted that national security issues are also central to a complete consideration of the proposed joint venture. As the primary purchaser of government MTH launch services and space vehicles, as well as the government agency responsible for the security of the United States, DoD's views on ULA were particularly significant.

DoD informed the Commission that the creation of ULA will advance national security by improving the United States' ability to access space reliably. Because DoD considers access to space essential to the U.S. military, maximizing the reliability of launch vehicles is of paramount importance to DoD. According to DoD, ULA will improve launch vehicle reliability through a single work force that will benefit from an increased launch tempo and because ULA will integrate Boeing's and Lockheed Martin's complementary technologies.

After thorough review, DoD concluded that the national security benefits of ULA would exceed the anticompetitive harm caused by the transaction. To allow the United States to obtain the national security advantages offered by ULA, the Commission's proposed consent order does not attempt to remedy the loss of direct competition between Boeing and Lockheed Martin under these unique circumstances. Rather, the order is designed to address the ancillary competitive harms that DoD has identified without interfering with the national security benefits of ULA.

Terms of the Consent Order: The order first requires ULA to cooperate on equivalent terms with all providers of government space vehicles. This will ensure that ULA cannot give an unfair advantage to the space vehicle businesses of its parent companies during DoD's space vehicle procurement process. Next, the space vehicle businesses of Boeing and Lockheed must provide equal consideration and support to all launch service providers when seeking any U.S. government delivery in orbit contract. This provision will prevent Boeing and Lockheed from discriminating against nascent government MTH launch services suppliers in order to protect ULA's monopoly status. Finally, Boeing, Lockheed, and ULA are required to safeguard competitively sensitive information obtained from other space vehicle and launch services providers.

The Commission vote to approve the consent order was 5-0, with Commissioner Pamela Jones Harbour issuing a separate concurring statement that can be found as a link to this press release on the FTC's Web site. The order will be subject to public comment for 30 days, until October 31, 2006, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, consent order, an analysis to aid public comment, and two public letters between the FTC and DoD are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300.

For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

MEDIA CONTACT:

Mitchell J. Katz,
Office of Public Affairs
202-326-2161

STAFF CONTACT:

Michael R. Moiseyev,
Bureau of Competition
202-326-3106

(FTC File No. 051-0165)

Please follow SpaceRef on Twitter and Like us on Facebook.