The Bush administration wants to stick up for good ol' American business. Says one competition expert: "The Yanks can't understand why Europe is meddling when the Department of Justice has said: 'OK'."Backing Mr Monti is a raft of US, continental European and British engineering firms eager to see the deal between the two engineering behemoths scuppered.The clash is set for 12 July, when Mr Monti delivers his verdict on the deal. But already he has given more than a hint that he's unhappy about Mr Welch's intentions.A Commission source close to Mr Monti says: "We are concerned about anti-competitive behaviour, especially in the engine market."In a confidential report, running to 115-pages, sent to General Electric's board earlier this month, the Commission was more explicit. The Commission expressed worries that the merger would create a company able to dominate the avionics industry, giving it over 90 per cent control of the regional jet-engine market.Sources in Brussels say there are also serious concerns that the deal would propel General Electric into such a strong position that it would be able to dominate other markets, such as the supply of gas turbines and control systems.Companies such as the UK's Rolls-Royce and America's Rockwell and United Technologies are crying foul, and have had a quiet word in Mr Monti's ear.Roll-Royce, the world's second-largest engine maker behind General Electric, is understood to be particularly concerned that if the deal goes ahead, General Electric will "bundle" the sale of engines, components and services to customers at a discount.Ironically, Rolls-Royce could benefit from Mr Welch's deal.
Last month, the merger was approved by the US regulatory authorities. Its only condition was to force General Electric to sell Honeywell's military helicopter engine business. A "for sale" sign has yet to be hoisted over the division, but Rolls-Royce is already tipped as a leading bidder.Paul Burgess, an analyst at Investec Henderson Crosthwaite, says: "The deal would make a lot of sense. It would complement Rolls-Royce's existing helicopter engine business and allow it to increase its footprint in the US."Expanding in the US isn't something many British companies are considering at the moment, but the supply of military equipment is relatively immune to economic swings. Some observers predict the sector could even receive a boost if the Bush administration increases defence spending.Businesses like Rolls-Royce, generally have two income streams.
One is a single sum from selling engines to aircraft builders. This source of income is very "lumpy"; it takes many years of research and development before an engine is built and, as a consequence, before the company sees any return on investment.The other source is from selling engine parts and spares a more steady flow of cash. The market for military spares is bigger than for commercial engines. Consequently, Adrian Murray of stockbroker Teather & Greenwood believes that buying Honeywell's helicopter engine business would improve Roll-Royce's balance sheet."I am down on Rolls-Royce because it takes so long for the cash to come through. But the Honeywell deal would improve its portfolio with the revenues from spares."It is far from a foregone conclusion that Rolls-Royce will buy the business.
