WHAT HAPPENED:

• Rolls-Royce and SENER have a 47 percent/53 percent joint-venture in Industrial de Turbo Propulsores (ITP)–an aircraft engine components manufacturer.

• Rolls-Royce announced it would buyout its partner’s 53 percent interest in ITP on July 11, 2016. 

• Rolls-Royce supplies the engine for Lockheed Martin’s C-130J (turboprop military transport aircraft).

• Rolls-Royce, together with ITP, MTU and Safran, are members of a military engine consortium–Europrop International (EPI)–that supplies the engine to the Airbus’ A400M, the primary competitor to the Lockheed Martin C-130J.

• The European Commission (EC) had concerns that Rolls-Royce’s full ownership of ITP would increase its influence in EPI such that Rolls-Royce could undercut the competitiveness of the EPI engine, and consequently subvert Airbus’ competitiveness vis-à-vis Lockheed Martin.

• The EC and Rolls-Royce agreed to a behavioral remedy focused on EPI’s governance rules that would eliminate the potential conflict of interest and maintain EPI’s competitiveness. While the EC press release does not provide details, the agreement likely allows MTU and Safran to control the consortium’s decision making.

WHAT THIS MEANS:

• Antitrust enforcers continue to investigate competitive impacts from vertical transactions.

• While antitrust enforcers have a strong preference for structural remedies, when addressing vertical competition issues, there is greater potential that enforcers will accept a behavioral fix.

• Antitrust enforcers continue to focus on antitrust impacts in narrow markets. Here, the remedy is designed to maintain competition between the Airbus A400M and Lockheed Martin’s C-130J – military turboprop transport aircraft.