<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:59989.wais]
THE ECONOMIC EFFECTS OF THE PROPOSED BFGOODRICH/COLTEC MERGER
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES, AND REGULATORY AFFAIRS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
JUNE 19, AND JULY 7, 1999
__________
Serial No. 106-35
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
59-989 CC WASHINGTON : 1999
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
JOHN T. DOOLITTLE, California (Independent)
HELEN CHENOWETH, Idaho
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on National Economic Growth, Natural Resources, and
Regulatory Affairs
DAVID M. McINTOSH, Indiana, Chairman
PAUL RYAN, Wisconsin DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia TOM LANTOS, California
LEE TERRY, Nebraska PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon BERNARD SANDERS, Vermont
HELEN CHENOWETH, Idaho HAROLD E. FORD, Jr., Tennessee
JOHN T. DOOLITTLE, California
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Jason L. Hopfer, Deputy Staff Director and Chief Counsel
A. Lucas Messer, Counsel
Gabriel Neil Rubin, Clerk
David Sadkin, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on:
June 19, 1999................................................ 1
July 7, 1999................................................. 149
Statement of:
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio..... 163
Linnert, Terrence, executive vice president and general
counsel, BFGoodrich Co.; Robert Tubbs, executive vice
president, general counsel and secretary, Coltec
Industries, Inc.; Nancy Loeb, deputy general counsel,
AlliedSignal, Inc.; and Joseph Bauer, professor of law,
Notre Dame School of Law................................... 14
Linnert, Terrence, executive vice president and general
counsel, BFGoodrich; Robert Tubbs, executive vice
president, general counsel and secretary, Coltec
Industries; Carl Montalbine, senior vice president and
general manager, Aircraft Landing Systems, AlliedSignal,
Inc.; and Joseph Bauer, professor of law, Notre Dame School
of Law..................................................... 168
Luecke, Stephen, mayor, South Bend, IN; Patrick McMahon,
executive director, Project Future; and Thomas Bode,
president, United Autoworkers Local No. 9.................. 127
Roemer, Hon. Tim, a Representative in Congress from the State
of Indiana................................................. 86
Vadovski, Richard, assistant director, region 2, UAW; and
Edward W. Rybka, councilman, city of Cleveland, OH......... 331
White, Michael R., mayor, city of Cleveland, OH.............. 233
Letters, statements, etc., submitted for the record by:
Bauer, Joseph, professor of law, Notre Dame School of Law,
prepared statements of................................... 72, 209
Bode, Thomas, president, United Autoworkers Local No. 9,
prepared statement of...................................... 142
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio,
prepared statement of...................................... 165
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio:
Prepared statement of.................................... 11
Various submissions for the record....................... 242
Linnert, Terrence, executive vice president and general
counsel, BFGoodrich, prepared statements of.............. 18, 173
Loeb, Nancy, deputy general counsel, AlliedSignal, Inc.,
prepared statement of...................................... 186
Luecke, Stephen, mayor, South Bend, IN, prepared statement of 129
McIntosh, Hon. David M., a Representative in Congress from
the State of Indiana:
Article dated July 8, 1999............................... 226
Letter dated June 30, 1999............................... 116
Letters dated March 18, and April 26, 1999............... 106
Prepared statements of.................................. 4, 153
McMahon, Patrick, executive director, Project Future,
prepared statement of...................................... 135
Montalbine, Carl, senior vice president and general manager,
Aircraft Landing Systems, AlliedSignal, Inc.:
Article entitled, ``Messier-Dowty Claims the Gear Crown'' 34
Prepared statement of.................................... 37
Roemer, Hon. Tim, a Representative in Congress from the State
of Indiana:
Prepared statement of.................................... 95
Supporting statements from work with FTC................. 88
Tubbs Jones, Hon. Stephanie, a Representative in Congress
from the State of Ohio, prepared statement of.............. 160
Tubbs, Robert, executive vice president, general counsel and
secretary, Coltec Industries:
Article dated July 2, 1999............................... 191
Prepared statements of................................. 57, 195
Vadovski, Richard, assistant director, region 2, UAW,
prepared statement of...................................... 333
White, Michael R., mayor, city of Cleveland, OH, prepared
statement of............................................... 236
THE ECONOMIC EFFECTS OF THE PROPOSED BFGOODRICH/COLTEC MERGER
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SATURDAY, JUNE 19, 1999
House of Representatives,
Subcommittee on National Economic Growth, Natural
Resources, and Regulatory Affairs,
Committee on Government Reform,
South Bend, IN.
The subcommittee met, pursuant to notice, at 10 a.m., in
the Century Center, Recital Room, South Bend, IN, Hon. David M.
McIntosh (chairman of the subcommittee) presiding.
Present: Representatives McIntosh and Kucinich.
Staff present: Jason L. Hopfer, deputy staff director and
chief counsel; A. Lucas Messer, counsel; Gabriel Neil Rubin,
clerk; and David Sadkin, minority counsel.
Mr. McIntosh. The Subcommittee on National Economic Growth,
Natural Resources, and Regulatory Affairs will come to order. I
thank you all for coming this morning. Today I'm here with the
subcommittee's Ranking Member Dennis Kucinich from Cleveland to
hold a hearing looking into the whole question of whether the
review of BFGoodrich's merger with Coltec, Inc. was conducted
correctly by the Federal Trade Commission and the Department of
Defense. We are concerned about whether that review has been
adequately done in terms of the merger's effect under the
antitrust laws of the United States. U.S. Senator Mike Dewine
of Ohio has conducted a similar investigation in the Senate,
and based on some of the testimony that came before his hearing
on the topic, we have serious concerns regarding the
thoroughness of the FTC and the DOD's review. Hopefully,
today's discussion will shed some light on these concerns. This
is the first field hearing we are having. We will have a second
field hearing in Cleveland, OH, in July.
Now, from the outset, I want to point out that three of the
parties represented here today, BFGoodrich, AlliedSignal and
Coltec, are parties to a private antitrust lawsuit. That matter
is properly before Judge Alan Sharp of the U.S. District Court
in the Northern District of Indiana, and we will take great
care not to interfere with that proceeding. Nonetheless, we are
here today to take a hard look at the competitive effects of
the national security implications of the proposed merger.
We'll examine the FTC and Department of Defense's review and
consider the potential impact on the merger to the economies in
South Bend and Cleveland.
I do expect the parties to be as candid as possible today
during their testimony, even given the nature of that lawsuit.
In essence, here in South Bend, we are looking to make sure
that the 1,100 workers at the AlliedSignal plant and the 650
workers at the Cleveland Pneumatic Plant are given a fair
chance to compete. I support free market competition, but it's
essential that the actors in that competition play by the
rules. If the merger would result in a market concentration
that would unfairly take away the opportunity for these workers
to compete, then FTC action should be taken. Now, my primary
concern today is the welfare of the workers at AlliedSignal,
and that's why we are asking BFGoodrich and Coltec to discuss
the potential impact of their merger on those workers. We will
also be asking AlliedSignal what impact, if any, their merger
with Honeywell will have to the operations here in South Bend.
We did receive a letter from Mr. Lawrence Bossidy indicating
that the proposed merger will not impact jobs in South Bend,
and today we'll further pursue that in this hearing.
Returning to the BFGoodrich/Coltec merger, my concerns fall
into three broad categories. First, I'm concerned about the
potential anti-competitive effects of the BFGoodrich/Coltec
merger. Now, in entering the preliminary injunction, Judge
Sharp concluded the merger would likely result in a U.S.
monopoly that would likely lead to higher prices for landing
gears. This is a significant problem, not only for South Bend
and Cleveland but for the Nation as well. Healthy competition
leads to lower prices, increased innovation and improved
quality and safety as the industry leaders are forced to
improve their product in an effort to compete in the
marketplace. If the BFGoodrich/Coltec merger would result in a
monopoly that unfairly forces consumers to pay higher prices,
then I believe that the FTC's job is to oppose the merger and
make sure that does not happen. In addition, there's a national
security interest in having at least two domestic suppliers of
landing gears, because we can make sure the domestic landing
gear in the commercial aircraft, as well as the military
aircraft, will be available at those competitive prices. There
is one other manufacturer worldwide, a French company, and in
testimony before Senator Dewine, DOD indicated that they didn't
have an objection on that. But, frankly, I'm not convinced of
wisdom of having to rely on a foreign manufacturer for our
military component parts.
Second, I'm concerned about the potential adverse impact of
the merger on the economies here in South Bend and in
Cleveland. If, as a result of the merger, the Cleveland plant
is closed down, that's 650 jobs. But we also want to examine
the impact of the merger and that initial plant closing on the
1,100 jobs here in South Bend.
Third, I'm concerned about honest and open public debate.
My colleague Dennis Kucinich has been active in this longer
than I have and is familiar with some of the record and
assertions that were made as the merger was first being
contemplated. We will get to the bottom of that and make sure
the record is full in that area.
One of the things that I think is going to be very
important is that we look and see what are the effects of this
merger on the competitive supply in this area. And I understand
there are changes in the marketplace as people are integrating
what used to be separate components, brakes and wheels, and
along with the landing structure into one single component that
is provided to the consumers. That is something we want to
examine and look at. We also need to make sure that there are
win-win solutions out there, and that they have been adequately
examined by the parties and considered, not only for their own
individual interests, but as we expect to happen in a
competitive marketplace to ensure that the national interest
and competition survives intact and will be possible for us to
make sure that we are able to have the consumers in this
country benefit from that competition. With that, I'd like to
welcome our witnesses here today. Congressman Roemer will be
here a little bit later. He's participating in some of the
festivities here in South Bend and is excited about being able
to participate, as will Mayor Luecke.
Today in our first panel, we will have representatives from
BFGoodrich, Mr. Terrence Linnert; welcome. And we'll also have
a representative from Allied; present general manager, Carl
Montalbine. I want to thank you for flying back from Europe to
be with us today. Coltec executive vice president and general
counsel, Robert Tubbs; thank you for being here. And on our
first panel is a professor of law at Notre Dame, Mr. Bauer, who
will be talking to us about some of the antitrust implications
of this.
[The prepared statement of Hon. David M. McIntosh follows:]
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Mr. McIntosh. With that, let me now welcome my colleague.
We have worked together in this session very well in our
subcommittee. He is long familiar with this issue and has been
an active voice in Cleveland leadership and now is very active
on our subcommittee and I appreciate you taking this Saturday
morning to come over here and let me introduce you to all of my
friends in Indiana, Mr. Dennis Kucinich, who is one of those
hardest working Members in Congress that I've been able to work
with. I appreciate you coming over. Thanks.
Mr. Kucinich. Thank you very much, Mr. Chairman. And I
certainly appreciate the work you've done, and paying attention
to this issue, and your concern for the economic well being,
not only to the people of Indiana, but also the people of the
State of Ohio. And we in Ohio are very grateful for the
attention that you pay to this. And for you scheduling the
hearings, not only today in South Bend, but also in July in the
city of Cleveland. So I again want to thank you for scheduling
the hearing. I also want to thank my colleague Congressman Tim
Roemer for inviting us into his district so we can look at this
issue.
I think it's very important for Members of Congress to get
into the communities we serve. And it's important for our
constituents to have an opportunity to see their government at
work, especially when the issue has a direct impact on the
district. So, we're here in South Bend today to look at the
economic effects of the proposed merger of BFGoodrich and
Coltec Industries. On July 7th we're going to be in Cleveland.
The American people, especially those in South Bend and
Cleveland, have a real interest in the outcome of this proposed
merger. BFGoodrich and Coltec Industries are the only two
significant domestic manufacturers of landing gear which is
used in both military and commercial airplanes. The combination
of these companies would effectively create a monopoly in the
industry which would likely lead to higher prices for taxpayers
and consumers, as well as the loss of hundreds of jobs.
At the time the merger was announced, BFGoodrich said they
intended to relocate their headquarters from the Cleveland
area, where the company has been located since it was founded
in 1870 to Charlotte, NC. This move meant the loss of 170 jobs.
But according to the company press release issued at the time
of the announcement, ``No other Ohio-based jobs will be
affected by the decision to relocate the headquarters.'' This
commitment was reiterated on November 23rd, 1998, in a letter
to me from the company's CEO.
It now appears, however, that this statement was not
completely correct. While the company was telling the news
media, the people of Cleveland, and elected officials like
myself that the merger would not result in a loss of
manufacturing jobs, company officials were telling government
antitrust regulators that the resulting merger would create
``efficiencies'' through consolidation. In fact, a document
prepared by BFGoodrich and provided to government regulators
gave three options for the company to consider after the
merger. All three options, all three options, included closing
the Cleveland Pneumatic Co. plant, which employs about 650
people. Many of these employees are my constituents and their
families. But it doesn't end there. Since the merger was
announced, another 150 Goodrich employees have already been
laid off in another facility in Brecksville, OH.
Now, how could the BFGoodrich executives tell public
officials that the merger would not result in the loss of jobs
while telling Federal regulators the opposite? Well, I tried to
find out. On April 15th, 1999, I wrote a letter to BFGoodrich's
CEO asking for information about whether the company intended
to close the Cleveland plant. I did not receive a response.
Chairman McIntosh then sent a letter on behalf of the
subcommittee, of which I'm the ranking Democratic member,
asking for information from the company on the effects of the
proposed merger. The company's response was totally
insufficient.
So today we'll be asking representatives from Goodrich and
Coltec these questions in public. And, of course, our great
concern is what's going to happen to jobs, when the new merged
company starts to integrate its landing gear systems by
manufacturing its own components.
At the same time that employees are faced with losing their
incomes, Coltec will pay its top executive tens of millions of
dollars in bonuses. According to a report in the Cleveland
Plain Dealer, nine top Coltec executives will receive severance
payments totaling nearly $55 million after the company is
acquired by BFGoodrich, including a $20 million golden
parachute to the CEO. Six of these executives, including the
CEO, will be retained by the new company. A company spokesman
told the Plain Dealer that the payments are being made because
the executives will be making less money and have less
responsibility after the merger. So while hundreds of hard
working Clevelanders will loose their jobs, these company
executives will reap millions of dollars in bonuses to retain
jobs with less responsibility.
Having said that, I'd like to add, this is not just about
jobs. If the merger is allowed to take place, the new company
will effectively control the domestic landing gear market.
Without competition, this new monopoly will be able to set its
own prices. And the biggest losers will be the American
taxpayers. The U.S. Government will be forced to buy landing
gear for its planes from the new monopoly, hence the taxpayers
will get gouged. Of course, the military could buy parts from
foreign companies such as Messier-Dowty, a firm owned by the
French Government, but this does not seem like a good
alternative.
American consumers will also pay the price. Airplane
manufacturers like Boeing may end up paying higher prices for
these components. They in turn will pass these costs on to
commercial airlines, who make up the difference by increasing
their ticket prices. And those increases will ultimately be
paid for by all of us.
So what's the answer? Well, today we're going to hear from
Carl Montalbine, the vice president and general manager of the
AlliedSignal facility in South Bend. And AlliedSignal, we are
aware, is willing to pay Goodrich fair market value for the
Cleveland plant, which would keep competition in the industry
while protecting hundreds of high-paying jobs. Unfortunately,
BFGoodrich rejected this offer. AlliedSignal has filed suit to
stop the merger, claiming, among other things, that the
resulting monopoly would violate Federal antitrust law. A
Federal judge here in South Bend recently issued a temporary
restraining order to halt the merger.
In issuing his order, the judge found that, ``The merger
would likely result in a U.S. monopoly for the sale of landing
gear that would result in higher prices.'' And that there was,
``substantial likelihood,'' that AlliedSignal would succeed on
its antitrust claims. The judge will hold a hearing on this
issue next month. So if the judge believes that the merger
would likely result in a U.S. monopoly that would result in
higher prices for landing gear, Mr. Chairman, why didn't the
Department of Defense or the Federal Trade Commission, which
both reviewed the proposed merger, object to the merger? Those
are some of the questions that remain unanswered that we are
certainly going to be getting into.
I look forward to hearing from our witnesses, and I again
want to stress my gratitude to Mr. McIntosh for his willingness
to move forward on this issue which is so important to the
people of Indiana, Ohio and the United States. Thank you,
Chairman.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
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Mr. McIntosh. Thank you, Representative Kucinich. Let us
now turn to the witnesses, and I would ask each of you to
please rise and take an oath. And let me assure you we're not
singling you out for that; it is the policy of our full
committee chairman, Dan Burton, that we swear in every panel we
have as an oversight committee. So, if you would please affirm.
Do you solemnly swear that the testimony you will give today is
the truth, the whole truth, and nothing but the truth?
[Panel members respond in unison.]
Mr. McIntosh. Thank you. Let the record show that each of
the witnesses answered in the affirmative. And we will now
begin this panel. And what I would ask each of you to do is
summarize the written, prepared statements you've provided. We
will include the entire text of your statement in the record,
and it will become part of the record of this proceeding. But
take about 5 minutes and summarize the key points. And I would
ask you to, if you could, focus in on those that address the
questions that Representative Kucinich and I brought forward in
our opening statements. Let's start with Mr. Linnert from
BFGoodrich, if you would share with us your testimony. The
light should go on and then the yellow light will go off when
you have about 30 seconds left and the end of the 5 minutes is
the red light. We are not going to be that strict, but just
give you a guidance in terms of how you are doing. So, Mr.
Linnert, please share with us the summary of your testimony.
STATEMENTS OF TERRENCE LINNERT, EXECUTIVE VICE PRESIDENT AND
GENERAL COUNSEL, BFGOODRICH; ROBERT TUBBS, EXECUTIVE VICE
PRESIDENT, GENERAL COUNSEL AND SECRETARY, COLTEC INDUSTRIES;
CARL MONTALBINE, SENIOR VICE PRESIDENT AND GENERAL MANAGER
AIRCRAFT LANDING SYSTEMS, ALLIEDSIGNAL, INC.; AND JOSEPH BAUER,
PROFESSOR OF LAW, NOTRE DAME SCHOOL OF LAW
Mr. Linnert. Thank you, Chairman McIntosh, Representative
Kucinich, and good morning. It is helpful to place today's
hearing in context. BFGoodrich and Coltec will merge to create
a financially stronger, more diverse global competitor than
either firm is today standing alone. In today's intensely
competitive environment, we need to do this so that we do
remain strong, healthy partners with our customers, and so that
we provide a growing environment for our employees. This merger
will produce savings for our customers and jobs for our
employees. There's a lot at stake, in this and every other
merger; jobs are created or constructed; companies move or
grow; products succeed or flop overnight. Missing an expanding
market or not deploying a new technology or borrowing money at
the wrong time can create a dinosaur. The results for the U.S.
economy, our national security, and the economic health of our
workers and shareholders can be disastrous. There will always
be critics of these mergers beyond the appropriate interest of
the government or the courts, so be it. But those that usually
carp the loudest are most afraid that they will lose a
preferred position in the marketplace to new, more vigorous,
more modern, and, yes, more formidable competition. And most
frequently these corporate critics go out and get a deal of
their own. It's ironic then that AlliedSignal is our most vocal
critic. The Allied/Honeywell merger creates a $45 billion giant
that will be able to cross-sell aerospace products in ways that
BFGoodrich and Coltec cannot match, because it will not have
the breadth of product offerings. It is even more ironic since
AlliedSignal will fire 4,500 people in connection with its
merger.
While Allied's Chairman Bossidy has recently assured South
Bend that no jobs will be lost due to the Honeywell merger, one
needs only look back to 1995 when AlliedSignal exited its South
Bend landing gear business by selling equipment and contracts,
to see that Allied's concern for South Bend rises and falls as
it suits Allied's corporate purposes.
Mergers in the defense and aerospace industries are a fact
of life. Since the end of the cold war, U.S. defense spending
has declined dramatically. This reduced spending has driven
consolidation, as you noted earlier, throughout the defense
industry. Other factors such as globalization, requirements of
scale and scope, also drive consolidation throughout the
defense and aerospace industry.
Efficiencies of design and production and the need to
generate and consume large amounts of capital quickly dictate
corporate and management strategies that must be judged
simultaneously in both the short- and long-term.
One of the consequences of consolidation is typically the
loss of some jobs. As part of Goodrich's merger with Coltec,
approximately 170 headquarter's positions will relocate to
North Carolina. Similarly, the AlliedSignal/Honeywell merger
will result in the closing of Honeywell's headquarters in
Minneapolis and a job loss of 1,000 employees. While these
relocations have a human impact that we take seriously, they
should not overshadow the positive consequences of this merger.
The plain fact is the merger of Goodrich and Coltec will
produce significant benefits for employees, customers,
shareholders and our communities.
Following the merger Goodrich will employ 27,000 people
worldwide; the size and diversity, financial and technological
strength and global reach of our businesses will create job
stability and growth opportunities for our existing work force.
As a stronger worldwide competitor, we will be better
positioned to compete for business abroad; a stronger, better
BFGoodrich is good for our employees and our customers. Our
customers are very sophisticated; they demand innovative and
quality products backed by the highest level of customer
service and technical support. All at a fair and competitive
price. Our customers are our lifeblood. If they had objected,
this merger probably would not have gone forward. They have not
objected because they are satisfied that they do have
sufficient options to preserve healthy competition for their
business, and they recognize the merger enables us to serve
them better.
Mr. Chairman, as you can see from looking at that one
chart, those are the folks--some of the folks who are in the
business before this merger, in the wheels and brakes, brake
control systems, and landing gear. If you could just visualize
that chart, and the number of players on it, I'd like now to
show you the post-merger chart. You will see not much change
from pre-merger to post-merger because of our consolidation and
affiliation with Coltec. Looks awful similar to the pre-merger
chart. Mr. Chairman, as you know, the Federal Trade Commission
and Department of Defense, as you said in your remarks, like
our customers, have each come to the same conclusion following
lengthy and comprehensive examinations. Both agencies listened
carefully to the various arguments presented by AlliedSignal
and Crane; both agencies concluded the merger should be allowed
to proceed without objection.
I would like to address more specifically your concern
about the merger's impact on Ohio jobs. Following the merger,
BFGoodrich will employ more than 3,000 people in Ohio in
management, manufacturing and research positions. Our
performance materials business with more than $1 billion in
revenue will remain headquartered in Brecksville. We have other
BFGoodrich operations throughout many locations in Ohio. And we
have been adding jobs in Ohio; since January 1997, our
aerospace employment is up 14 percent. We remain committed to
Ohio and to our work force in Ohio. Following the merger,
Goodrich will contribute more than $20 million per year in
taxes in Ohio as part of its continuing presence in the State.
And as our company grows, we'd hope to build on that employment
base.
Much has been said about the future of our Cleveland
landing gear plant. Mr. Chairman, let me be very clear about
this. BFGoodrich management has made no decision about this
facility or any other landing gear facility. Having said that,
I must tell you that the U.S. landing gear business is 15
percent below its peak volume, and customer demand is expected
to remain low for the next 10 years. In this business
environment, status quo cannot prevail. One of the attractions
of the Coltec merger does come from combining the volume of the
two firms and achieving more efficient capacity utilization.
This added volume of financial strength will allow Goodrich to
modernize and update our facilities.
After the merger, we will look at our operations and
determine how best to become a more efficient and lower cost
producer. That may include upgrading plants, reconfiguring our
production mix and, perhaps, closing facilities. But failure to
make those hard decisions could cost us competitive edge, and
even more jobs than if we ultimately decide to close a plant.
But until the merger has closed--I want to emphasize--until it
has closed, the planning cannot be done and no decisions have
been taken.
Mr. Chairman, there has been a lot of talk about how our
merger will affect South Bend jobs. But that's what it is,
talk. If there's more to it, then I'd like hear from
AlliedSignal when they plan to layoff the first worker here in
South Bend. I'll bet other folks in South Bend would like to
know also.
AlliedSignal's, the vast majority of their wheels and brake
business is in the large aircraft aftermarket. Those aircraft
are already in production and operation. AlliedSignal is
certified on 13 of the 20 commercial aircraft types built by
Boeing and Airbus; each of those aircraft will be in service
typically for 20 or more years. AlliedSignal has an annuity in
the supply of wheels and brakes on those aircraft, and nothing
about our merger can or will change that.
If AlliedSignal's wheel and brake business suffers or
fails, Mr. Chairman, it will be because AlliedSignal did not
meet its customer expectation for quality products at
competitive prices. If jobs are lost here in South Bend it will
be because AlliedSignal did not run its business here well and
not because of our merger.
AlliedSignal makes some claim about the need to partner on
a team with the landing gear suppliers so it can compete for
integrated systems or to avoid gaming of the landing gear wheel
and brake interface design. No credible, independent industry
expert has supported those claims. But AlliedSignal does have a
partner, if it chooses, under the strategic alliance agreement
with Coltec. Just this week, the Arbitration panel in New York
ruled against AlliedSignal, and found that the merger does not
violate that strategic alliance agreement and that adequate
safeguards could be implemented to protect any proprietary or
confidential information that Allied has. Therefore, their
partnership going forward to make landing gear for integrated
system is in existence. Moreover, Mr. Bossidy talked about his
$10 billion war chest to make more acquisitions after
swallowing Honeywell. If AlliedSignal really need a landing
gear partner for its wheel and brake business, it could invest
$200 million, a small amount, from its acquisition war chest to
build a world-class landing gear facility here in South Bend,
or wherever they choose.
Actions speak louder than words, Mr. Chairman. And
AlliedSignal's actions tell me it prefers carping over
competing. Our goals are the same, Mr. Chairman. We at Goodrich
want to grow so that we can satisfy our customers, challenge,
reward and retain our employees, and provide financial returns
for our investors. We can only achieve those goals by providing
innovative, quality, least-cost products to our customers
consistently and timely. By becoming a stronger competitor, we
help the economy and the work force.
Mr. Chairman, let me tell you what we are committed to.
We're committed to growing jobs and marketplace position; we're
committed to sustaining a vigorous U.S. national defense
position; we're committed to involving workers, shareholders,
customers, management and government decisionmakers in our
future business growth plans; and we are committed to building
and designing the best price and best performing products for
this market, or any other marketplace. We challenge
AlliedSignal, Crane, Honeywell or anyone else to come and beat
us fair and square in the marketplace. Thank you, Mr. Chairman.
[The prepared statement of Mr. Linnert follows:]
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Mr. McIntosh. Thank you, Mr. Linnert. You have raised
several good points that we will get to in the question and
answer period.
Let me turn to our second witness for this panel; Mr. Carl
Montalbine, who is with AlliedSignal. Mr. Montalbine, feel free
to summarize your testimony and focus in on the issues. You are
welcome to also respond to Mr. Linnert's testimony.
Mr. Montalbine. Thank you. Thank you very much, Chairman
McIntosh, Ranking Member Kucinich, and the rest of the
committee. It is a privilege to appear before you. I am Carl
Montalbine, vice president and general manager of Aircraft
Landing Systems, a business unit of AlliedSignal that's located
right here in South Bend. AlliedSignal's Aircraft Landing
Systems Division sells wheels, brakes, brake control, and
integrated landing systems for commercial and military aircraft
and employs approximately 1,000 people here in South Bend. I
have submitted written testimony and would like to take 5
minutes to discuss that testimony.
At the outset, I'd like to emphasize three points: One, the
BFGoodrich/Coltec merger will have serious anti-competitive
consequences. Two, AlliedSignal is not alone in concluding that
the BFGoodrich merger is anti-competitive. Airlines, wheels and
brakes manufacturers, and even U.S. military personnel at Hill
Air Force Base concur. Three, the anti-competitive effects can
be avoided by BFGoodrich selling its Cleveland pneumatics
landing gear business to Allied. This sale would ensure
vigorous competition for landing systems. It would allow
AlliedSignal to maintain a strong presence and relationship
with the South Bend community. And AlliedSignal commits it will
keep jobs in Cleveland and in South Bend. We'll keep those jobs
there for the long-term, not just for 2 years.
We have a solid working relationship with our local UAW,
and we will continue that relationship by assuming the UAW
contract at the Cleveland plant. To understand the negative
effects of the merger, I have a diagram similar to the
BFGoodrich one, that illustrates how the merger will affect the
industry structure.
Goodrich, Coltec and Messier control approximately 99
percent of the large, commercial landing gear market. They are
the only three companies in the world with the capabilities to
design, manufacture, and test landing gear for commercial
aircraft. Today, two of these three landing gear companies,
Goodrich and Messier, have their own wheels and brakes
operations. That leaves a third company, Coltec, as the only
viable gear part--landing gear partner for AlliedSignal. One of
the important things that I would like to interject here and to
note is that when we talk about the supply of landing gear,
it's one thing to talk about who can manufacture landing gear,
and as Mr. Linnert's chart showed, there were more than just
BFGoodrich, Coltec, and Messier, there are a lot of what I call
``mom-and-pop'' shops, ``build-to-print'' organizations; the
Liebberr, Aerotech--Liebberr, Heroux, SHL, a number of others,
that are not capable of designing the actual original
equipment. In fact, if you look at a list of the 21 military
programs that compromise 80 of the 90 percent of the U.S.
military landing gear designed in this country over the last 30
years, none of it has been manufactured--none of it has been
designed by any of those companies. They have all been
designed, originally designed, by either BFGoodrich, the
Cleveland facility, before it was even purchased by BFGoodrich,
Coltec, Menasco, or Messier-Dowty.
After the merger, if we were to look at the post-merger
world, Goodrich and Messier will have access to the landing
gear needed to compete. And Messier is owned by a French firm,
which is controlled by the French Government. Right now, we are
teamed with our strategic alliance partner Menasco on the Joint
Strike Fighter Program. That program is going to be awarded on
the basis of a system contract. A letter from Lockheed-Martin,
Mr. Art Price, on April 29th, clearly indicated it's their
intent to award the system. If you look in the post-merger
world, who would AlliedSignal possibly team with to be able to
offer a complete landing system? It couldn't be BFGoodrich on
the left, as they have their own wheel and brake operations,
and it couldn't be Messier-Dowty on the right, they also have
their own wheel and brake operation.
With that background, let me emphasize three points. The
first point I want to emphasize is that AlliedSignal will be
harmed by this merger by Goodrich vertically foreclosing or
gaining Allied and raising Allied prices for landing gear.
Landing gear is similar to the Windows 95 operating system; the
wheels and brakes is like the browser. The browser, or wheel
and brake companies, must get technical information from the
operating system. BFGoodrich/Coltec will control the landing
gear information necessary for Allied to understand the
interface and to compete. Based on Allied's experience,
BFGoodrich will have every incentive to gain the information
provided to Allied. And later, if I have some time, there are a
number of examples that I'd like to cite showing how this has
happened already. Prices will go up. BFG will also control
supply of landing gear that Allied needs to compete with BFG as
a landing systems integrator. Allied has purchased landing gear
on projects such as the Joint Strike Fighter. BFGoodrich, who
would compete against Allied on the Joint Strike Fighter, will
have no incentive to sell landing gear to Allied at fair
prices, if at all.
A side point that I'd like to address is that I've heard
BFGoodrich say that there is no such thing as a integrated
landing systems market. This is false. I've come back, as you
know, recently from the Paris Air Show, and at Paris they put
out this ``Daily Show News.'' It's published by ``Aviation
Week,'' and comes out on a daily basis. And in that--and I'd be
happy to make that available to the committee--there's an
article----
Mr. McIntosh. I'd suggest, seeing no objection, we will
make that part of the record, because I would like to see that.
[The information referred to follows:]
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Mr. Montalbine. There's an article from Dominique Paris,
who is the chief executive officer of Messier-Dowty. A very
interesting article in it. The whole article is about the
future of the landing gear industry moving to integrated
landing systems, and how, with their wheel and brake company,
they're capable of supplying landing gear systems. And even
indicate in here that Airbus has delegated the responsibility
for the design manufacturing and product support to Messier-
Dowty, so they make the choice on wheels and brakes. And even
Boeing begins to look in this direction. All this is quoted
here in the article. I would be happy to make it available.
There's also another interesting notion about--my notion
about this notional market. If it's such a notional market, how
come BFGoodrich has already quoted and had been awarded systems
contracts in the past? The Fairchild Dornier 728 Program,
they're in the process of competing on the Embraer 170 and 190.
In fact, there are 12 programs right now, either pending or in
early stages of production, that are, and have been awarded, as
landing systems. The Joint Strike Fighter coming up; A3XX,
Bombardier 100-8, Bombardier 90, a new 90-seat passenger
airplane that Bombardier intends to build; the Embraer 170,
Embraer 190, Fairchild 728, the Canadair RJ, the Boeing 717,
the AS 400 and LAPD, which is Boeing's large aircraft
preliminary design answer to the Airbus A3XX, all intend to be
let as landing systems.
Second point I'd like to emphasize is, that numerous
parties who know landing systems recognize these anti-
competitive effects. Airlines, who are the customers for wheels
and brakes, oppose the merger. SAS, AirTran, Northwest,
American, Air New Zealand, and others, have all indicated anti-
competitive concerns. Significantly, not a single airline
supports the merger as procompetitive. Again, not a single
airline supports this merger. Besides Allied, the only other
two major independent wheel and brake manufacturers in the
world also oppose the merger. ABSC based in Acron, OH, oppose
the merger. And I urge the committee to review the sworn
affidavit of Mr. Ron Welsh, president of ABSC, which is
attached to my written testimony. Again, not a single, major
independent wheel and brake manufacturer has provided sworn
testimony that the BFGoodrich merger is procompetitive.
The third and final point I want to emphasize is, that all
these anti-competitive problems can be avoided. According to
published reports, BFGoodrich and Coltec will consolidate their
landing gear facilities, and they will close the Cleveland
business. BFG has said that Allied has not put forward an
offer. And this is false. AlliedSignal has privately and
publicly offered to buy the Cleveland business at a fair price.
And I reaffirm that offer today.
BFG has also said that no final decision has been made on
closing Cleveland. If that is true, I call in BFGoodrich to
give AlliedSignal the opportunity to buy the Cleveland business
whenever a final decision is made. There is, however, one
problem with BFG selling Cleveland to Allied. If AlliedSignal
purchases the Cleveland business, or even a portion of it, BFG
will have a competitor in the United States. No more monopoly,
no more monopoly profits. The fact that BFGoodrich would prefer
to close Cleveland rather than sell Cleveland to AlliedSignal
only confirms the high value BFG places on being a monopolist
in landing gear. BFGoodrich would prefer to spend money to
mothball a business rather than receive money from Allied.
I want to emphasize that AlliedSignal has a long-term
commitment to this community. We have been a significant
employer and strong community leader in South Bend since our
company was established in 1924 as the Bendix Corp. We have
invested substantial money here in South Bend, especially in
terms of research and development, and we want to maintain that
relationship.
In short, Mr. Chairman, under Allied's proposal, everybody
wins. Jobs are preserved in Cleveland and South Bend; the U.S.
military will have two suppliers of landing gear; and BFG gets
to close its merger with Coltec.
Thank you for your time. I would like to thank Congressman
Roemer, who I know isn't here, also, who has been a long-time
supporter of Allied and our aircraft landing systems business
here in South Bend.
[The prepared statement of Mr. Montalbine follows:]
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Mr. McIntosh. Thank you, Mr. Montalbine. Let me turn now to
Mr. Tubbs, who is with Coltec. Please again share with us the
summary of your testimony.
Mr. Tubbs. Thank you. Mr. Chairman and Mr. Kucinich, good
morning. Let me begin by saying that not one job at
AlliedSignal's wheel and brake facility in South Bend is at
stake today. Not one. The real story today is about
AlliedSignal's competitiveness in the world marketplace and how
that impacts jobs in cities where AlliedSignal has plants, like
South Bend.
This is not about the Coltec Industries/BFGoodrich merger;
two companies that have a legacy for creating jobs. Much of
what Allied has said in opposition to this merger has been a
smoke screen. Now's the time to step up and put real facts on
the table. AlliedSignal controls its own destiny here in
Indiana, and elsewhere; just as AlliedSignal controlled its
fate when it got out of the landing gear business 5 years ago.
AlliedSignal also controlled its own fate when it recently lost
the wheels and brake business on two very important airplanes.
The sole source position on the Boeing 767 and on the
Bombardier CRJ-700. AlliedSignal lost because they weren't
competitive.
AlliedSignal is in a strong position to stay in the wheels
and brake business for many years, providing that it competes
effectively. Coltec/BFGoodrich merger does not diminish their
ability to compete at all.
The aircraft wheel and brake industry is booming. You know,
our great President Ronald Reagan once said that, ``A
government program is as close to eternal life as we will ever
see.'' I might add, that the aircraft wheel and brake business
runs a very close second. Wheels and brakes are like razor
blades; they wear out after a limited amount of time and need
to be replaced. A modern jet airliner or military jet has a
usage lifespan of at least 40 years, and will require many,
many replacement wheels and brakes, that amounts to an annuity
for a plant such as AlliedSignal's wheel and brake business
here in South Bend. The annuity guarantees jobs.
Allied has shown a fear of competition in wheels and
brakes, and a distaste for landing gear. One wonders whether
they're not using our merger to excuse their failures to
compete.
Just this week it was reported at the Paris Air Show that
industry insiders question whether AlliedSignal Aerospace may
well sell off its wheel and brake business following a wider
reorganization planned over the next 3 months. Of course, it
won't be the first time that AlliedSignal has used an excuse to
shut down plants and displace workers. Just ask the union
members of UAW local 1010 in Bridgeport, CT, about how
forthcoming Allied was when they shut the Lycoming Engine
Facility in 1994, shortly after acquiring it from Textron and
promising to bring commercial work in to preserve 1,200 jobs,
preserve 1,200 jobs.
These hearings do have to do with jobs. That being the
case, let's look at the effect of the Coltec/BFG merger on jobs
here in Indiana. Let's start with the facts. When I look at the
wheel and brake business today, I see some interesting facts.
AlliedSignal is specified as a wheel and brake supplier on 9 of
13 Boeing commercial aircraft and on 4 of the 7 Airbus
airliners. AlliedSignal is specified on 6 of 11 military
aircraft. Congressman, there is the annuity. So long as planes
fly and so long as Allied produces and sells wheels and brakes
at competitive prices to airlines, it will have the opportunity
to provide jobs for the citizens of South Bend, IN. Somebody
must ask the common sense question about how jobs will be lost
when Allied is already specified on 9 existing aircraft
platforms and has the opportunity to compete to be added by the
airlines to the other 12 existing platforms. It's that eternal
life thing again.
Of course, Allied will tell you that it's afraid of the
future because it claims it could be locked out of future
aircraft platforms. Let's talk about that concept for a moment.
The idea of a technically superior, integrated system is a
fiction. No credible engineer has ever testified any technical
benefit, including the increased safety of an airplane, will
result from designing wheels and brakes at the same time as a
hydraulic landing gear structure. Nobody who knows the industry
will dispute the fact that airlines specify what wheels and
brakes they want on the planes they fly.
Allied has testified that every Airbus airplane that flies
has an integrated landing gear system. All that's just more
smoke and mirrors from AlliedSignal. A powerful French landing
gear company, Messier-Dowty, makes all of the landing gear for
Airbus aircraft. Messier-Dowty also owns the wheel and brake
company. But it can't exclusively package its landing gear with
its wheels and brakes. The airlines won't let them. At least
three, and generally four, wheel and brake manufacturers,
including AlliedSignal, supply wheels and brakes to fit Airbus
airplanes. AlliedSignal wheels and brakes are on all of the
Airbus wide-body aircraft. Things are similar at the Boeing
company; they buy a dressed gear.
Let me tell you something about Coltec and competition.
Coltec has been making landing gear since World War II; we were
always known as a good small gear manufacturer, just as Allied
once was. We could make nose gear, but BFGoodrich made the big
gear. We saw military programs going away, and we wanted that
chance to compete in the growing commercial marketplace. In the
late 1980's, Boeing announced a dramatic, new wide-body
airplane, the 777. We went after the landing gear on the 777.
We worked with Boeing's landing gear engineers on the 777
design, despite the fact that we had never done a landing gear
of that size or of that complexity. We bid the gear to Boeing
in competition with Goodrich and others, and we won.
Then we had to figure out how to go and make it and where
to make it. We built additions to our facilities. We invested
over $40 million in equipment, and by the time the first 777
rolled off the assembly line in 1994, it had Coltec's landing
gear supporting it. How did we do it? We took a risk, we had
ingenuity, we were willing to invest and to compete. That's the
American free enterprise way. That creates jobs.
During this same timeframe AlliedSignal, unlike Coltec,
decided it wouldn't grow its military landing gear business to
compete for commercial programs, and decided instead to exit
the landing gear business. Yes, Congressman, South Bend had the
capability to build landing gear. Except it didn't have--
AlliedSignal didn't have the faith in its South Bend operations
to take the same risks that Coltec did on the 777. In 1995,
Allied, after trying for 2 years to pedal the business to the
British company, Dowty, sold its military landing gear business
to Coltec. AlliedSignal didn't require that we take the South
Bend work force, all they sold us were their existing contracts
and some equipment in bad need of repair. Well, we've upgraded
that equipment in our Texas facility and we make a very fine
landing gear. There's a theme from this story: Success and jobs
come to those who compete, invest and innovate. This committee,
which has a focus on allowing the free enterprise system to
work, needs to ask the common sense question: Why AlliedSignal,
soon to be part of a $45 billion behemoth, which is 10 times
larger than we will be, can't or won't compete? That's the key
question facing this panel today. The questions that truly
control the fate of jobs in South Bend. Thank you.
[The prepared statement of Mr. Tubbs follows:]
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Mr. McIntosh. Thank you, Mr. Tubbs. Let me turn now to the
final witness on this panel, Professor Joseph Bauer, who is a
professor of antitrust law here at Notre Dame University.
Professor Bauer, please share with us the summary of your
testimony.
Mr. Bauer. Congressman McIntosh, Congressman Kucinich, it
is a privilege to be able to share my views with the
subcommittee regarding the proposed merger between BFGoodrich
and Coltec. Let me first give a little background of my
professional experience and on my relationship to this
transaction. I am a 1969 graduate of the Harvard Law School,
and I then worked for 3 years in the antitrust litigation
department of a large New York City law firm. I have been on
the faculty of Notre Dame Law School since 1973, and have
taught Antitrust at least once each year since then for a total
of over 30 times. I have written four books and probably a
dozen law review articles in the antitrust field. And finally,
I spent a summer working in the Washington, DC, headquarters of
the Federal Trade Commission as a staff attorney and consultant
doing work in the conglomerate merger enforcement area.
Let me now both make a disclosure about my relationship to
this litigation and a disclaimer about my role here. I was
retained by AlliedSignal through their law firm Kirkland &
Ellis to work as a consultant on the antitrust issues and
particularly the issues raised by section seven of the Clayton
Act. But having said that, as a consultant, I want you to know
that I am sincerely and genuinely concerned about this merger,
and I firmly believe that this merger is bad for competition,
and bad for consumers.
But having said that, I want to state as a disclaimer, that
some of the views that I am going to share with you this
morning are my own views and do not necessarily reflect the
views of AlliedSignal.
Now, as I proceed, let me say a little bit about the
relevant industry and the positions of the parties in the
industry, although the charts that were here this morning have
described them well and so I can skip over them.
Mr. McIntosh. Well, let me interrupt, Mr. Bauer, because I
think your testimony is going to be very valuable for this.
What I would suggest you do is put your full written testimony
in the record. But one of things I am going to want to get to
in the question and answer, and maybe you can elaborate on
this, those charts depicted two very different views of what
the market was. Which, as we know, is critical in the question
of antitrust. Perhaps you would take a few minutes and just
comment on them and the differences in--and why they're
relevant.
Mr. Bauer. I'd be glad to, Congressman. It is interesting,
as the chart on the right, which is the one provided by
AlliedSignal, has fewer players, of course, than the chart on
the left. The problem of the chart on the left is that it is
not to scale. For example, if one looks on the chart on the
left in the landing gear industry, my testimony will reflect
that in the market--the worldwide market for commercial wide-
bodied landing gear structures, BFGoodrich, which is there,
accounts for 33 percent of the market; Coltec accounts for 30
percent of the market; and, Messier-Dowty accounts for 34
percent of the market. That's a quick addition, of three firms
with close to 99 percent of the market. The other three firms,
or the other four firms, are in the market, but that chart is
nowhere near to scale. If they were--they would be like little
pebbles on that chart rather than equal size partners. The
proposition that I'm going to assert this morning, I'll be glad
to elaborate Congressman----
Mr. McIntosh. Is it true or is there a similar breakdown in
the wheels and brakes and in the brake control systems?
Mr. Bauer. I don't have the comparable numbers here, but it
is equally true that in the wheels and brakes industry that is
not to scale. But the impact of the merger--I mean, there are
several different impacts of the merger. One will be that as a
result of the merger, when one looks at the domestic side of
the industry, the landing gear industry, BFGoodrich and Coltec
will be close to 100 percent of the domestic supply of that
market, and with Messier-Dowty, there will be a duopoly, again,
accounting for close to 100 percent of the worldwide portion of
that market.
The chart on the right, Congressman, displays the
difficulty that in offering an integrated landing system; that
is, the combination of wheels and brakes, landing gear and, to
a lesser extent, the brake controls, a wheel and brake
manufacturer, no matter how many there are out there, must have
a partner of a firm that designs, manufactures, and provides,
is willing to sell, landing gears. And it is at that level that
AlliedSignal will have no opportunity to have a purchaser, or
alternatively, BFGoodrich, as a merged firm, might be selling
to AlliedSignal, but would have the opportunity to charge
disadvantageous prices. And backing up, at the design portion
of the market, Goodrich will be in a position, either to design
landing gears so that they don't properly interface with
AlliedSignal's wheels and brakes, or alternatively, will
withhold information so that in designing its wheels and
brakes, AlliedSignal will have a time disadvantage. So, the
fact is, that even though there may be numerous competitors in
the wheels and brakes portion of the market, it is at the
landing gear part that that chart is grossly deceptive.
Mr. McIntosh. And I'm going to just interrupt you and keep
asking you questions.
Mr. Bauer. Certainly.
Mr. McIntosh. If you don't mind, because I think your
testimony will be important to help us understand the testimony
of the other panelists. Is it essentially two separate markets
that we are thinking about here, or need to think about; one,
essentially the initial sale, does that tend to be integrated?
And then the--I think someone referred to it as the
aftermarket, the replacement wheels and brakes, are those
separate markets? Should it be looked at as one? And do the
percentages hold up across both of those in terms of the number
of competitors?
Mr. Bauer. I'm not an expert in the industry, and perhaps
that's a question to direct to others. But in a sense there are
two portions of three overlapping industries. The two portions
are you--you've identified, Congressman, is the OEM market, the
original equipment market, and then the replacement market.
There are then markets for landing gears; there are markets for
wheels and brakes; and there are markets for the system taken
as an entirety, which is the direction in which the industry is
heading. As Mr. Montalbine referred, it is increasingly
becoming common that a single firm, an integrator, will take
over the role of airframe manufacturer such as Boeing, and
become engaged at a much earlier stage in designing the various
components and designing the interface of those components so
that they operate together. But, as to say, I should really
defer on the industry side to others on this panel.
Mr. McIntosh. OK. Let me let you proceed, and I'll come
back to Mr. Linnert because I do want to address that question,
because I think there are two different views of the world
there and we need to sort out what those are and figure them
out.
Mr. Bauer. I wanted to say two things this morning; one is
to be descriptive about the merger and then I know this
committee is concerned about the role that the Federal Trade
Commission played, and so I would like to address the standards
the Federal Trade Commission applies in examining mergers, and
my view of how this merger lines up with those standards.
But first, of the merger has, both, horizontal and vertical
impact. And just to state them briefly, if one looks at the
chart on the right, excuse me, in the landing gear industry, at
present we have two major domestic competitors, BFGoodrich and
Coltec. And they are competing with one another. And I think
something that every person in this room will agree on is the
value of competition to the American free enterprise system.
Competition is designed to advance a number of goals. It's
designed to give higher quality. It's designed to promote lower
prices. It's designed to enhance innovation. And all of those
indirectly is what gives rise to jobs. Jobs exist when strong
companies produce good products at low prices and there's a
desire for those products. So competition is what the Sherman
Act and the Clayton Act are all about. And one looks at the
landing gear industry, which as I say, has two domestic
players. After the merger, it won't. There will be a single
firm. So whatever competition previously existed between
Coltec/Menasco on the one hand and Goodrich on the other will
disappear. It is a merger to monopoly. And there is no other
way to characterize that. And we know why we are concerned
about monopoly. Because monopolists don't have to compete in
the same way that competitors do. So that's one component of
this merger.
The other component of the merger is the vertical part, and
that is that firms buy from and sell to others. And
AlliedSignal, in order to be able to compete as an integrator,
in order to compete successfully in the wheels and brakes
industry, needs a reliable, good supplier of landing gears. It
entered in 1995 into a strategic alliance with Coltec when it
sold its landing gear business to Coltec, that was a 10-year
strategic alliance that's been discussed briefly this morning.
But, as a result of this merger, AlliedSignal will either not
have a source of landing gears, or alternatively, its source of
its landing gears will be its own competitor, and there are
many problems that can flow from that.
In the interest of time, let me go on to the next part of
my testimony, and that is to talk briefly about the Federal
Trade Commission guidelines. The Federal Trade Commission and
the Department of Justice have established, promulgated merger
guidelines. The first version of them was promulgated in 1968,
but we're presently concerned with the guidelines that were
promulgated in 1992--excuse me, 1982, as amended. What those
guidelines do is, after defining the relevant product and
geographic markets in which the merging firms operate,
construct some numerical indicators, which are called the
Herfindahl-Hirschmann Index [HHI]. And HHI is designed to
obtain a more sophisticated interpretation of the significance
of the market shares of the merging companies, and of the
extent of concentration, both before and after the proposed
merger, in the affected industries. And what the HHI--excuse
me. What the guidelines do is have three different categories
of HHI numbers, low, medium and high. As you would expect, the
low numbers are those which are presumptively lawful, the
middle category are those which are presumptively problematic,
and the third category is one wherein it says, ``Markets are
highly concentrated and the guidelines themselves, say, ``These
mergers are deemed likely to, `raise significant competitive
concerns.' ''
Those problematic numbers are where the post-merger HHI
exceeds 1,800, and where the merger produces an increase in the
HHI of over 100. OK? The HHI can range from a low of 1 up to a
high of 10,000. But where the post-merger HHI exceeds 1,800 and
an increase of over 100 points, this is the kind of merger
where the Department of Justice and the FTC is both likely to
challenge the merger, and where the merger challenge is
appropriate.
And just using those numbers then, look at what's happened
here. In the commercial wide-body landing gear market, the
premerger HHI is 3,230, the post-merger HHI would be 5,272, for
a net change in the HHI of 2,042. So, the numbers here, post-
merger HHI is close to 3 times what the guidelines say is
problematic. The increase is 20 times what the guidelines say
is going to be problematic.
Now, the guidelines establish certain kinds of defenses
that the Commission might look at. And I will be very brief, in
light of the shortness of time. Those three defenses are that
one of the firms may be a failing firm. It's clearly not
present here. The second is that there are low barriers to
entry. This is an industry which has enormous barriers to
entry: capital barriers; technological barriers; specialized
manufacturing equipment barriers; time line barriers; need for
product certification barriers; so, this is not a low-barrier
entry firm. And, finally, efficiencies. The only efficiency
I've heard here is that as a result of the merger, BFGoodrich
and Coltec may be able to close the Cleveland plant, not only
costing 650 jobs, but eliminating competition. In my view,
that's not an efficiency. And so, if I look at the high HHI
numbers, if I look at the potential defenses, and they're not
there, I find this merger very, very problematic, even within
the FTC's own guidelines. And at that point I'll pause and,
once again, thank the committee for its attention.
[The prepared statement of Mr. Bauer follows:]
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Mr. McIntosh. Thank you, Professor Bauer, and we will get
back to that. Because I think you've raised really the crux of
the question in what we are looking at. I understand that
Representative Roemer is here, and that he wanted to join us
and make a statement, before he moved on to his next scheduled
event. So, before we get to the question and answer period, let
me invite him to come forward.
Mr. Kucinich. Mr. Chairman, after Mr. Roemer speaks, then
we will have a chance to ask questions.
Mr. McIntosh. Yes, I think that's very important. I guess
we are getting hand signals he'll be in in a couple seconds.
Let me start by essentially asking a question related to this
marketplace. And I'll ask you, Mr. Montalbine, what percentage
of the product manufactured here in South Bend comes from
original equipment orders, and what percentage is the
aftermarket?
Mr. Montalbine. Approximately 70 percent are aftermarket
and the balance of the OEM up front manufacturer.
Mr. Tubbs. Let me just add a point, though, and maybe ask
Carl about that. On those 30 percent on the OEM, isn't--you
give those away to the airframe manufacturers, don't you?
They're given away for free?
Mr. Montalbine. For the most part.
Mr. Tubbs. So the real money comes from the aftermarket. So
the job protection is really funded by the aftermarket, isn't
that right?
Mr. Montalbine. It's part of the story. If you don't get on
new programs, there is no aftermarket. There are 12 new
programs coming down the line, all asking for landing systems.
If I am precluded from getting on those programs in the post-
merger world, because I have no landing gear partner, then no
sense in having an engineering department, won't be engineering
new products. That would affect about 350 people. While it's
true that airplanes last for 25, 30 years and for all of the
programs we are on, we will be making spare parts. That will
dwindle down very rapidly over time. So, if that is what Mr.
Tubbs described as the perfect exit to business strategy for
ALS, and that's how we would exit the business. No sense in
investing on new programs, we'll just ride out annuity, as he
put it, and we'll close the doors and turn the lights out when
we run out of business.
Mr. McIntosh. So, if you were to do that 5 years from now,
what would the work force look like to you?
Mr. Montalbine. Probably half. Half of what it is today.
Mr. Tubbs. But on the 767, which they were the sole source
on, Messier-Bugatti just came in and got certified. So, you can
always be certified on a platform after the initial production.
So, it's not that you can't compete, Messier-Bugatti did and
took them out of the sole source position.
Mr. McIntosh. So, the annuity is not a perfect annuity in
the aftermarket, but you're saying there's also opportunities
to compete.
Mr. Tubbs. It's only affected by competition.
Mr. McIntosh. Right.
Mr. Montalbine. Congressman, in the history of the wheel
and brake industry, that is an extremely rare event. That did
happen. Messier-Dowty spent $25 million to get certified on
that program. To be one of two suppliers for OEM equipment.
They then had to go out into the aftermarket and compete, OK,
at the airlines so they could put their wheels and brakes on
instead of ours. That program is 3 years old. They have zero
percent market share. They have not won one award. It is an up-
hill battle. It is virtually impossible. And coming on a
program very late in the game and not being there up front,
most of the market share's gone. A good example, on the A3-
3340, as Mr. Tubbs indicated, AlliedSignal is on that program,
an Airbus program, as the third supplier. We came on the
program late. We have about a 12 percent market share, and is
not much opportunity for us to expand that market share over
time. So if you're not there up front, when that new airplane
is rolled on the 777, history says that it is going to be
extremely hard for you to capture any significant market share
to justify the amount of investment that you have to make to
get on.
Mr. McIntosh. And let me ask one other question of Mr.
Montalbine to understand the dynamics here. What percentage of
the product do you make in South Bend? Where does that go to be
assembled with the landing gear? Of the 30 percent that is new
equipment, where does that go? Is that into the Cleveland plant
exclusively with your alliance or----
Mr. Montalbine. Some of it does. It depends on the program.
On the 777, we send it to Menasco up in Seattle. They put it on
landing gear, and then they wheel that assembled landing gear
over to be installed on the airplane. The C-17, we send it to
BFGoodrich; they put it on, the landing gear, up in Cleveland.
Most of it, though, goes directly to, right now, if it's not a
system, goes directly to the OEM, like Boeing or Airbus.
Mr. McIntosh. And while we are waiting for Mr. Roemer, let
me ask another----
Mr. Hopfer. He is here.
Mr. McIntosh. Is He? Oh, OK. Great. Tim, come forward,
please. You need no introduction for this audience. But, for
the record, joining us will be Representative Tim Roemer, who
is the Congressman from this area. And let me invite you to
give a statement, and you're welcome to stay and join us for
the question and answers. I know you, like me, probably have a
schedule to keep. But feel free to join us in that. And for the
next 5 minutes, I'm going to turn over the chair to Mr.
Kucinich, and I'll take a personal break. But, Tim, thank you
for joining us.
STATEMENT OF HON. TIM ROEMER, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF INDIANA
Mr. Roemer. Thank you, David. Thank you very much. First of
all, I want to thank you, Mr. Chairman, for holding the hearing
and welcome you to South Bend. Mr. Kucinich, a good friend of
mine from the neighboring State of Ohio, we're also delighted
to have you here. I'm coming from our Ethnic Festival, parade
and festivities, and I know you are in parades and festivals
all the time, Mr. Kucinich, and we would hope that you and Mr.
McIntosh, and our distinguished panelists, after your hot and
heavy testimony here today, would go down and get a little hot
food and cold drink and enjoy the food and the folks and
wonderful South Bend, and get some of our wonderful
hospitality. So, welcome to the community.
Mr. Kucinich. Thank you very much, Mr. Roemer. And as you
know, the principles which I announced at the Washington Press
Club before I was officially sworn in as a Member of Congress,
or just after having been sworn in as a Member of Congress,
were Polka, bowling and kielbasa, so this being in South Bend
during an ethnic festival just fits right in my program.
Mr. Roemer. Well, don't show me up in any bowling now,
Dennis.
Mr. Kucinich. I won't do that.
Mr. Roemer. It's against the rules to beat the hometown
Congressman in any competition.
Mr. Kucinich. Well, it's so good to have you here, and we
look forward to your testimony.
Mr. Roemer. Thank you. Well, let me, first off ask
unanimous consent to revise and extend my remarks.
Mr. Kucinich. You have it.
Mr. Roemer. And let me also ask unanimous consent to enter
into the record some letters, particularly letters from
Governor O'Bannon's office, letters from the Attorney General,
and supporting statements from my work with the FTC, a letter
that I wrote back on March 5th, 1999 to Chairman Pitofsky at
the FTC, stating my concerns about the harmful effects of this
merger.
Mr. Kucinich. Without objection.
[The information referred to follows:]
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Mr. Roemer. I appreciate that. Mr. Chairman and Mr.
Kucinich, again, we're delighted to have you here. My job as a
U.S. Congressman is to look out for our jobs here in this
community. And I take that fundamental job extremely seriously.
And I want to make sure that when I have hundreds of people
employed in my district with a company that has been here since
1927, a company that has an annual payroll of $75 million into
this community, a company that gets involved in this community
with alternative schools, a company that gets involved in
United Way, a company that is a conscientious and committed
company to this community, that employs a lot of people, that
shows our community how labor and management can get along and
work together, I want to make sure that these jobs stay in this
community. That is a fundamental responsibility for me as a
U.S. Congressman, to represent their jobs. So that's foremost
my responsibility here today. It is also to work with this
distinguished committee, to get their help, not just today for
a hearing, not just next week or next month, but a commitment
from them to continue to work to help us look at the
ramifications of this potential merger. And to help us study it
and understand it from a national security perspective, from an
anti-competitiveness perspective, from a general merger
perspective, and the impact on other companies in the United
States that may produce wheels and brakes, and landing gear,
and airline manufacturers; and to better help us analyze and
assess the impact of this on our security and competitiveness,
and, most of all, on our people here in South Bend.
Now, I want to assure my workers, because I look out in the
audience and I see some of the hard workers, people that depend
on paychecks, people that support their families and their
children, and it's a tough environment out there, as you and I
talk about all the time, Dennis, that to support a family these
days, and to make sure that you are getting enough time with
your family these days, to raise your kids in the right way, as
we're on the verge of Father's Day tomorrow; to make sure our
union and our UAW workers and our management, to make sure that
they are not scared or frightened or overwhelmed when a
committee comes to town and says there might be some possible
job losses. As you all know, I've been working very closely
with AlliedSignal for many months now to challenge this
proposal. I have been assured by AlliedSignal that even if this
merger goes through, it will not--it will not--result in any
immediate job losses in South Bend.
And let me repeat that for the hard working people in this
community, I have been assured by AlliedSignal that neither
this merger nor Allied's proposed merger with Honeywell will
result in any immediate job losses in South Bend. So we're here
to look at the consequences of this, to try to assure our
employees that we're looking out for their best interest and
not to scare them; and to try to find some ways that, through
this committee, and through our Attorney General and Governor's
Office, and other interested people, that we can try to make
sure that the best interests of the community and the company
and the country are looked out for.
Now, AlliedSignal and I go back a long way. We've worked
together on many important projects. To equip the defense and
aircraft industry with wheels and brakes including the F-15
Eagle, the F-16 Falcon, the F-22 Raptor, the B-2 Bomber, the G-
17 Globe Master Transport and the F-18 Hornet. And we can be
really proud, really proud of what our workers did out there at
AlliedSignal that helped contribute to the success of our brave
men and women overseas, primarily through the Air Force, and
this equipment that we make in South Bend that gained us the
principal victory against ethnic cleansing. So I am very proud
of the contribution that AlliedSignal has made and the
employees make in our community, to our national defense, the
better schools, and to contribute toward helping people across
the community, with good, high-paying jobs.
Let me just go over very briefly some of the history of my
involvement in this. I wrote a letter to the Federal Trade
Commission on March 5th, 1999, expressing my serious concern
about this proposal. A copy of my letter to the FTC and an
article from the Wall Street Journal, including my comments,
are attached. I also expressed my concerns in a direct phone
call about this matter with the FTC. I encouraged them to look
at all--to look at all--aspects of this merger, including some
of the aspects brought up by our articulate panelists here
today. I don't want to go on too much longer, other than to
restate, and which Mr. Kucinich has graciously agreed to
include in the record as well, an article and a letter that I
received from AlliedSignal's chairman, when I wrote to him and
I inquired to him about the Honeywell/Allied merger, Larry
Bossidy, the chairman and CEO of AlliedSignal, was very fast in
getting back to me. And he stated, unequivocally, that no jobs
will be lost at these operations as a result of this new
proposed merger. And I am pleased to include a copy of this
letter to the press, to Mr. Kucinich, to Mr. McIntosh, our
chairman, to make sure that this is part of the record here
today. Again, we've got a lot of excellent testimony from
people that are in law, like, Professor Bauer, who has given us
a very good insight into this. We have distinguished panelists
that will be looking at this, and have a great deal of
knowledge about it. We have our distinguished members of the
committee here that will take this information for the record
back to Washington and followup on what they've learned. And we
hope to work with everybody and anybody across the spectrum to
make sure that our jobs in South Bend, IN, are protected; that
we look out for the concerns about competitiveness; that we
look out for concerns about depending on maybe one supplier
across the ocean in France for some vital equipment that I just
read off about F-16's and F-15's and F-22's and Globe Master
Transporters and so forth. It gets into very seriously
dangerous grounds when we can only rely on one supplier who is
overseas, and I think that this committee needs to take a very,
very careful and in-depth look at that.
So, I want to again thank you for taking the time out of
your busy Saturdays to come into your South Bend, IN. I'm sorry
you missed the parade, that you didn't have a chance to walk up
and down the streets and meet some of the great people here in
South Bend. Some of them which work at AlliedSignal, and told
me on my way in here to ``Fight for our jobs,'' and that's
exactly what I'm going to do. And I again appreciate your help
and your participation, Governor O'Bannon's participation, our
Attorney General, who has been helpful in the injunction, and
his participation; and everybody and anybody who will continue
to work with us, management, our labor union, UAW, hard-working
people that make some of the best things in the world here in
South Bend, IN. And with that, I'm going to probably shortly
excuse myself and go grab some of this great food at the ethnic
festival. And I hope you guys get out there and spend a little
money in our local economy, David and Dennis. With that, again,
thank you for the unanimous consent agreement to include my
testimony in there. I know we've got the distinguished Mayor
Luecke, coming up here to testify as well, too. He is doing a
wonderful job for our community. And he just walked in the
parade with me as well, too. And I think he's still dripping
wet, sweating a little bit. He sweats more than I do. So, you
might want to put him out on the panel because he may have to
take a shower before he gets up here.
[The prepared statement of Hon. Tim Roemer follows:]
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Mr. McIntosh. Thank you, Mr. Roemer, for joining us today
and we appreciate your remarks. Let me now focus back in on
some of these questions. And in order to make sure we've got
time for the other panel, we've got about 25 minutes or so with
you all. Thank you. I appreciate you joining us. And so, I may
end up cutting to the chase on some of them. It's not intended
to cut you off, but it's to make sure we get a lot of ground
covered.
Mr. Linnert, you had started to raise a point when we were
talking about the market, and, maybe, Jason, if you could put
those two charts back up there. Let me ask you, essentially do
you disagree with the characterization of that; perhaps, if you
look at the large airlines or airplanes, that the marketplace
is more like that description there than the other, and in
terms of large supplies and large players. But let me let you
make your point as well.
Mr. Linnert. Thanks. Yes, I do disagree. Let me first note
that Professor Bauer's antitrust expertise certainly exceeds
mine. So, I'm going to comment on that in a minute. I would
also like to note that Professor Bauer is an attorney of record
in this matter, and has helped enable Allied to develop its
case, but his name is on the pleadings. What I think
something----
Mr. Kucinich. I think the Professor disclosed his----
Mr. Linnert. That he was a consultant. I just wanted to
point out he was also an attorney-of-record in the matter.
What I would like to do is comment, that article that Carl
put into the record earlier that came from the Paris Air Show,
there's a nice graph there where what it shows in terms of
landing gear, that Messier-Dowty has 40 percent of the
worldwide market; Goodrich has 21 percent; Coltec 22 percent;
and ``others'' 17 percent. So, there is a vibrant other group
of landing gear manufacturers depending what market you're in.
Mr. McIntosh. That's when you defined it as including all
airplanes?
Mr. Linnert. Yes.
Mr. McIntosh. And the ``other'' numbers are when you define
sort of the large, commercial or military aircraft?
Mr. Linnert. Yes, and that's a good point. I think, the way
I think of this is, there's a lot of markets to consider here.
But there's--let's say there's basically large, commercial,
regional, business and military. And that chart that I
mentioned that's in that air show article talks about that
totality, so there's 17 percent of that market is made up with
other landing gear manufacturers. But to just to help with
the----
Mr. McIntosh. What do you mean--I'm sorry.
Mr. Linnert. Sure.
Mr. McIntosh. Of those different subcomponents, which are
the most significant, either in terms of revenue or profits,
for your companies; is it the military? Is it the larger
commercial? Is it the smaller regional aircraft?
Mr. Linnert. You're talking to a non-expert, but one thing
I do know is, it is not military. I believe it's the large
commercial market.
Mr. McIntosh. Large, commercial. Is that in your
experience, too, Mr. Tubbs?
Mr. Tubbs. Yeah.
Mr. McIntosh. OK.
Mr. Linnert. The one point I do want to make, on large
commercial, there are a couple other players beside Goodrich,
Coltec, and Messier-Dowty. SHL, who Carl referred to, is an
Israeli company; they do provide the landing gear for the
Boeing 717. And Heroux, which he also mentioned, is a Canadian
firm. They provide landing gear for the C-17. So there are some
others with capabilities.
Mr. McIntosh. Do those tend to be sole source, are they
multi-source?
Mr. Linnert. Usually with the way a landing gear platform
works, somebody is picked as the landing gear provider for that
particular platform; it's the wheel and brakes that the
airlines do want dual or multiple sources, because that's the
wear out, the higher wear out pieces. And I just wanted to
finish up on something Professor Bauer said. As I said, he's an
antitrust expert and I'm not. I would just like to point out to
the committee something I said in my comments earlier. All of
the points that Professor Bauer raised, I feel confident were
raised at the FTC in a 5-month process, and at the DOD in a 4-
month process. And the reason I feel confident is because
AlliedSignal and Crane participated in that process. May be a
little bit unusual, but they participated. So the staff had a
thorough opportunity to, not only look at those arguments, they
requested more documents from us. And in the end, to show the
end of that, Allied did and Crane had audiences with each of
the FTC Commissioners, is our understanding; private audiences
for that last little explanation or concerns. And again, as you
all know, the FTC and the DOD came out favorably for the
merger. So I just wanted to--while I can't debate the
antitrust----
Mr. McIntosh. Let everybody know the next phase of this
will be for us to sit down in a staff level with the FTC
attorneys. A significant part of what we're doing is making
sure that as they made that decision they considered the
correct factors. Let me ask a couple more questions real
quickly about the marketplace so we can gain an understanding
of that. What percentage currently, and I guess anticipated
future contracts, are likely to be integrated where you need to
have those alliances versus, I don't know what the other term
of it is, but the more traditional one that an airline would
pick a different supplier.
Mr. Linnert. And just to help with it, so I'm answering the
question correctly, you're asking the question of how many new
programs, forget all the existing ones, how many new programs
would be bid where the landing gear, the wheels and brake,
brake controls and all these things put together.
Mr. McIntosh. That's the important part. Give us the
existing one, too, so we get an idea of how they fit into
context. Is there a shift in the marketplace that's occurring,
or----
Mr. Linnert. In the existing market, there is a very, very,
low percentage of systems that are asked for and have been
asked for on an integrated basis. Certainly, large, commercial.
More so in the regional and business. But if you look forward
in time, we believe, Goodrich believes, it will continue to be
a low percentage going forward, particularly in the large,
commercial markets. And Carl did make a good point before. He
said, ``Well,'' he said, ``some of these other firms that Terry
had up on that chart, they don't have the ability to design
these larger landing gears.'' Boeing helps design the landing
gear and owns the data rights to the design, so that's why they
can pick among different landing gear manufacturers to build
something for them. They own the data rights. It's not
something that is proprietary to us.
Mr. McIntosh. OK. And, Mr. Montalbine, the article you told
us about indicates that the French firm Messier thinks--has a
different prediction than Mr. Linnert about the future; they
think it's for the large, commercial ones they will be more
integrated.
Mr. Montalbine. Yeah, their view of the world is
significantly different, more in line with our view of the
world.
Mr. McIntosh. And that's yours as well.
Mr. Montalbine. That's correct.
Mr. McIntosh. OK.
Mr. Montalbine. And that is why back in 1995--if I could
correct this one point, Mr. Chairman. In 1995, when we sold our
landing gear business, as Mr. Tubbs indicated, that's true; but
it's a half truth. We sold it on the condition in exchange for
a strategic alliance agreement with Menasco so that we could
gain access to large, commercial landing gear capability. We
had a very small, military business that was over capacity in
1993/94, timeframe; made no sense to invest in it any further.
Menasco, being alone, as we were interested in also teaming
with a wheel and brake supplier, because they saw the trend
toward systems integration. So that is the other side of the
story. We willingly sold it, but in exchange for the alliance
agreement.
Mr. McIntosh. And was Menasco at that time owned by Coltec?
Mr. Montalbine. Yes, this is the parent company.
Mr. McIntosh. So you got that from the parent. Let me get
one quick question, then I'll let Mr. Kucinich have a series of
questions. But speaking of that strategic alliance and the
background that we heard about earlier; the decision on that
portion of the dispute, that Arbitrator said Coltec needed to
affirm they would continue that in the merged company. I guess
to Mr. Tubbs and Mr. Linnert, are you both prepared to say that
will be the decision of the company?
Mr. Tubbs. Absolutely.
Mr. Linnert. Absolutely. In fact, it's a condition of the
merger agreement that all contracts are honored. We have said,
since before the litigation was filed, we have told
AlliedSignal in personal meetings that we not only would live
up to and honor the agreement, we would be willing to entertain
whatever additional safeguards they thought might make sense to
protect their proprietary information, whether it was
firewalls, whatever.
Mr. McIntosh. Does the agreement obligate you on these--I
forget what the number was--but these additional platforms that
are going to be bid on in the future?
Mr. Linnert. Yes.
Mr. Tubbs. Yes.
Mr. Linnert. Let me just put--to help put that in
perspective. That agreement has about 5\1/2\ or 6 years left on
it. So, when Allied exited the landing gear business, Carl is
right, they entered into the strategic alliance agreement.
Well, it was for a term certain. They have no protection in
terms of a partner after that period of time. What they were
concerned about is not having a partner now. What the
Arbitration panel essentially said is, ``You have your partner,
the contract will be honored.''
Mr. McIntosh. But, as Mr. Bauer is pointing out, that
partner will also be their chief competitor.
Mr. Tubbs. But what the Arbitration panel said was, ``And
we'll work with you to develop safeguards so that there is a
firewall between the data. So that you can go ahead.'' In fact,
there are some programs that are going on right now where
Allied is working with other wheel and brake manufacturers to
design wheels and brakes for new airplanes. So they're sharing
in that.
Mr. McIntosh. So, in order to live up to that, you
anticipate some of the new business you acquire having a
significant part of it outsourced to Allied in order to live up
to that?
Mr. Tubbs. We don't make wheels and brakes, so we can't
outsource----
Mr. McIntosh. But BFGoodrich does.
Mr. Linnert. We make wheels and brakes. The way the
agreement works is if a customer says, Please bid an integrated
system to us, you know, all four parts together; what the
agreement says is, we will team our landing gear with their
wheel and brakes, not ours. And we will put in an integrated
system bid. Now, our wheel and brakes are completely separate,
firewall. If they want to bid as a component, that's a whole
separate matter. But we will honor the agreement. So they have
their partner.
Mr. McIntosh. Let me turn the question time to Mr. Kucinich
for any questions he might have.
Mr. Kucinich. Thank you, Mr. Chairman. To Mr. Linnert, did
I hear you say that the Department of Defense and FTC supported
the merger? Did you say that?
Mr. Linnert. The letter from the Department of Defense, I
understand, was their standard letter which permits mergers to
go ahead, which they said to the FTC, ``We do not object to
this merger.'' The FTC's letter to us, which said we could go
ahead with the merger, was their standard letter out of their
procedures manual. So, yes.
Mr. Bauer. Can I followup on that, Congressman?
Mr. McIntosh. Sure.
Mr. Kucinich. Yeah, go ahead.
Mr. Bauer. The procedures of, both, the Department of
Defense and the Federal Trade Commission--and I should focus
particularly on the Federal Trade Commission under the Hart-
Scott Rodino legislation, in the premerger notification portion
of that, do not require the enforcement agencies, whether it be
FTC or the Antitrust Division, or here where there's national
security implications, the Department of Defense, affirmatively
to approve the merger; it's a decision not to challenge the
merger, but says nothing about the impact that that might have
on private litigants as, in fact, is prevailing in the Federal
District court here in South Bend.
Mr. Kucinich. I just wanted to--Mr. Chairman, thank you. I
just wanted to clarify that, Mr. Linnert, so that we keep the
record clear on that point.
Mr. Linnert. And I could--maybe I could help----
Mr. Kucinich. I--you now, I just wanted to establish----
Mr. Linnert. OK.
Mr. Kucinich [continuing]. What the record is. The record
does not state that they support it. It states, rather, they
don't object to it.
Mr. Linnert. Right. I'll read from the Department of
Defense letter----
Mr. Kucinich. We can continue. I'm going to continue with
my questions.
Mr. McIntosh. We will put those letters in.
Mr. Kucinich. We will put that in the record. That will be
fine. I appreciate having that in the record. Thank you.
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Mr. Kucinich. Now, to Mr. Tubbs. When did Coltec decide
that it wanted to be a business partner with BFGoodrich; that
they wanted to merge with BFGoodrich?
Mr. Tubbs. Our first--the first meeting of the two, Mr.
Chairman, was, I believe, October 14th of last year. It was
October of last year.
Mr. Kucinich. Were there meetings on a staff level prior to
that?
Mr. Tubbs. No.
Mr. Kucinich. Were there meetings between attorneys prior
to that?
Mr. Tubbs. No.
Mr. Kucinich. Was there any contact of any kind between
officers or representatives of BFGoodrich and Coltec prior to
the meeting of the CEO's, or the chairman?
Mr. Tubbs. I don't know where you're going, but let me----
Mr. Kucinich. I'm asking a question. That's where I'm
going.
Mr. Tubbs. Not on that merger. We--we had a business
relationship with Goodrich on other things, and, of course,
there were meetings about that. But the first time the merger
ever came up between those two companies was at dinner on
October 14, 1998.
Mr. Kucinich. It was at dinner. All right. And who was at
that dinner?
Mr. Tubbs. Mr. Guffey, the Coltec chairman, and Mr. Burner,
the BFGoodrich chairman.
Mr. Kucinich. So, was there anyone else at that meeting?
Mr. Tubbs. No.
Mr. Kucinich. So you don't have any knowledge really of
what was discussed at that meeting.
Mr. Tubbs. Only what was told to me, sir.
Mr. Kucinich. OK. And what is your official position with
the company?
Mr. Tubbs. I'm general counsel of the company.
Mr. Kucinich. Was there, to your knowledge, at any time any
discussions between Coltec and BFGoodrich as to what would be
the competitive position--of how the competitive position of
Coltec would be enhanced in such a merger?
Mr. Tubbs. There were many discussions in-house about how
good this merger was for us, and what it meant for all our
facilities and all our locations throughout the United States;
there were a lot of discussions about that. I mean, that's what
you have to do to convince the board of directors that it is a
good merger.
Mr. Kucinich. In those discussions, was it ever stated that
there would be a competitive advantage for Coltec if it merged
with BFGoodrich?
Mr. Tubbs. Sure.
Mr. Kucinich. And in that was it ever discussed that in
such a competitive advantage that you would be able to
effectively displace AlliedSignal in a key area in the
marketplace?
Mr. Tubbs. Not to my knowledge. We had our agreement with
AlliedSignal.
Mr. Kucinich. So you had no discussion about competition
with anyone, is that what you're saying?
Mr. Tubbs. No. I'm not saying that. You asked me whether we
had talked about displacing AlliedSignal. And I don't know that
that's true. But certainly in our discussions we recognized
that we were going to have to go through an antitrust review
process; that there was a merger--there was an overlap--a
product overlap that was going to have to be looked at. We
certainly knew that. I mean, we're attorneys; we asked advice;
we went to see our customers about that to ask if they had a
problem with it. We did those things, yes.
Mr. Kucinich. So, but yes or no, I mean, did you ever have
any discussions about the competitive advantage which Coltec/
BFGoodrich would have as opposed to AlliedSignal?
Mr. Tubbs. Not as opposed to AlliedSignal. We had it as the
competitive effects of the merger were discussed.
Mr. Kucinich. Did you ever have any discussions about the
monopoly position which Coltec and BFGoodrich would have if the
merger went through?
Mr. Tubbs. Well, first of all, it's not a monopoly
position. So, no, we did not discuss a monopoly position.
Mr. Kucinich. Did you discuss marketplace dominance?
Mr. Tubbs. We did not discuss marketplace dominance. I
mean, we talked about----
Mr. Kucinich. Why would you merge, if you didn't discuss
the marketplace?
Mr. Tubbs. Pardon?
Mr. Kucinich. Why would you have a merger if you didn't
discuss marketplace dominance?
Mr. Tubbs. We talked about the synergies; the good that
would come to Coltec as a result of merging with BFGoodrich.
That's not marketplace dominance.
Mr. Kucinich. Mr. Linnert, when was the first time that the
discussion of a merger with Coltec took place?
Mr. Linnert. My understanding is exactly the same; it was a
dinner meeting of the two CEO's. And it was mid-October.
Mr. Kucinich. Are there memos about the result of that
dinner meeting available?
Mr. Linnert. I don't have one. I was not at the meeting.
Mr. Kucinich. Were you--did anyone have a discussion with
you about that meeting?
Mr. Linnert. Yes. Mr. Burner reported that they had a
dinner meeting and that we should get--the next step was to get
together as companies and have a discussion.
Mr. Kucinich. And was there any discussion about the
content of that meeting?
Mr. Linnert. No. Not specifically. Not to me.
Mr. Kucinich. Was there any discussion with you and any
officers, other officers of BFGoodrich, as to how this merger
would enable you to achieve a dominance in a particular sector
of this industry?
Mr. Linnert. No, not with me personally. There was--one of
the hopes for from the merger was that we would be a better
competitor with Messier-Dowty for Airbus business, so-called
crack Fortress Europe, as we refer to it. Try to get more
business on a global basis.
Mr. Kucinich. Was there ever any discussions or any
meetings or planning sessions where the--where the impact of
this merger on a competitive position of AlliedSignal was
discussed?
Mr. Linnert. Not to my knowledge, no.
Mr. Kucinich. Was AlliedSignal ever discussed in any of
these meetings?
Mr. Linnert. The one place I remember AlliedSignal's name
coming up was in connection with the strategic alliance
agreement, and that we would have to honor that agreement going
forward.
Mr. Kucinich. Did you--was it ever in your planning at any
time to achieve a dominance of the marketplace with regard to
an advantage over one--any competitor?
Mr. Linnert. No. What we wanted to do was become a stronger
competitor, particularly in the large, commercial markets where
we have had very little success in winning Airbus programs.
Airbus, obviously, the counterpart of Boeing. So we wanted to
be able to compete for Airbus programs. We also, on the
military side, since there were less programs coming along, we
wanted to be able to have the resources necessary from a
military side to look at the new programs. They had a better
military presence than we do.
Mr. Kucinich. So, to your knowledge, there were no
discussions, no documentation, no possibility that any
direction was taken toward achieving a monopoly in landing
gears?
Mr. Linnert. No, sir, in the discussions I remember we were
to become a stronger competitor; and the one I clearly recall
is try to win or secure some Airbus business going forward.
Mr. Kucinich. I have one final question, if I may, Mr.
Chairman, of Mr. Montalbine. In looking at some of the
documents that have been provided to this committee, thanks to
the work of Mr. McIntosh. I have come across some of the
assessments that BFGoodrich has made about the facility in the
city of Cleveland, Cleveland Pneumatic. And in looking at those
assessments, BFGoodrich has put a rather low priority on
keeping that particular facility. Three different levels of
analysis indicated they would not do so, indicating the
condition of the plant, the personnel, perhaps the cost of the
personnel, perhaps the union status of the facility, and the
long-term viability of that facility, all were not to the
advantage of the corporation. How then, since you're in a
profit-making business, I presume, could you presume that you
would, in fact, be able to operate such a facility and not be
in the same condition that BFGoodrich found itself in with this
document--which I think we already have in the record, Mr.
Chairman--which states that its equipment, the people and the
expansion capability are all undesirable, according to this
document? Could you respond to that?
Mr. Montalbine. Congressman, those are the assessments of
internal people at BFGoodrich, and I can't speak to why they
came up with those assessments.
Mr. Kucinich. But why would you be able to make a go of it
there and they can't?
Mr. Montalbine. We intend, right now in the post-merger
world we would have no landing gear business, so we would have
no alternative but to invest in the facilities, invest in the
training of the people. AlliedSignal has a history of
acquisition in the past where we've been able to upgrade the
culture in these organizations through the training programs
that we have.
Mr. Kucinich. So, you're saying you would want to do that
to keep a position in the marketplace.
Mr. Montalbine. Absolutely. And we would make that
investment in the people, plant and equipment and be an
available competitor.
Mr. Kucinich. Is it your feeling that the reason why
BFGoodrich wouldn't want to sell that to you is to stop you
from having a position in the marketplace?
Mr. Montalbine. Absolutely. We are the primary competitors
on the wheel and brake side. And, as Mr. Tubbs pointed out,
that's where the money is. And given the fact that the entire
industry's moving toward landing systems, it would be very easy
for them to foreclose us from that market.
Mr. Kucinich. Do you have any information, however, to
present to this committee or any information that is available
that would suggest that BFGoodrich and Coltec specifically are
trying to exclude AlliedSignal from this business, or, in doing
so, have taken a competitive position to the direct
disadvantage of AlliedSignal?
Mr. Montalbine. Other than the experiences we've had when
Menasco, in our existing strategic alliance, we don't feel
they----
[Discussion off the record.]
Mr. Montalbine. I guess I'm being counseled to be careful
with the lawsuit.
Mr. Kucinich. OK. Why don't we just stop there.
Mr. Montalbine. OK.
Mr. Kucinich. Mr. Chairman.
Mr. McIntosh. Thank you, Mr. Kucinich. Let me ask both Mr.
Tubbs and Mr. Linnert, have the documents that you've submitted
to the committee, do they cover all of the documents relating
to that October dinner? From the company?
Mr. Linnert. The documents we submitted were in response to
the subpoena. And if that was discussed at the dinner, yes,
those documents would have been disclosed. But I don't know
that there is any documents.
Mr. Tubbs. The only document that I know would be the proxy
that we issued to--our joint proxy that we issued to our
shareholders to approve the deal. Of course, that was fully
disclosed in that SEC document.
Mr. McIntosh. There weren't internal documents saying, this
is the dinner, we're now getting together, back and forth?
Mr. Tubbs. No.
Mr. McIntosh. All that communication was done orally?
Mr. Tubbs. Well, it was in Ohio at Youngstown. And the
reason for the meeting was because the parties had been, at
lower levels, had been talking about doing a joint venture in
landing gear overhaul. And both the chairmen had finally found
out about it, they didn't like--they didn't think it made much
sense. So they were meeting to say, does this make sense? And
at that meeting, Mr. Burner suggested to Mr. Guffey, maybe what
does makes sense is to merge the two companies. I mean, that's
what happened at that meeting. It was not a, you know, charts
and dog and pony show kind of meeting.
Mr. Linnert. Mr. McIntosh, let me----
Mr. McIntosh. But following after that meeting, have you
all submitted to the committee all the documents that went from
that meeting forward to the submission for a merger with the
FTC?
Mr. Linnert. Mr. McIntosh, we submitted documents to the
committee in response to the--there was a letter from the
committee and then a subpoena. We had prepared documents in
response to the letter, and I believe we have provided those.
The subpoena had a different timeframe. I think it was the same
documents, but it was just a different timeframe. So it may be
that there's some more to come, because the subpoena, a cover
letter said we supply what we had available. We did. And then
if there's more to come, we will submit those.
Mr. Tubbs. We will be happy to work with the staff to make
sure they have that.
Mr. Linnert. We have complied the best we can.
Mr. McIntosh. Good. We will make sure. And I've asked you
to go back and do a review if there were any other things that,
perhaps, fell out of the letter request but pertain to that
meeting or pertain to the benefits that Representative Kucinich
was referring to. Make sure we've got those documents as well.
Let me ask you, Mr. Linnert, to refer to a document dated
January 8th, which you made available to the committee
yesterday, I think, in response to the subpoena. And it's a
document entitled, ``To Jack Carmola and Roger White from Mr.
Ernie Schaub.'' To make sure I understand who the players are.
Mr. Schaub, is he with BFGoodrich?
Mr. Linnert. Yes, sir. He is a group vice president, if
I've got his title right, in the aerospace business of
BFGoodrich.
Mr. McIntosh. And, Mr. Carmola?
Mr. Linnert. Mr. Carmola would be in charge of our landing
gear business. I don't know his exact title.
Mr. McIntosh. OK. And Mr. Wright? Mr. Wright, Roger?
Mr. Linnert. Mr. Wright is an employee of Coltec. Again, I
just don't know his exact title.
Mr. Tubbs. He's the head of our landing gear business.
Mr. McIntosh. OK. So it is written from the head--your VP
for the aerospace to the two heads of the--respectively of the
two companies of the landing gear business. And, ``The
following is a summary of our meeting and discussions of
January 6th.'' He then goes on to talk about, ``In an ideal
word, we would have production facilities that are union free,
cost effective, flexible and efficient in their layout, and as
self-contained as possible. We would subcontract all parts or
processes for which we are non-competitive or that are not part
of our core competency.'' Has that been--does this memo
reflect, essentially, the policies that the company, when
merged, would follow?
Mr. Linnert. I don't believe so, no. I believe this is just
what the memo says, it--folks got together to talk about the
existing facilities and it was just a discussion among
themselves. And it never went to aerospace management in the
form of Marshall Larson. I didn't see it myself until it was
handed to me when I came in here today. But I know and I have
to be careful about the litigation also, but Marshall Larson
has never been apprised of any studies or any discussion with
respect to the future of the landing gear facilities. Because,
again, any work that has been done is very preliminary. We're
not allowed to share operating data.
Mr. McIntosh. Well, let me ask this: What percentage of the
production, either currently or post-merger, would be
outsourced?
Mr. Tubbs. In building a landing gear, 65 percent of our
landing gear is subcontracted. And I think----
Mr. Linnert. It's over 90 percent for us.
Mr. Tubbs. Ninety on their case. So, you send a part out to
a very qualified supplier and ask him to make it; you bring it
back, you might put it together. So, a lot is outsourced.
Mr. McIntosh. So, for very sound business reasons, I
assume.
Mr. Tubbs. Sure.
Mr. McIntosh. Now, what does--do those parts include the
wheels and the brakes, or are there other things?
Mr. Linnert. No. Bob was talking about it's the landing
gear assembly itself.
Mr. Tubbs. The hydraulic cylinder.
Mr. Linnert. Yeah, the wheel and brakes are a separate
item. But on the landing gear, he can speak for Coltec, but in
our case it's more than 90 percent of that work is
subcontracted out. The parts.
Mr. McIntosh. Now, for an integrated contract, is that true
there as well, that the parts are subcontracted? When you have
an integrated contract to supply landing gear wheels and
brakes?
Mr. Linnert. Well, look, it certainly would remain true for
the landing gear piece, because that's how it would be made. I
am not as familiar in wheel and brakes how much work is done
in-house versus outside. Carl may know.
Mr. Tubbs. But let's go back to, I think where your
question is, on--if you say that there's a whole four things or
five things that you use to land an airplane, sometimes we will
put those together in the case, as Carl described it, in
Everett, WA, for the 777; the wheels and brakes are shipped in,
tires are shipped in. I don't know if the brake control systems
are. But, and then our structures. And we have people there who
put them together. We wheel them across the runway, right into
Boeing's facility. Sometimes we do that at our Oakville
facility. I think on 737 that's where we combine them is in
Oakville. So, sometimes those are. But we always do it to what
Boeing tells us to do. It's their specification that says use
an Allied wheel and brake, use a BFGoodrich wheel and brake. We
don't choose that. We're told do that.
Mr. McIntosh. Is that true of the subcontracting on the
landing gear part?
Mr. Tubbs. No. They have to approve who our subcontractors
are. This is a highly regulated industry. The FAA looks at
everything. So everything is documented. All your processes
have to be controlled. So, before you run out, they have to be
an approved subcontractor, but they don't tell you to use them.
Mr. McIntosh. Generally, the ultimate consumer of the
product, the airline manufacturer, or aircraft manufacturer,
also reserves the right to approve the contracting out?
Mr. Tubbs. I think so.
Mr. McIntosh. OK. It would make sense to me if they would.
Mr. Linnert. I can try to answer it one way, is, again I've
only been with Goodrich a year and a half, but my understanding
is, you do what Boeing tells you to do or Airbus, or
Bombardier, because they're your customer. And if you're not
going to satisfy them, you won't be there for very long. So I
think they do control.
Mr. McIntosh. And does BFGoodrich ever subcontract or
transfer the manufacture or production for aircraft parts to
companies that are located in a foreign country?
Mr. Linnert. I believe we do, because what I said last week
to Senator Dewine's committee is take military landing gear;
there's people who make military landing gear and beneath them
there's all these subcomponent suppliers, and there's more than
25 of those, so they have to be in multiple countries.
Mr. Tubbs. And I know that we do, because we own a facility
in Poland; we bought a facility in Poland to do that so the F-
16 and many parts of the F-16 are made at Krosn.
Mr. McIntosh. But those are in your facility.
Mr. Tubbs. We own it.
Mr. McIntosh. But then would you also subcontract out to
another company in Poland?
Mr. Tubbs. We could, I mean. Part of that, Mr. McIntosh,
depends on--you know, you're trying to bid--build value in a
landing gear, especially a military landing gear, so you can
sell it to the allies, so you have to have local content on
that kind of aircraft. So you're always balancing, especially
on the military side, when you are trying to do a NATO program,
with local content.
Mr. McIntosh. So, the combined company would plan to use
that option in the future, to outsource to some foreign----
Mr. Linnert. I believe we would look at the best practices
of both companies of how we do things and hopefully learn from
each other. And if that included subcontracting, yes. In
addition, I think, as the air--as the aircraft manufacturer
goes through cycles, clearly, you have to ramp up and down for
cycles, and I think outsourcing is one of the things you use to
help meet the higher volume part of the cycle.
Mr. McIntosh. OK. Are there any plans to take parts that
are currently manufactured by companies here in the United
States and perhaps for valid cost reasons subcontract them out
to manufacturers located overseas?
Mr. Linnert. Not to my knowledge. But let me answer a
question that was asked me by your staff. The question was
asked, ``Do you use--do you obtain subcomponents for military
landing gear from anyone in China or Russia?'' That was a
question--OK, maybe that wasn't a question that was asked of
me. I can answer that.
Mr. McIntosh. It was one I was going to ask. Yeah, go ahead
and provide the answer to that.
Mr. Linnert. My understanding, the answer to that one is
no.
Mr. McIntosh. No. Are there any plans to do that in the
future? Specifically with one of your planes, the Dornier 728?
Mr. Linnert. To go to China or Russia? I don't know,
honestly.
Mr. McIntosh. OK. And I think that's a civilian aircraft.
Would you find that out for us?
Mr. Linnert. Sure.
Mr. McIntosh. We will hold the record open from this
hearing.
Mr. Linnert. I'll speak with him and get the exact
question.
Mr. McIntosh. We'd hold the record, if it's unanimous
consent, for 10 days and put that into the record. And also,
let me ask you unanimous consent to put this document that we
were talking about in the record. Mr. Kucinich will be
interested to note, once again, on this document the close of
the Texas, Cleveland and plating, approximately 866,000 square
feet, eliminate 700 hourly positions, 300 salaried positions
and relocate 200 people.
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Mr. Kucinich. I am, Mr. Chairman, glad you wanted that
submitted in the record. May I for a second here?
Mr. McIntosh. Yes.
Mr. Kucinich. This document--thank you, Mr. Chairman. I
consider this document instructive for a number of reasons.
It's been BFGoodrich's contention all along that nothing's
final, these are just planning discussions. However, it's been
consistent in all their planning discussions to direct the
closing of the Cleveland facility. Because of the number of
people in my district who happen to be affected by this, I'd
just like to have the privilege of asking this question. In a
number of internal communications that I've reviewed with
respect to BFGoodrich, there is a--seems to be a consistent
interest in facilities that are, ``union free.'' What do you
mean by that? What does that mean?
Mr. Linnert. I don't know what that means, because that is
not the policy of BFGoodrich.
Mr. Kucinich. What do you think that means? Why would that
be in a----
Mr. Linnert. I do not know.
Mr. Kucinich [continuing]. Communication?
Mr. Linnert. As I said a minute ago, Representative
Kucinich, that is not the policy of BFGoodrich.
Mr. Kucinich. Is this document from BFGoodrich?
Mr. McIntosh. It is. It was one of the ones they submitted.
Mr. Kucinich. Could I ask the gentleman to look at it.
Mr. Linnert. Is this the one you gave them? OK. I have it.
Mr. Kucinich. Have you looked at that?
Mr. Linnert. I was handed it before this hearing started,
yes.
Mr. Kucinich. Who is Mr. Ernie Schuab?
Mr. Linnert. He is the group vice president--one of the
four group vice presidents in our aerospace business.
Mr. Kucinich. He works for BFGoodrich?
Mr. Linnert. Yes.
Mr. Kucinich. Who's Mr. Jack Carmola?
Mr. McIntosh. Oh, we established that. He is with
BFGoodrich, also. And Mr. Wright's with Menasco with Coltec.
Mr. Kucinich. So you're saying that, despite the fact that
you have a memo here, which is from BFGoodrich, that relates to
having production facilities that are union free, you're saying
that's not your policy?
Mr. Linnert. Yes.
Mr. Kucinich. Would you also say that your interest in
merging with Coltec has nothing to do with the fact that
Coltec's located in a right-to-work State?
Mr. Linnert. That is correct. It has nothing to do with
that.
Mr. Kucinich. So, the fact that there is a memo here, a
company memo, that assesses this stage before a merger and it
mentions that the facilities would be union free. And not only
once, I think it's mentioned several times throughout the
BFGoodrich's documents. And that you would go to a--move to a
right-to-work State and out of a unionized environment, you're
saying that that's not your policy?
Mr. Linnert. That is not our policy. That is exactly what
I'm saying.
Mr. Kucinich. But it's becoming your policy.
Mr. Linnert. No, sir, it is not.
Mr. Kucinich. I see. Thank you for your answers.
Mr. McIntosh. Thank you. I have one last question for the
panel, and undoubtedly we'll need to ask you all to join us at
our field hearing in Cleveland because there is some more
information we'll be getting, but Mr. Montalbine, Mr. Roemer
referred to a letter from your CEO about the merger between
AlliedSignal and Honeywell. For the record, and under oath, do
you know any reason that would preclude AlliedSignal from
following through with that promise not to reduce the work
force here in South Bend as a result of that merger?
Mr. Montalbine. I know of no reason that that would be the
case. There really are no synergies in the area of landing
gear, wheel and brake, or brake control with Honeywell; they
simply do not make those products, and I see no conflict there
with regard to jobs in South Bend. It's not the indication.
Mr. McIntosh. On the other hand, you said that you felt if
you had to adopt a strategy of simply servicing the
aftermarket, that in 5 years the work force might need to be
diminished by about half.
Mr. Montalbine. Approximately, yes, I said that.
Mr. McIntosh. Are you comfortable that with the
continuation of the strategic alliance agreement with Coltec
for an additional, approximately, 5 years, that that can be
forestalled during that period?
Mr. Montalbine. If the alliance agreement existed as it
does today, where we have complete trust that our proprietary
information was not going to be compromised, yes, that would be
forestalled, we'd be able to compete in the 12 or so programs
that are coming down the line. But the proposal that's been
made is that, simply put, that I trust a competitor with very
sensitive information. I have not been convinced that it is
possible to put firewalls in place and that those firewalls
won't inadvertently be sometimes taken advantage of.
Mr. McIntosh. So given that, if the merger is allowed to go
forward, and the court case is resolved in that way, and the
requirement for Coltec is to continue to live up to that
agreement, what would be AlliedSignal's strategic plan at that
point?
Mr. Montalbine. We'd have no choice but to live up to the
agreement that we've had, and make the best of it.
Mr. McIntosh. By ``make the best of it,'' would you
anticipate participating in bidding on those 13?
Mr. Montalbine. I think it would be difficult for us to
participate as we've planned in those programs. Again, we would
be subject to information that we had to rely on was accurate
from a competitor; there are numerous opportunities to gain the
system, slow us down, inadvertently leave key information, you
know, out of drawings and interface documents. It's been done
today. It's done today. It's done today by Messier.
Mr. Linnert. Mr. McIntosh----
Mr. Montalbine. So, I quite frankly, would be----
Mr. McIntosh. Let me ask one other question.
Mr. Linnert. No, let me respond to that one for you. I
resent that. What he is saying is that BFGoodrich and Coltec
will not live up to that agreement, and that I take affront
that anyone says that we are going to game a system or take
advantage of proprietary data. The Arbitration panel will stay
in place. If there's a problem down the road, we will be back
to that Arbitration panel. But they have said, this agreement
can work and they'll help us make it work.
Mr. McIntosh. I see. Mr. Montalbine.
Mr. Montalbine. Let's address, you know, what's been
proposed here only addresses strategic alliance agreement, not
the antitrust issue, which is the other side of the story here.
And, in addition, in the area where a systems bid is proposed,
you know, the strategic alliance agreement, I would have to
live with; but how about if a systems bid was not the case?
BFGoodrich would have an 18-month head start--because that's
how long a landing gear is designed in advance to wheels and
brakes--they would have an 18-month head start on the design,
and they would have an opportunity to tailor that design for
their equipment. By the time we saw it, we would be out of the
game, it would be impossible for us to recover. And that's what
happens today.
Mr. McIntosh. Let me ask this: If there is a systems bid,
that's determined by aircraft manufacturer.
Mr. Montalbine. That's correct.
Mr. McIntosh. And if they did ask for that, would you,
under that strategic alliance, be competing with another part
of the BF-Coltec--BFGoodrich/Coltec merged company?
Mr. Montalbine. If the strategic alliance agreement was
followed, they would have to use our wheels and brakes
exclusively.
Mr. McIntosh. So, in the resulting marketplace for landing
gears to the extent there are systems bids requested by the
aircraft manufacturers for the two-thirds of the business--and
that obviously changes as you have contracts that compete for
each other--BFGoodrich would need to use you for the wheels and
brakes component; they couldn't use a different manufacturer or
build it themselves in a completely integrated system.
Mr. Montalbine. They can compete--if an integrated system
is requested, they can try to compete on a component basis
only, BFGoodrich wheels and brakes. They would have to use
Goodrich--the Goodrich landing gear business would have to use
our wheels and brakes for the system. The wheels and brakes
Goodrich provides would have to be on a component basis.
Mr. McIntosh. OK. Again, I think we will continue to
explore these in the next subcommittee hearing. We've decided
to keep the record open for an additional 10 days. We will have
questions for each of you we may be asking as a result of
digesting the material today. Also let me invite you, if there
is some additional thoughts that come to you after we finish
this, we'll also accept those. If you end up referring to
somebody else, we will give them an opportunity to comment as
well. So, but we'll--this is an on-going process and we'll have
another public forum in a few weeks in Cleveland to continue
with those. So, thank you all for coming. It has been
enormously helpful to me.
Mr. Kucinich. I just want to ask you, before the hearing's
concluded, will we--is the committee going to call witnesses
from BFGoodrich and Allied again?
Mr. McIntosh. I believe it will be necessary to do that.
Mr. Kucinich. Yeah, I think it will be.
Mr. McIntosh. Yeah. And BFGoodrich, Allied and Coltec.
Mr. Kucinich. Just so that they're advised right now, if
you would.
Mr. McIntosh. Yes, I believe we will need to do it. Your
testimony today has been enormously helpful in framing the
issues on the marketplace and the back and forth. It's gotten
some very important facts out on the table, such as what is the
consequence here in South Bend if AlliedSignal is indeed forced
out of the business and just has to rely on the aftermarket. I
think that's a very tragic consequence for the employees here.
So, we'll continue that. Thank you for coming. I appreciate
it. Particularly in giving up a Saturday to be here. It has
allowed us to be able to do our job in Washington, but continue
with this subcommittee work. The next one, by the way, will be
scheduled, for July 7th. And so if you could mark your
calendars for that, I won't ask you to give up another weekend
day. So, thank you and we will move on to the next panel.
Mr. Linnert. Thank you, Mr. Chairman.
Mr. McIntosh. Let me call forward now the second panel.
Mayor Luecke of South Bend, Patrick McMahon, who is the
executive director of South Bend's Project Future, and Thomas
Bode, who is the AlliedSignal employee--works for AlliedSignal
and president of the United Autoworkers there, local No. 9. If
you all would please come forward. Thank you. Thank you, in
addition, for waiting, Mayor Luecke, to do this; I appreciate
you, on a busy day here in your city, coming forward and
participating in this. And welcome to our subcommittee.
Mayor Luecke. Thank you.
Mr. McIntosh. Let me ask each of you--and as I explained in
the first panel, please don't take it personally, but we have a
policy that Chairman Burton has put into place, it is a long-
standing policy with our committee, of swearing in all our
witnesses. So if I could ask each of you to please rise, and do
you solemnly swear that the testimony you will give today is
the truth, the whole truth and nothing but the truth?
[Witnesses sworn.]
Mr. McIntosh. Let the record show that each of the
witnesses answered in the affirmative. What we're going to do
again is take all of the prepared remarks and the materials
you've given us, and put them into the record. I'll now ask
each of you to spend about 5 minutes summarizing that
testimony. And then if there are questions that Representative
Kucinich or I have, we will ask them after that.
Mayor Luecke, thank you for coming today and let me ask you
to lead off this panel with your testimony.
STATEMENTS OF STEPHEN LUECKE, MAYOR, SOUTH BEND, IN; PATRICK
MCMAHON, EXECUTIVE DIRECTOR, PROJECT FUTURE; AND THOMAS BODE,
PRESIDENT, UNITED AUTOWORKERS LOCAL NO. 9
Mayor Luecke. Thank you, Mr. Chairman, Mr. Kucinich,
welcome to South Bend, home of the perfect day. And home of the
world-famed ethnic festival. I echo Congressman Roemer's
invitation to you, after you're done here to come and enjoy
some great food and friendship with the people of South Bend.
As mayor of the city, I appreciate your focus on this issue
of the merger of BFGoodrich and Coltec Industries, and I thank
you for the opportunity to express my concerns on the impact
that such a merger could have on AlliedSignal and on the South
Bend economy. I've been mayor of South Bend since 1997. Prior
to that, I served as a city council member for 9 years; I
certainly do not have the expertise of members of the first
panel or of members of this panel, but where my expertise does
lie is in knowing the importance of having good jobs in the
city of South Bend, and AlliedSignal certainly provides good
jobs to our citizens. Those jobs are important, both for the
families that are supported by those jobs, for local economy,
because those employees buy goods here and also for the local
economy because AlliedSignal buys goods locally and regionally
as they produce their products.
I want to say that certainly good jobs are also important
in our community because when we have a good economy it helps
to reduce crime and it certainly helps to provide opportunity
and hope for young people that are entering the work force that
they will be able to support themselves and support their
families as they choose a positive path, rather than a negative
one.
Just for all these reasons that the city of South Bend has
focused its economic development efforts on trying to attract
and maintain manufacturing, light industrial, warehousing and
distribution jobs in our community, we have focused in that
area, rather than the service sector, as a means to provide,
again, good jobs for our people in the community. I would tell
you that we have worked hard with AlliedSignal to build their
business here in South Bend; we have provided some government
incentives to them, both tax abatements for an on-going hundred
million dollar expansion of business that they are in the
process of doing; we are also working to expand our urban
enterprise zone to include AlliedSignal so that they can
continue to be competitive in the marketplace, both nationally
and internationally. We certainly appreciate their annual
payroll of over $75 million. They bring many things to this
community. In addition to the business and the jobs,
AlliedSignal has been a good corporate citizen for our
community and has worked hard in contributing to a variety of
different efforts. And I would point in particular to their
assistance with our DARE program, they have worked in
partnership with our Fire Department, the Center For the
Homeless and a project at Hamilton School, among other things.
So that they are not just a good corporate citizen, but also a
good citizen in terms of working in the community, in a variety
of ways, to make South Bend a great place to call home. As I
say, we have worked hard with them, over the years, so that the
ripple effect of their investments continues to impact
positively in this community.
I want to thank--Congressman Roemer has been very
instrumental in working with AlliedSignal to bring jobs to this
community. The Governor's office, our State Representatives,
certainly the local council members also. I will actually defer
mostly to Mr. McMahon to talk more about the specifics of
impact on the local economy. But again, thank you for your
attention to this matter. We are certainly dedicated to working
hard with AlliedSignal to keep them and their jobs in this
community, to continue providing the effect that they have.
Looking forward to continue to working with your subcommittee
in any manner that we can to support this effort with the
Governor's office, with Congressman Roemer, the Attorney
General of our State, as well as our local State legislators.
So, thank you and welcome to South Bend.
[The prepared statement of Mayor Luecke follows:]
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Mr. McIntosh. Thank you, Mayor. I appreciate that. And
you've made it very clear that the community here really has a
lot at stake in the outcome of this, and it's something we want
to make sure works for the future of South Bend. And I
appreciate your attention to this, and the good work. The staff
has kept me abreast of exactly how concerned you've been about
this. Thank you.
Mayor Luecke. Thank you.
Mr. McIntosh. Mr. McMahon, thank you for coming and share
with us, as the Mayor said, you fill in the broad--or the
details on that broad perspective of how good the corporate
citizen they are.
Mr. McMahon. Mr. McIntosh, Mr. Kucinich, thank you very
much for this opportunity. I am the executive director of
Project Future. We are an Economic Development organization
that's community-based; have been in business since 1982.
During those 17 years, we've brought hundreds of millions of
dollars of investment into the community; a good deal of it is
manufacturing based, not unlike what we have with AlliedSignal.
We are involved in entrepreneurship activities in
supporting the development of new business; we're in the
business of moving forward with strong programs in the
community, to reinforce work force development and skill levels
across the community, that aid in increasing the quality of
life of the wages earned by our citizens. And so, I believe
over these 17 years we've developed a fair amount of expertise
in taking a look at what the impacts of businesses such as
AlliedSignal's had on our overall community and on our economy.
If I could elaborate on that. I have provided you with some
testimony that talks about the investments that Allied has made
here specifically in recent years; the Mayor touched on that.
Let me say that the U.S. Government provides us with some
excellent tools to take a look at the ripple effect of
businesses in our community, and what the direct and indirect
impacts are of different business units. You know that the
total employment of the South Bend operations for AlliedSignal
is about 1,500. And that you know that the total payroll in
this community is about $75 million. If you specifically take a
look at the aircraft landing area, we would estimate that its
share of the local payroll is about $45 million. Through
modeling we can take a look at the impact of purchased services
in the area. We understand that the aircraft division purchases
approximately $22 million in services from Indiana-based
suppliers alone. Of the 599 Indiana suppliers that currently
serve this division, 415 are located in St. Joseph County. If
we apply some percentages to that, it would appear to us that
roughly $15 million of the $22 million of Indiana purchases
occur in this immediate area.
The direct impact of the landing systems on our community
is roughly 942 jobs, $45 million in payroll and about $15
million in purchase services. That's a huge impact when you add
it together. We talk locally about Notre Dame football and
things that happen at the University. The $60 million stadium
impact over a 2- or 3-year period is repeated every year by the
Allied division based on the economic impact into the
community; it has great significance here.
Of the 942 jobs, as we take a look at how that level of job
impacts a community, we would suggest that there is another 830
indirect jobs that really bring the impact of that division to
our community to roughly 1,770 individuals.
From an income multiplier standpoint, we look at $45
million in payroll and we would suggest that the indirect
income loss would add another $24 million, which would bring it
roughly to about a $70 million impact from payroll in the
community. These are very, very significant.
Last, let me say that, we spend a great deal of time
focusing our efforts on developing highly skilled work force
and well-paying jobs in the community. The significance of the
AlliedSignal presence here in this division is huge in that
regard. The average payroll for employees at AlliedSignal is 35
percent above the rest of the manufacturing base in this
community. And is about 80 percent above the average payroll in
the community for all jobs across St. Joseph County. This is a
huge impact and reflects a very major employer in the
community. Not only from the standpoint of employees, purchase
services, but also from the economic ripple effect.
Also, as you know, in addition to the 942 individuals that
are based here, there's another 500 that are associated with
this division that are spread out throughout the country; and,
if you look at our adjacent States from a purchase/service
standpoint, in addition to the $22 million that is spent in
Indiana, there is another $52 million that's spread across
Illinois, Michigan and Ohio.
So, we appreciate Allied as a very significant employer,
and we look at this particular division as having a huge impact
on the community.
[The prepared statement of Mr. McMahon follows:]
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Mr. McIntosh. Thank you. I appreciate that. That helps
enormously to put in perspective the dire consequences of
making sure that this decision was made correctly in the
government agencies that approved the merger. So, it's
important to look at exactly what that impact is on real
people's lives, and I appreciate you for quantifying that for
me.
Let me turn now to our final witness on the panel, Mr.
Thomas Bode. I appreciate very much you coming and representing
the perspective directly of those workers and what it will mean
in their lives. So, welcome to our subcommittee, and please
share with us a summary of your testimony today.
Mr. Bode. Thank you very much, Chairman McIntosh, Ranking
Member Kucinich, rest of the committee, and Congressman Roemer
for his participation, though I believe he's gone. It's a
privilege to appear before you this morning. It's not morning
anymore. I'm Tom Bode, president of local 9 UAW here in South
Bend. I was elected to my second term to the presidency earlier
this month. I've been affiliated with AlliedSignal and then
Bendix local 9 for 33 years.
Since 1993, I served as committeeman, vice president and
president of local 9. In addition, I serve on the credentials
committee of the UAW International in its Aerospace Advisory
Council. I'm vice president of the four State AlliedSignal UAW
Council. One of our primary responsibilities on this council is
to negotiate AlliedSignal's master agreement for more than
7,500 retirees and 944 active employees. As the president of
local 9, my job was to represent the interest of our 2,700
members, active and retired, in every aspect of the UAW's
affairs; including labor negotiations, collective bargaining
issues, work conditions, wages and benefits, community
involvement and political action. I served as the link and
strategic business partner between labor and management on the
aircraft landing systems leadership team.
Besides competitive benefits and pay, AlliedSignal [ALS],
leads the way in labor management relations. In the last
several years, ALS has been living a unique partnership. An
aggressive and changing aerospace industry inspired ALS and our
UAW work force to rethink our business and manufacturing
processes. With the productivity at near capacity, and the
demand increasing, we had to work smarter and more efficiently.
This meant changing the culture and layout of a 75-year-old
company. Approximately 45 percent of our total employee
population are members of UAW local 9, which was chartered in
1935. Clearly, we had legacy issues and we had to address them.
At the same time, we had an established mind set in the
salaried work force. By creating a true partnership, we have
been able to develop business and manufacturing efficiencies
never before experienced in the history of this well-
established company. This is a type of work force we have in
place; aggressive, responsive and willing to change to ensure
the continued growth and success of our wheel and brake
business. We are currently positioned to be a strong competitor
in a free and open market.
If the Goodrich/Coltec merger is approved, it will have a
devastating effect on aircraft landing systems and its
employees; that merger would severely impact our ability to be
a supplier to, both, original equipment manufacturers and the
airlines. This merger would virtually eliminate a fair and open
market. There's a trend in the industry that indicates the
aircraft manufacturer looking toward the procurement of landing
systems to reduce their cost of new aircraft, integrated
landing systems require gears, wheels, brakes and brake
control. If we're missing any one of these components, we can't
provide the landing system.
This purchasing trend is very common now in the regional
aircraft market. We have evidence to show that this is a trend
in large commercial air transport as well. In recent years, ALS
has increased jobs, in part because of the growing business and
new projects that ALS obtained through its innovative efforts.
If the BFG/Coltec merger goes through ALS will not be on new
projects and jobs will be lost.
The Goodrich/Coltec merger would have a significant impact
on ALS business. The greatest concern is over the next 5 to 10
years; if we cannot provide an integrated landing systems,
airlines will not choose us. If we're not on the original
equipment, we are virtually eliminated from aftermarket
business. With the lack of new projects, our jobs and our
future jobs will be severely jeopardized. The end result is
that our customer base would shrink for any substantial
questions about the long-term viability of our wheel and brake
business.
ALS is not the only business in the community that would
feel the impact of a reduction in work; there are more than 500
local suppliers who depend upon ALS for their business. Since
January 1st, ALS has spent more than $33 million in the
community. These dollars represent both revenue to our
suppliers and contributions to local non-profit organizations.
AlliedSignal is the sixth largest employer in this community.
The Goodrich/Coltec merger, if allowed to proceed, will have a
lasting negative effect on this business and ultimately the
community.
Thank you to the committee for allowing me to speak before
you today on this important matter. I would also like to thank,
again, Congressman Roemer for being a long-time friend,
supporter of local 9 AlliedSignal in our community.
[The prepared statement of Mr. Bode follows:]
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Mr. McIntosh. Thank you, Mr. Bode. And I'll confirm with
you that he's a good friend in Washington, as well. He talks
quite a bit to his colleagues about the importance of this. Let
me just ask a general question. We heard in the first panel
some different scenarios about how the future might play out.
But one of them that was disturbing to me was that
AlliedSignal, although they continue manufacturing for the
aftermarket for some time that if that was the only part of
their business, they would essentially be reducing their work
force here to about 500 in 5 years. And that seems to be the
crux of what is going, can they compete in the new purchases
for those landing gears, which as Mr. Bode and several people
in the earlier panel said many in the industry seem to think is
the direction this is heading. That sort of 5 years down to 500
number, that has tremendous consequences. And I wanted to just
get your feedback on what that would mean for the community,
what that would mean for the workers at the plant.
Mayor Luecke. Mr. Chairman, thank you. I don't pretend to
be an expert in terms of what may or may not happen in terms of
the proposed merger, but we certainly would be concerned about
the loss of jobs at AlliedSignal. AlliedSignal are good-paying
jobs in the community, as has already been mentioned; they're
high-skill jobs; they're the type of jobs that we want our
young people to be able to look forward to moving into at some
point. It certainly would mean a loss of purchasing power in
the community. And that would impact the housing market. It
would impact sales of retail items, and certainly would impact
contributions to charities and volunteer activities, also. So,
clearly, we want to do all that we can to make sure that those
jobs can continue in this community.
Mr. McIntosh. Mr. McMahon, the data you provided, would
that put in danger, substantially, a significant portion of the
economy that you outlined that was dependent on the
AlliedSignal?
Mr. McMahon. From a job standpoint, it's roughly half. And
so to the extent that it correlates, it would roughly affect
those other numbers perhaps by half also. I don't know where
the different business sections fall into subsets with any of
those categories. But to drop the work force by half would be a
very significant impact and could potentially affect half of
those other numbers. We would hope that Allied would
aggressively find a way to deal with that. And aggressively
find a way to substitute or reinforce or recreate activities
within their framework so that they could be competitive on all
sides of this.
Mr. McIntosh. What they indicated in their testimony they
would like to do is step into that competition for the whole
integrated system. And be able to expand, rather than contract
as a result. Mr. Bode, any final comments from you?
Mr. Bode. Well, in respect to decline of 500 jobs, I can
echo what the rest of the committee has said. It would impact
everyone in the community; no one more directly than the UAW
membership. A true contradiction, we're at a time where we have
grown successfully 25 percent in the last 4 years, and people
are continuing to return to AlliedSignal after being laid off
for sometimes in excess of 10 years; they expect to come back
to this place. It is the best place to work. It shows a
commitment from those people to come back.
I think it's been stated over and over today, that if
you're not on that original integrated system, you can't play
catch-up, and you can't get on, and you can't gain enough in
the aftermarket to sustain that. There's been mention before
that the money is in the aftermarket, and that's true. But if
you're not on the integrated system, you're not on the
aftermarket.
And one other point, maybe selfishly, but a point
nonetheless, is that I have a number of people that are
gainfully employed, producing that equipment that we may give
away early on in the marketplace, but they manufacture that
material just the same, and they get paid well for doing it. So
if that goes away and so do those wages and those jobs. It's
critical.
Mr. McIntosh. Thank you. Mr. Kucinich, do you have
anything?
Mr. Kucinich. Yes. First of all, in any community which our
committee does work, we certainly recognize the importance of
the civic leadership, the business leadership and the
representatives of working people. And having been a mayor of a
city, I understand, Mr. Mayor, how crucial it is to make sure
that the major businesses in your community and the corporate
partners are going to be safe and secure. And Congressman
McIntosh and I have proceeded with this review in the spirit of
trying to make sure there is some job security provided in this
State as well as Ohio. And having worked closely with the
business community in the city of Cleveland, any time there's a
potential adverse impact to the community, we certainly are
going to get information, all the information we can, which is
what this whole endeavor has been about.
Now, to Mr. Bode, actually my involvement in this came
through being contacted by Region Two of the UAW, Warren Davis,
who sends his regards. And he noted that the 650 jobs--
including Pneumatic, were on the line. Now Chairman McIntosh,
in starting this probe, has been able to get control of some
documents, which I think start to spell out what some of the
underlying currents are here. And in this one document that's
dated January 8th, 1999, in talking about closing the Texas,
Cleveland and plating plants, eliminating 700 hourly positions,
at 6 months' severance pay. The hourly positions they're
talking about--this is what it says here in the document,
assumes $50,000 a year. And it talks about eliminating 300
salary positions, assuming at $60,000 a year. And in this
document, it--as I pointed out in the questioning of Mr.
Linnert, it speaks of having production facilities which are
union free. One of the things that occurred to me is that in
consolidating work in North Carolina, it would be going to a
place that was nonunion. In fact, in this document it talks
about building a plant, adding 300 people, nonunion, new hires.
There is a relationship between the stability of a
community having solid, good-paying jobs, and the long-term
viability of the community. We found that out in Cleveland, you
know, in changes in the steel industry, for example. And so,
you know, I can well understand the concerns that your
Congressman has expressed, Congressman Roemer, to make sure
these jobs are solid. And the concerns that Mr. McIntosh has,
the same reason. And to assure all of you, who have kindly
agreed to give your views this morning, that we are going to
pursue this in every way possible, in working with Senator
Dewine, in working with other Members of Congress, and in
tracking down every bit of details so we can see what we can do
about protecting these good-paying jobs and keeping the
communities healthy, and also protecting interests of the
American taxpayers. Because, as Congressman McIntosh has stated
earlier, anywhere there's a monopoly, especially in a defense-
related industry, that has to--it's inevitable that that will
result in higher prices for--what the government pays for these
goods and services. It's inevitable. And having been on many
reviews and our committee, as we've done in Government
Oversight, on the purchasing practices, on spending practices
of the Department of Defense, we have to be extremely careful
to make sure that the American public is always getting the
best possible purchase. And the way that we assure that is
through competition. Which is why we are proving, throughout
this whole discussion of merger, Mr. Chairman, we have seen how
competition can be of benefit. And I'm very grateful to have a
chance to visit this fine community and to work with you on
this. And I can tell you that this information that we've
gathered today has been helpful and will be instructive as we
prepare for the hearings in Cleveland. So thanks for all of
you. And thank you, Mr. Chairman.
Mr. McIntosh. Thank you, Mr. Kucinich, for coming over and
joining us. And welcome to Indiana today. With that, that
closes out this field hearing. And again, thanks to everybody,
and all of you on this panel for participating. The committee
is adjourned.
[Whereupon, at 1 p.m., the subcommittee was adjourned.]
THE ECONOMIC EFFECTS OF THE PROPOSED BFGOODRICH/COLTEC MERGER
----------
WEDNESDAY, JULY 7, 1999
House of Representatives,
Subcommittee on National Economic Growth, Natural
Resources, and Regulatory Affairs,
Committee on Government Reform,
Cleveland, OH.
The subcommittee met, pursuant to notice, at 10 a.m., in
the Cleveland City Council Community Room, City Hall,
Cleveland, OH, Hon. David McIntosh (chairman of the
subcommittee) presiding.
Present: Representatives McIntosh and Kucinich.
Also present: Representative Tubbs Jones.
Staff present: Luke Messer, counsel; Gabriel Neil Rubin,
clerk; and David Sadkin, minority counsel.
Mr. McIntosh. The Subcommittee on National Economic Growth,
Natural Resources, and Regulatory Affairs will come to order.
I would like to at this point recognize our host, Mr. Jay
Westbrook, who is the president of the Cleveland City Council
and the person who arranged for us to be in this lovely room.
Jay, thank you very much.
Mr. Westbrook. To Congressman McIntosh and our two Congress
people, Dennis Kucinich and Stephanie Tubbs Jones and to our
outstanding Senator, Senator Michael DeWine; the city council
is very honored to host this extremely important hearing today.
Congressman, we are extremely appreciative of your time
commitment. We know that you have an important engagement later
this afternoon, which even highlights more your commitment in
being here.
Ed Rybka, the councilman of the 12th ward, where this plant
is located, Cleveland Pneumatic, now BFGoodrich, has had a
great history in Cleveland. Cleveland has had a great history
and one which we are striving hard to regain as an industrial
center and one where we think we are making great strides.
But to this panel, I have to say that we cannot do this all
alone and we are extremely appreciative of your interest in the
impact upon the community that this proposed merger could have.
We know that we are in a period in our economy, some would
say a boom, but with every boom, we certainly do not want that
to be a bust for this community. And through your deliberations
here today, through our hosting of this meeting, we hope that
we can find the proper guarantees to our community that
whatever actions are taken will not result in harm, but will
result in the continued ability of this community to host a
great plant for the manufacturing of aeronautical equipment.
So Congressman, we appreciate having you here today. Our
facilities are at your disposal. Our staff is committed to
making this a success and we again are deeply appreciative of
your commitment here today. Thank you.
Mr. McIntosh. Thank you very much and thank you for making
this wonderful facility available to us.
We are here today as a subcommittee to express our concerns
over the proposed merger between BFGoodrich and Coltec, Inc.,
and to examine whether that violates the Nation's antitrust
laws.
I want to say at the outset that this is our second
hearing, this issue first came to my attention when
Representative Kucinich started talking with me about the
problems and the concerns he has about the merger over 2 months
ago. And I am pleased to have our colleague join us in the
panel, Stephanie Tubbs Jones--in fact, let me ask unanimous
consent that she join us as a member of this subcommittee with
full privileges today as our special guest, without objection,
so ordered.
Our first hearing was June 19 in South Bend, where the
AlliedSignal plant could be affected by the consequences of
this merger. And earlier in the month, your Senator, Mike
DeWine, who is going to be testifying later today, conducted a
parallel hearing in the Senate, which first brought many of the
documents and the testimony forward that we have used in this
review in our oversight investigation.
I still have very serious concerns regarding the
thoroughness of the Federal Trade Commission and the Department
of Defense's review of this merger, and I am hopeful today that
our discussion will shed further light on those concerns.
As I mentioned in our June 19th hearing, I am well aware
that the three parties represented today--BFGoodrich,
AlliedSignal and Coltec--are also parties to a private
antitrust lawsuit. That matter is properly before Judge Allen
Sharp of the U.S. District Court in the Northern District of
Indiana and we will be careful not to interfere in this
proceeding with that judicial process.
Nonetheless, there have been some very significant
developments in the case since we held our field hearing on
June 19th. Dennis was kind enough to come over to South Bend
for that first hearing.
On June 23rd, the U.S. Court of Appeals for the Seventh
Circuit upheld Judge Sharp's motion granting a preliminary
injunction in this matter. And on June 28th, Judge Sharp issued
an order indicating that trial in the matter will go forward on
July 12th. So we will ask the parties here today to make sure
that we do not interfere with that judicial proceeding, but
also be as candid as possible in the matters before us.
In essence, we are here to ensure that the 1,100 workers at
the AlliedSignal plant in South Bend and the 650 workers in the
Cleveland Pneumatic Plant are given a fair chance to compete. I
support free market competition, but you have to play by the
rules to ensure that everyone benefits from that. If the merger
would result in a market concentration that unfairly takes away
the opportunities for these workers to compete, then the
Federal Trade Commission should take action.
After the testimony at our June 19th hearing, I would say
there are still three areas in which we have some very
significant concerns.
The first is about the potential anti-competitive effects
of the merger. Now in entering a preliminary injunction, Judge
Sharp concluded that the merger might be anti-competitive. As
he said, ``the merger would likely result in a United States
monopoly . . . that would likely result in higher prices for
[landing] gears.''
At our first hearing, Professor Bauer, who is also
testifying again today, spoke about the important pro-
competitive goals that result from our Federal antitrust laws.
Healthy competition leads to lower prices, increased
innovation, and improved quality of safety, as industry leaders
are forced to improve in an effort to compete in the
marketplace.
However, Professor Bauer also testified that he is
concerned this merger could result in a monopoly that would
force, in an unfair way, consumers to pay higher prices for
landing gears. Now using the FTC's own system of analysis, he
indicated that their index that grades mergers would grade this
merger about 20 times higher than what the guidelines say are
the threshold for raising significant competitive concerns. We
will be asking Professor Bauer later today to further elaborate
on that analysis.
There are also some concerns that we have to look at
nationally. One concern is that the concentration here in the
United States leads to there being only two suppliers
worldwide, the other one being a company owned by the French
Government. As Senator DeWine brought forward in his hearing,
that could lead to some very significant concerns for us in
national defense and for our domestic market.
The second concern that I have got is the potential adverse
impact on the local economies. Now as a result of this merger,
if we lose 650 jobs here in Cleveland and jobs over in South
Bend, that has a truly negative impact on the local economies
in those cities. And I want to make sure, frankly, that that
does not happen.
The third concern is about open and honest public debate.
We have had some questions that have been raised there and this
committee will look into all of those to find out exactly what
the truth is and what will be happening as this merger moves
forward.
Now in closing, I want to emphasize I am not an automatic
no to a merger. At Senator DeWine's hearing, AlliedSignal
proposed what I think would be a win-win solution, where they
could purchase BFGoodrich's Cleveland facility. If this sale
occurs, everyone seems to win. BFGoodrich and Coltec could
complete their merger, as they would like to do and receive the
benefits of that new joint operation. AlliedSignal could
continue to have an opportunity to compete and the workers here
in the Cleveland plant could continue on their jobs to produce
excellent products.
Most importantly, according to AlliedSignal's earlier
testimony, they are committed to long-term investments that
would preserve jobs both in South Bend and in Cleveland.
I am sure this offer will be discussed again here today. To
me, it looks like a common sense solution. I would hope the
parties would be able to consider that.
With that, let me again say welcome to our guests; Senator
DeWine, who will be our first witness, and Congresswoman Tubbs
Jones, who will be with us here on the panel; BFGoodrich's
senior vice president and general counsel, Terrence Linnert;
AlliedSignal deputy general counsel, Nancy Loeb; Coltec
executive vice president and general counsel, Robert Tubbs;
Notre Dame Professor Bauer and the assistant director of the
UAW region 2, Mr. Richard Vadovski.
We are hoping later, if the mayor is able to, he will also
try to come by and testify at this hearing.
With that, Dennis, let me turn to you, if you have got an
opening statement and then we can proceed with our witnesses.
[The prepared statement of Hon. David M. McIntosh follows:]
[GRAPHIC] [TIFF OMITTED]59989.096
[GRAPHIC] [TIFF OMITTED]59989.097
[GRAPHIC] [TIFF OMITTED]59989.098
[GRAPHIC] [TIFF OMITTED]59989.099
Mr. Kucinich. I do. As the ranking Democrat on this
Subcommittee on National Economic Growth, Natural Resources,
and Regulatory Affairs, I want to thank Chairman McIntosh for
scheduling this hearing this morning. I would also like to
thank Senator DeWine and Congresswoman Stephanie Tubbs Jones
for joining us today as well as to thank city council
president, Jay Westbrook, as well as the councilman
representing the District, Mr. Ed Rybka, and the people of
Cleveland for inviting us to hold a hearing on the economic
effects of the proposed merger between BFGoodrich and Coltec
Industries.
I think it is very important for Members of Congress to get
into the communities that we serve and for our constituents to
have an opportunity to see their government at work, especially
when an issue such as this has a direct impact on our district
and our city. That is why we are here this morning, to hear
firsthand from those who have a stake in this--from elected
officials, company executives and the union that represents the
people that will be most affected by the merger, the 650 people
at the Cleveland Pneumatic Co. whose jobs would be placed in
jeopardy if this merger goes through.
At the time the merger was announced, BFGoodrich said they
intended to relocate their headquarters from northeast Ohio,
where the company has been located since it was founded in
1870, to Charlotte, NC. This move meant the loss of 170 jobs.
But, according to a company press release issued at the time of
the announcement, ``no other Ohio-based jobs would be affected
by the decision to relocate the headquarters.'' That is a
direct quote.
This commitment was reiterated in a November 23, 1998
letter to me from the company's CEO. But while the company was
telling the news media, the people of Cleveland and elected
officials such as Senator DeWine and myself that the merger
would not result in the loss of manufacturing jobs, company
officials were busy crunching numbers and telling government
antitrust regulators that the company was considering three
post-merger options. All options included the closing of the
Cleveland facility.
Why Cleveland? There is one person that could answer that
question definitively. Chairman McIntosh and I asked BFGoodrich
CEO David Burner to testify today before this subcommittee and
to answer our questions under oath and on the record. Mr.
Burner has refused our invitation.
But what we do know is that according to the company's own
documents, closing Cleveland was part of a strategy to meet the
company's ``ideal world objectives'', which included ``no
union.''
At the same time that these unionized employees are faced
with losing their incomes, BFGoodrich and Coltec will pay their
top executives tens of millions of dollars in bonuses.
According to a report in the Cleveland Plain Dealer, nine top
Coltec executives will receive severance payments totaling
nearly $55 million after the company is acquired by BFGoodrich,
including a $20 million golden parachute to the CEO. Six of
these executives, including the CEO, will be retained by the
new company. A company spokesman told the Plain Dealer that the
payments are being made because the executives will be making
less money and have less responsibility after the merger.
So, while hundreds of hard-working Clevelanders will lose
their jobs, these company executives will reap millions of
dollars in bonuses to retain jobs with less responsibility.
Maybe that is why those executives decided to change the merged
company's name from BFGoodrich to Inrich--or should I say
``enrich.''
Well, there is still hope. A Federal judge in Indiana has
entered a temporary restraining order to halt the merger. In
issuing his order, the judge found that the merger would likely
result in a U.S. monopoly for the sale of landing gear that
would result in higher prices. And there is a substantial
likelihood that AlliedSignal would succeed on its antitrust
claims. This ruling was recently upheld on appeal.
But even if this merger is allowed to go through,
BFGoodrich could still decide to keep the Cleveland landing
gear plant open. And if BFGoodrich is that anxious to get out
of Cleveland, they could sell the facility to a company that
wants to be here. AlliedSignal has offered to buy the landing
gear facility from BFGoodrich and to upgrade the facility and
honor the existing union contracts.
So I urge BFGoodrich to do the right thing, keep these jobs
in Cleveland.
Thanks again, Mr. Chairman, and again, I appreciate your
vigorous concern about this, because as all of you should know,
the chairman is here despite the fact that he has got a very
important day in his career at Heddon, IN this afternoon, and I
certainly appreciate your good faith in being here.
Thank you.
Mr. McIntosh. Thank you for your leadership on this,
Dennis. You have, on behalf of the subcommittee and even
before, been a vigorous leader in finding out exactly what is
going on here. So I truly appreciate that.
Congresswoman Jones, would you like to make any statement
at this point?
Ms. Tubbs Jones. I have a written statement and I am not
going to try and review the entire statement. I would just like
to briefly thank the chairman, Mr. McIntosh, my colleague
Congressman Kucinich, Jay Westbrook and everyone here
appearing, as well as Senator DeWine.
I am particularly interested in seeing that no merger would
impact jobs or economic development here in the city of
Cleveland. I have had an opportunity to meet with
representatives of BFGoodrich, Coltec and I said to them, as I
say this morning, I am a former summer employee of the
Cleveland Pneumatic Tool, I worked there two summers in the
plant pulling and removing document specification at that
plant.
But it is more important than the fact that I was a summer
student working there, that the jobs in Cleveland remain, and
economic development and economic revitalization remain in the
city of Cleveland and in the 11th Congressional District.
I am pleased to have an opportunity to participate and I
plan to be here most of the morning. And thank you again,
gentlemen, for giving me an opportunity to be a part of a
subcommittee that I am not really a part of. So I am going to
enjoy it.
Mr. McIntosh. Welcome, we hope you do enjoy working with
us. Thank you.
And I would ask unanimous consent that the Congresswoman's
entire statement be included in the record at this point.
[The prepared statement of Hon. Stephanie Tubbs Jones
follows:]
[GRAPHIC] [TIFF OMITTED]59989.100
[GRAPHIC] [TIFF OMITTED]59989.101
[GRAPHIC] [TIFF OMITTED]59989.102
Mr. McIntosh. Let us turn now to our first witness, Ohio's
esteemed Senator who has, as I mentioned in my testimony, been
very active on this issue and held his own hearing in the
Senate on the antitrust implications of it.
You need no introduction today, Senator, but thank you very
much for joining us in this proceeding.
STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE STATE OF
OHIO
Senator DeWine. Mr. Chairman, thank you very much. Chairman
McIntosh, we appreciate very much you holding this field
hearing today in Cleveland. It is very important to Cleveland,
very important to the State of Ohio, and as I will indicate
later on in my testimony, I think it is also very important to
our national defense.
Congressman Dennis Kucinich has been a real leader in this.
I appreciate having the opportunity to testify in front of him
today, along with Congressman Stephanie Tubbs Jones, who I know
is also very, very interested and concerned about this issue.
As you know, and as you have pointed out, Mr. Chairman,
last month, you and Congressman Kucinich testified before the
Antitrust, Business Rights and Competition Subcommittee in the
U.S. Senate, which I chair. And you testified on the
competitive implications of the proposed Goodrich/Coltec
merger. I believe, Mr. Chairman, that that particular Senate
hearing afforded the Senate a good opportunity to consider this
issue. I am certainly glad to see that the House is doing the
same today in what is now your second hearing.
Mr. Chairman, what brings us here today is not good news
for the people of the State of Ohio, nor for Cleveland. As we
all know, the proposed merger of BFGoodrich and Coltec has
raised some very troubling questions about the future of
Goodrich's landing gear facility and the fate of the hundreds
of dedicated Ohioans who work there--650 families will be
affected by this action. Mr. Chairman, my office and I have had
numerous meetings, as you know, and discussions with Goodrich
executives in an attempt to try to shed some light on this very
disturbing issue. My interest, which I am sure is shared by my
Ohio colleagues, is to see this facility remain a strong,
competitive player in the landing gear industry. We all hope
that the Cleveland plant stays open.
But I have to confess that I am very concerned for the
future of this facility. Based on the evidence that I have
seen, it appears that Goodrich is planning to close the plant.
That would be a significant loss to the Cleveland community
and, of course, a great hardship for the plant's workers and
for their families.
The impact of this proposed merger between Goodrich and
Coltec goes far beyond its effect on Cleveland. The merger
itself poses significant competition and national security
issues. The Antitrust Subcommittee hearing I held last month
confirmed that the merger would leave the U.S. military with
only one major domestic supplier for landing gear, and that
supplier would be, of course, the merged Goodrich/Coltec. The
only other provider would be Messier, a company owned by the
French Government. So we would be left, Mr. Chairman, with only
one domestic supplier.
This creation of a domestic monopoly is obviously a matter
of great concern, both for competitive and national security
reasons. Despite the very serious issues raised by the proposed
merger, the Defense Department was either unwilling or unable
to explain to our subcommittee how it had analyzed the deal.
Even more troubling is the fact that the Department of Defense
was unable to offer a satisfactory explanation of how it had
come to the conclusion that the merger was in the best interest
of our national defense.
Now Mr. Chairman, members of the committee, I specifically
asked David Oliver, the Principal Under Secretary of Defense
for Acquisition and Technology, the following question: ``What
is the advantage, though, of this merger? What does the Defense
Department pick up by this merger? How are we better off?''
That was my question.
Mr. Oliver responded by saying--and these are his precise
words: ``I am not sure--we did not look at that.'' Let me read
it again--``I am not sure--we did not look at that.''
Not long after that, I asked Mr. Oliver to clarify if, and
this was my question: ``is it better to have two competitors
than three.'' Mr. Oliver responded to my question: ``Absolutely
not,'' but later said, ``We did not look at that specific
problem.''
I find the testimony of Mr. Oliver to be inexplicable; it
makes absolutely no sense to me at all. Mr. Chairman, members
of the committee, I continue to be very troubled by the lack of
candor offered by the Defense Department. To date, I do not
know why the Defense Department supports this merger and why it
is, in their opinion, in our national security and fiscal
interest to have only one domestic supplier of landing gear.
Mr. Chairman, I plan to followup next week with a meeting with
a representative from the Pentagon when I will again ask these
questions and hopefully get some answers. As I said at the
hearing last month, the workers at the Cleveland landing gear
facility deserve the truth, their families deserve the truth.
And I hope we can get closer to the truth at today's hearing.
Let me conclude, again, Mr. Chairman, by congratulating you
for your leadership on this very important issue. I also
applaud Representative Kucinich, and Representative Tubbs Jones
for their efforts on behalf of the people of Cleveland, the
workers and their families involved.
Mr. Chairman, as it stands now, this merger looks bad for
Cleveland, bad for our national security, bad for the workers.
I know that we are all going to keep working to address the
very significant concerns that are raised by the Goodrich/
Coltec merger and I look at this hearing as being a very
constructive effort and a constructive step as we all work
together in this regard.
The questions that remain are very, very troubling. They
concern the future of workers, they concern the future of
families and they concern, Mr. Chairman, our national defense.
Again, I congratulate you and thank you for giving me the
opportunity to testify in front of the subcommittee.
[The prepared statement of Hon. Mike DeWine follows:]
[GRAPHIC] [TIFF OMITTED]59989.103
[GRAPHIC] [TIFF OMITTED]59989.104
Mr. McIntosh. Thank you very much, Senator. It is an honor
to have you join us today.
You have raised some very disturbing points that hopefully
we will be able to address in this subcommittee as well. I
wonder what exactly they are doing over at the Department of
Defense if they are not addressing the real thrust of the
question about whether this merger will be good or bad for us
in national security terms. And I appreciate your leadership in
getting to the bottom of that.
Thank you very much.
Senator DeWine. Thank you.
Mr. Kucinich. I would like to add to Senator DeWine, I
think you put your finger on one of the crucial questions of
these hearings and the hearings that you have had as well, and
that is: Just what is the Department of Defense doing about
this merger? Have national security interests really been taken
into account or has this merger simply been rubber stamped
because it is some predetermined set of circumstances? And I
know that is what we are concerned about and I appreciate the
fact that you have been pursuing this and the Chair and I have
had some discussions about this as well.
Thank you.
Senator DeWine. Mr. Chairman, if I just could, and
Congressman Kucinich, respond to your statement.
What was particularly troubling about our hearing is that
we had a number of these questions when we went into the
hearing, about national security. Unfortunately, when we came
out of the hearing, we had more questions. The representative
from the Defense Department simply had no answers. And when we
pinned him down on specific questions, ``did you take this into
consideration, how are we better off as a country with one less
competitor, with only one domestic supplier, why is that better
for the United States,'' the answer was well, we did not
consider that.
Mr. McIntosh. That is amazing. I can see how reasonable
people might disagree on something like that, but you would at
least expect them to have thought it through.
Senator DeWine. It was just very, very troubling testimony
and we are going to stay on this and we are not going to let up
until we get better answers.
Mr. Kucinich. Thank you.
Mr. McIntosh. Thank you very much, Senator.
Let me now call our next panel and we will get right to the
thrust of this matter. Mr. Linnert, Mr. Tubbs, Ms. Loeb and
Professor Bauer, please come forward.
As I mentioned to you all, all of you except Ms. Loeb had
joined us in Indianapolis, so you are familiar with the process
in the committee, but we have a standing rule from the full
committee that we swear in all of our witnesses. So do not take
it as any reflection on you, but I would ask you to please stay
standing and take the following oath.
[Witnesses sworn.]
Mr. McIntosh. Thank you. Let the record show that each of
the witnesses answered in the affirmative.
What we will do now is ask each of you, for about 5
minutes, to summarize your testimony. I would ask unanimous
consent at this point that all written remarks that you would
like and have prepared, be included in the record. Feel free to
summarize it. Frankly, as the day goes on, if you want to
interject after all the witnesses, we will get into a fairly
open flowing dialog. The purpose will be to get the arguments
and the evidence out on the table for us.
So I will start from my left to right, your right to left,
and start with Mr. Linnert, who is with BFGoodrich Co.
Summarize your testimony for us, Mr. Linnert, and especially
any new information that you have from the hearing that we had
a few weeks ago.
STATEMENTS OF TERRENCE LINNERT, EXECUTIVE VICE PRESIDENT AND
GENERAL COUNSEL, BFGOODRICH CO.; ROBERT TUBBS, EXECUTIVE VICE
PRESIDENT, GENERAL COUNSEL AND SECRETARY, COLTEC INDUSTRIES,
INC.; NANCY LOEB, DEPUTY GENERAL COUNSEL, ALLIEDSIGNAL, INC.;
AND JOSEPH BAUER, PROFESSOR OF LAW, NOTRE DAME SCHOOL OF LAW
Mr. Linnert. Thank you, Chairman McIntosh, Congressman
Kucinich, Congresswoman Tubbs Jones.
It is helpful to place today's hearing in context.
BFGoodrich and Coltec will merge to create a financially
stronger, more diverse, global competitor than either firm is
standing alone today. In today's intensely competitive
environment, we need to do this so that we remain strong,
healthy partners with our customers, and so that we provide a
growing environment for our employees. This merger will produce
savings for our customers and jobs for our employees.
There is a lot at stake in this and every other merger.
Jobs are created or constructed, companies move or grow,
products succeed or flop overnight. Missing an expanding market
or not deploying a new technology or borrowing money at the
wrong time could create a dinosaur. The results for the U.S.
economy or national security and the economic health of our
workers and shareholders can be disastrous.
There will always be critics of these mergers, beyond the
appropriate interest of the government or the courts. So be it.
But those who usually carp the loudest are most afraid that
they will lose a preferred position in the marketplace to new,
more vigorous, more modern and yes, more formidable
competition. And most frequently, these corporate critics go
out and get a deal of their own. It is ironic then that
AlliedSignal is our most vocal critic. The Allied/Honeywell
merger creates a $45 billion giant that will be able to cross-
sell aerospace products in ways that BFGoodrich and Coltec
cannot match, because we will not have the breadth of product
offerings that they do. It is even more ironic since
AlliedSignal will fire 4,500 people in connection with its
merger. While Allied's Chairman Bossidy has recently assured
South Bend that no jobs will be lost due to the Honeywell
merger, one need only look back to 1995 when AlliedSignal
exited its South Bend landing gear business by selling
equipment and contracts, to see that Allied's concern for South
Bend rises and falls as it suits Allied's purposes.
Mergers in the defense and aerospace industries are a fact
of life. Since the end of the cold war, U.S. defense spending
has declined dramatically. This reduced spending has driven
consolidation through that defense industry. Other factors,
such as globalization and requirements of scale and scope also
drive consolidation through both the defense and aerospace
industries.
Efficiencies of design and production needed to generate
and consume large amounts of capital quickly dictate corporate
strategies that must be judged simultaneously, in both the
short and long term.
One of the consequences of consolidation is typically the
loss of some jobs. As part of BFGoodrich's merger with Coltec,
approximately 170 headquarters positions will relocate to North
Carolina. Similarly, the AlliedSignal/Honeywell merger will
result in the closing of Honeywell's headquarters in
Minneapolis. While these relocations have a human impact that
we take seriously, they should not overshadow the positive
consequences of this merger. The plain fact is the merger of
Goodrich and Coltec will produce significant benefits for
employees, customers and shareholders.
Following the merger, Goodrich will employ 27,000 people
worldwide. The size and diversity, financial and technological
strength and global reach of our businesses will create job
stability and growth opportunities for our existing work force.
As a stronger worldwide competitor, we will be better
positioned to compete for business abroad. A stronger, better
Goodrich is good for all our stakeholders.
Our customers are very sophisticated. They demand
innovative and quality products backed by the highest levels of
customer service and technical support, all at a fair and
competitive price. Those customers are our life blood. If they
had objected to this merger, it probably would not have gone
forward. They have not objected because they are satisfied that
they do have sufficient options to preserve healthy competition
for their business and they recognize the merger enables us to
serve them better.
The Federal Trade Commission and the Department of Defense,
like our customers, have each come to the same conclusion
following lengthy and comprehensive examinations. Both agencies
listened carefully to the arguments presented by AlliedSignal
and Crane Industries and both agencies concluded the merger
should be allowed to proceed without objection. I would like to
emphasize that those examinations took place over a 4 and 5
month period respectively.
I would like to address more specifically the Chair's
concern about the merger's impact on Ohio jobs. In early 1999,
Goodrich did prepare a preliminary internal study that
presented possible options for restructuring the landing gear
business following the merger. This preliminary study was a
tentative initial look at a combined Goodrich/Coltec landing
gear business. Since the merger had not been consummated, the
study does not reflect Coltec costs or other competitively
sensitive information. This makes the study incomplete and
therefore, it has not been presented to Goodrich senior
management. The study was not prepared for the Department of
Defense, it was provided to the Department in response to their
request for any reconfiguration study. We clearly cautioned the
Department of Defense against relying on the study, stating
that, ``Its views concerning reconfiguration are necessarily
tentative,'' because it did not have cost information regarding
any Coltec facilities.
I want to be very clear about the future of our Cleveland
landing gear plant. While each option presented in that
preliminary study contemplated closing the Cleveland plant,
BFGoodrich senior management has made absolutely no decision
about the future of this facility. Having said that, I will
tell you that U.S. landing gear business is 15 percent below
its peak volume and customer demand is expected to remain low
for the next 10 years. In this business environment, we will
consider all our options, because status quo cannot prevail.
BFGoodrich has been frank with its employees, has been
frank with you, both in private discussions and public
testimony. We will not shrink from our obligation to all of our
stakeholders, employees, shareholders, customers and suppliers,
to run our businesses effectively and efficiently as we can. In
this regard and consistent with our culture of partnering with
our employees, we have consistently shared with all landing
gear associates and UAW officials our view that the
competitiveness of the Cleveland facilities must be improved.
It is no secret that we have in the past considered closing
the Cleveland plant because its performance did not meet our
standards. However, the facilities that Goodrich acquired in
1993 were in poor repair. Many pieces of equipment were
inoperable, engineering tools were outdated and prospects for
the future of that facility were bleak. Each time the status of
that Cleveland plant was reviewed, however, the company
concluded it was not wise to close it. Instead, Goodrich
invested nearly $30 million in its Cleveland landing gear
facility since 1993. This includes investment in buildings,
equipment, business information systems and engineering tools.
After a nearly $30 million investment, the prospects for
Cleveland have improved greatly. We have not achieved these
gains alone, but have had the cooperation of our employees and
UAW officials.
While we have made much progress in our competitive
business, more remains to be done. In this regard, we have been
encouraged by ongoing discussions with union officials about
ways to make those operations more competitive. After the
merger, we will look at all of our operations and determine how
best to become a more efficient and lower cost producer. This
may include upgrading plants, reconfiguring our production mix,
and perhaps closing facilities. The failure to make those hard
decisions could cost us our competitive edge and even more jobs
than if we ultimately decide to close a plant.
Until the merger is closed, however, we do not have access
to the information we need to make an intelligent decision, and
as a consequence, no decisions have been taken.
I promise you this--we will include all of our stakeholders
in the process. We have already received a much appreciated
invitation from Governor Taft, to consult with his office as we
go forward in our planning and we have assured him that we will
do so. Likewise, we will talk to the unions, other State, local
and Federal Government officials as well as other interested
groups, to help us make the most informed and sound decision
possible.
Whatever decision is reached regarding any of our
facilities, Goodrich remains committed to Ohio. Following the
merger, Goodrich will employ more than 3,000 people in Ohio in
management, manufacturing and research positions. Our
performance materials business, with more than $1 billion in
revenue, will remain headquartered in Brecksville. Other
BFGoodrich operations in Ohio are located in Akron, Avon Lake,
Chagrin Falls, Cleveland, Cincinnati, Columbus, Dayton, Elyria,
Green, Troy, Twinsburg and Uniontown.
We have been adding jobs in Ohio. Since January 1997, we
have added 200 jobs to our aerospace work force here in Ohio.
Our aerospace employment is up 14 percent. We remain committed
to Ohio and to our work force in Ohio. Indeed, just this year,
BFGoodrich invested approximately $20 million to buy a new
business right here in northeastern Ohio. Following the merger,
BFGoodrich will contribute more than $20 million per year in
taxes to Ohio as part of its continuing presence in this State.
This does not even take into account, Coltec's operations in
Ohio, including a business in Congressman Kucinich's district.
The bottom line is this--Goodrich has roots in Ohio. Even
though our headquarters will be moving, BFGoodrich will
continue to have a strong and growing presence in this State.
When we were in South Bend, Congressman Kucinich asked some
questions about BFGoodrich's views toward unions. BFGoodrich
has a long history of positive labor relations. BFGoodrich
operates both union and non-union facilities. We count union
facilities among our most productive and efficient. Indeed,
three of the landing gear facilities operated by BFGoodrich and
Coltec are union facilities.
I would also like to address briefly AlliedSignal's
contention that the BFGoodrich/Coltec merger will adversely
affect jobs at AlliedSignal's plant in South Bend. For months
now, we have heard dire predictions from Allied that a
Goodrich/Coltec merger would cost 1,000 South Bend jobs. We
have been saying all along this was just a scare tactic. Our
view was confirmed at your hearing in South Bend. Congressman
Roemer, who represents South Bend, testified at your hearing
that Allied's Chairman Bossidy had promised that the
BFGoodrich/Coltec merger would have no immediate impact on jobs
in South Bend. Mr. Montalbine, who runs the South Bend business
for Mr. Bossidy, confirmed this.
The vast majority of AlliedSignal's sales of wheels and
brakes are in the large aircraft after-market. These aircraft
are already in production and operation. AlliedSignal is
already certified on 13 of the 20 commercial aircraft types
built by Boeing and Airbus. Each of those aircraft will see
service typically for 20 or more years. AlliedSignal has an
annuity in the supply of wheels and brakes on those aircraft
and nothing about our merger can or will affect that. If
AlliedSignal's wheel and brake business suffers or fails, Mr.
Chairman, it will be because AlliedSignal did not meet their
customer expectations for quality products at competitive
prices. If jobs are lost in South Bend, it will be because
Allied did not run its business well and not because of our
merger.
AlliedSignal makes claims about the need to partner or team
with the landing gear suppliers so they can compete for
integrated systems or to avoid gaming of the landing gear/wheel
and brake interface design. No credible independent industry
expert has supported those claims. In fact, AlliedSignal does
have a partner if it chooses under the strategic alliance
agreement with Coltec. Just last month, resolving a claim that
AlliedSignal had filed, an arbitration panel in New York ruled
that the merger does not violate the strategic alliance
agreement, and that adequate safeguards could be implemented to
protect any proprietary or competitively sensitive data.
Therefore, Allied has their landing gear partner going forward.
Moreover, Mr. Bossidy boasts about a $10 billion war chest
to make more acquisitions, but if they really need a landing
gear partner, they could invest $200 million from their
acquisition war chest to build a world class landing gear
facility in South Bend or anywhere else. Actions speak louder
than words.
Our goals are the same, Mr. Chairman. We at BFGoodrich want
to grow so that we can satisfy our customers, challenge, reward
and retain our employees and provide financial returns for our
shareholders. We can only achieve those goals by providing
innovative, quality, least-cost products to our customers
consistently and timely. By becoming a stronger competitor, we
help the economy and our work force.
Let me tell you what BFGoodrich is committed to. We are
committed to growing jobs and marketplace position. We are
committed to sustaining a vigorous U.S. national defense
position. We are committed to involving workers, shareholders,
customers, management and government decisionmakers in our
future business growth plans. And we are committed to building
and designing the best priced and best performing products for
this or any other marketplace. We challenge AlliedSignal,
Crane, Honeywell or anyone else to beat us fair and square in
that marketplace.
Thank you for the opportunity.
[The prepared statement of Mr. Linnert follows:]
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Mr. McIntosh. Thank you for your testimony.
On one point before we move on, my recollection of the
testimony at that field hearing was not completely as you
characterized it. While the immediate impacts were not that
great, when you looked out 5 years, I remember Allied saying
that it'd be about 500 jobs, because they would not be
expecting to be entering into new businesses.
Mr. Tubbs. Chairman McIntosh, we never got to really talk
to Carl Montalbine about that statement, but I would like to
challenge that statement about how 500 jobs were going to be
lost when he is on 13 of 19 commercial programs going forward
and he is going to be--you have got airplanes that are going to
fly for 40 to 70 years. He might have said that there was no
growth in his market, but I do not know how he is going to lose
jobs.
Mr. McIntosh. Let us turn now to Ms. Loeb and perhaps she
will address that in her testimony. Our next witness will be
Nancy Loeb, who is the deputy general counsel of AlliedSignal.
Ms. Loeb. Thank you very much, Congressman McIntosh,
Congressman Kucinich and Congresswoman Tubbs Jones. It is a
privilege to appear before you here in Cleveland, and I would
like to thank the subcommittee for inviting me to participate
in the public debate of this important issue.
I am Nancy Loeb, I am the deputy general counsel of
AlliedSignal, which manufacturers and sells aircraft wheels and
brakes on landing systems through its aircraft landing systems
business in South Bend, IN. I have submitted written testimony
and I would like to take just a few minutes to discuss that
testimony. At the outset, I would like to emphasize three
points.
No. 1, the BFGoodrich/Coltec merger will have serious anti-
competitive consequences, including foreclosing AlliedSignal
from landing gear and landing gear data necessary for
AlliedSignal to compete.
No. 2, AlliedSignal is not alone in concluding that the
BFGoodrich merger is anti-competitive. Aero Line and other
wheels and brake manufacturers concur.
No. 3, the anti-competitive effect can be avoided by
BFGoodrich selling its Cleveland Pneumatics landing gear
business or even a portion of that business to AlliedSignal.
This sale would ensure vigorous competition for landing
systems. In the event that BFG sells the CPC business or a
portion of that business to AlliedSignal, AlliedSignal commits
it will keep jobs in Cleveland and it will grow that business.
We will, of course, assume the UAW contract of the Cleveland
plant.
Let me briefly talk about the industry and this merger.
Today, Goodrich, Coltec and the French company Messier, control
approximately 99 percent of the large commercial landing gear
market. They are also the only three companies in the world
with the capabilities to design, manufacture and test landing
gear for commercial aircraft. Thus, this BFG/Coltec merger is a
merger to a U.S. monopoly or a merger to a worldwide duopoly.
Elaborating on my initial three points--the first point I
would like to emphasize is that AlliedSignal will be harmed by
this merger. By vertically foreclosing or gaming Allied and
raising prices paid by Allied for landing gear, AlliedSignal
will be harmed.
To address the question that was just raised, we look at
our landing systems business as something other than an
annuity. We look at it as a business with employees and an
opportunity to grow and to move forward and to continue
investing. Exclusion from the opportunities to participate in
new landing gear and new aircraft will limit the growth and the
long-term viability of that business.
The Windows browser analogy we are all familiar with is on
point here. Landing gear is similar to the operating system in
a computer and wheels and brakes are like the browser. The
browser or the wheel and brake companies like AlliedSignal
must, must get technical information from the landing gear
manufacturer, the equivalent of the operating system owner, in
order to compete. BFGoodrich/Coltec will control the landing
gear information necessary for Allied to understand the
interface between the wheels and brakes and the landing gear.
Based on Allied's experience, BFGoodrich will have every
incentive to game the information provided to Allied. Prices
will also go up. BFGoodrich will control the supply of landing
gears that Allied needs to compete with BFGoodrich as a landing
systems integrator. Allied has purchased landing gear on
projects called integrated landing systems. BFGoodrich will
have no incentive to sell landing gear to Allied at fair
prices.
The second point I would like to emphasize is that it is
not just AlliedSignal and Crane who are concerned about this
transaction. Numerous parties who know landing systems
recognize the anti-competitive effects of this deal. Aero Line
who are the customers for wheels and brakes, oppose the merger.
SAF, which is part of an eight-member Aero Line/Star alliance,
AirTran, Northwest, American, Air New Zealand and others have
all stated clearly their concerns about this transaction.
Significantly, not one single air line has affirmatively
supported this merger as being pro-competitive.
Further, besides Allied, the only other two major
independent wheel and brake manufacturers in the world, Dunlop
and ABSC, also oppose the merger. ABSC, based in Akron, OH,
opposes the merger. I urge the committee to review the sworn
affidavit of Mr. Ron Welch, president of ABSC, which was made
part of the record at the subcommittee hearing held in South
Bend. Again, not a single major independent wheel and brake
manufacturer has provided sworn testimony that the BFGoodrich
merger is pro-competitive.
The third and final point I want to emphasize is that all
of these anti-competitive problems can be avoided. According to
published reports, BFGoodrich and Coltec will consolidate their
landing gear facilities and will close their Cleveland
business.
BFG has said AlliedSignal has not put forward an offer to
purchase this business. This is false. AlliedSignal has both
privately and publicly offered to buy the Cleveland business or
a portion of that business at a fair price. I reaffirm that
offer today. BFG has said that no final decision has been made
on closing Cleveland. If that is true, I call on BFGoodrich to
give AlliedSignal the opportunity to buy the Cleveland business
whenever a final decision is made.
In conclusion, BFGoodrich and Coltec have announced a
merger that will result in a single U.S. landing gear
manufacturer and one of only two worldwide. A Federal court in
Indiana has preliminarily enjoined the merger, based on a
finding that ``the merger would likely result in a U.S.
monopoly for the sale of landing gear that would result in
higher prices for such gear.'' The U.S. Court of Appeals for
the Seventh Circuit has affirmed the entry of that injunction.
The Attorneys General of Indiana, Iowa and Connecticut have
joined as amicus curiae, in that case. The Ohio Attorney
General is conducting an investigation but has not taken any
steps to stop the merger.
In these circumstances, there can be no argument that the
BFG/Coltec merger does not harm competition.
Thank you for your time.
[The prepared statement of Ms. Loeb follows:]
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Mr. McIntosh. Thank you, Ms. Loeb, I appreciate that. And
in the question and answer, we will get into more details on
some of the points you have raised.
Let me now turn to our third witness. Again, welcome back
to the subcommittee, Mr. Tubbs, and summarize your testimony,
particularly emphasizing any new information from last time.
Mr. Tubbs. Thank you, Mr. Chairman. Mr. Kucinich and Ms.
Tubbs Jones, I want to emphasize that Tubbs in Tubbs Jones, I
do not get to meet somebody that shares my name very often.
Ms. Tubbs Jones. Any relation here?
Mr. Tubbs. I think so. We will talk about that.
Thank you for giving me the opportunity to appear again
before the subcommittee, and today, I want to focus on the
issue of competition and I want to talk about real world facts.
I want to reiterate that the BFGoodrich/Coltec merger has
been thoroughly investigated by the Federal Trade Commission
and by the Department of Defense. Each of the major purchasers
of landing gear in the United States, our customers, after
thorough discussions, did not object to this merger. Nobody
dropped the ball.
On Friday, an editorial appeared in the South Bend Tribune
authored by Kevin Arquit, former FTC general counsel and head
of its Bureau of Competition. And I would like that editorial
to be entered in the record of this hearing, if possible.
Mr. McIntosh. Yes, if you could get us a copy, that would
be great.
Mr. Tubbs. I will be glad to, Mr. Chairman.
Mr. McIntosh. We will put that into the record.
[The information referred to follows:]
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Mr. Tubbs. Mr. Arquit described the current state of
antitrust law and how the review process works. He paints a
very different picture than Professor Bauer, and of course Mr.
Arquit is not being paid by Coltec or Goodrich to give his
opinions.
If we follow Mr. Arquit's guidance, we focus on our
customers and try to understand why fancy talk about the
Herfindahl-Hirschman Index and the sum of the squares of the
market shares means little in the real world. The Index is,
after all, a guideline that Mr. Arquit points out needs to be
interpreted. And with all due respect to Allied's paid
advocate, and attorney of record, Professor Bauer, let me point
out that current case law, starting with General Dynamics and
Baker-Hughes, requires regulatory agencies to look at the
market realities and move past mechanical formulas.
If the Herfindahls are high for a given merger, the FTC's
focus shifts to whether or not the merged companies can
actually exercise the market power that this high index might
suggest. This index is simply the starting point, not the end
point that the Professor has suggested.
So what is the next normal step for the FTC's review? Well,
not surprisingly, the FTC goes to major customers and asks them
if they are concerned about the merger and the ability of the
new company to raise prices, limit product development, control
investment or prevent other companies from entering the
particular business. The reason is that if the customers do not
have a problem, then the likelihood of the merged company being
able to exercise market power as a monopolist is small indeed.
In our case, when the FTC asked our major customers--
Boeing, Lockheed and the Department of Defense--about their
reaction to the Goodrich/Coltec merger, each of these large,
sophisticated organizations responded that they were not
concerned about market power because they understand all too
well how the market for landing gear really works. In fact,
they saw a number of advantages, including the potential for
lower cost products and improved technology.
Let me tell you, these advantages matter greatly for a
company like Boeing who is battling a very strong government-
subsidized competitor like Airbus. In fact, this year, Airbus
has sold three planes for every one Boeing plane sold. And I
might add, since BFGoodrich and Coltec do not supply landing
gear to Airbus, every plane Airbus sells to airlines like U.S.
Airways is one less landing gear that we can supply. That is
fewer jobs here in the United States. We need Boeing to be
successful. We need to price our products to help them sell
airplanes. The idea that there is a simple pass-through of
costs ignores simple market reality.
The FTC did not miss the concept that in today's aerospace
market, we sell to power buyers. Classic economics tell you
that power buyers discipline the market. The Boeing company,
Lockheed and Bombardier all have staffs of qualified landing
gear engineers. Their landing gear engineers work with our
landing gear engineers to design landing gear structures that
fit their airplanes. At the end of the day, Boeing may choose
us to make the landing gear structure, but they own the design,
just like the Department of Defense does on military aircraft.
Boeing and the DOD can take the design to another landing gear
company and have the landing gear made for them. Even
AlliedSignal admits that in addition to the major French
landing gear company, Messier-Dowty, there are a number of very
capable companies that they called build-to-print landing gear
companies, both here and abroad. Every manufacturing process
used in creating a landing gear has been reviewed and certified
by Boeing and by Lockheed.
Airplane manufacturers know how to make landing gear as
well as we do and they can tell anybody how to do it. And they
pretty much determine what they want to pay--they call it
target pricing. The idea that a BFGoodrich/Coltec landing gear
company will hold Boeing captive is nonsensical.
Crane and Allied's hired experts have argued that Messier-
Dowty is not a competitor within the United States. Believe me,
Messier-Dowty is here today competing to be supplier to Boeing
and to the U.S. military. The next generation military
aircraft, the Joint Strike Fighter, is currently being
designed. Two teams are going after the Joint Strike Fighter.
One team is led by Lockheed Martin, the other by Boeing. Coltec
is on the Lockheed Martin team. Boeing chose Messier-Dowty to
be on its team. Messier-Dowty has opened up a facility in
Seattle so as to get closer to its customer. It intends to
supply landing gear from its North American facility located in
Canada. Messier has shown its willingness to invest in its
businesses, not just its landing gear business, but also its
wheel and brake business. Messier's willingness to invest in
order to compete needs to be contrasted with Allied's
unwillingness to invest.
Previously we learned that Messier aced AlliedSignal out of
its sole source position on the Boeing 767. Allied testified
that Messier did so by investing over $25 million in order to
become certified on the program. AlliedSignal exited the
landing gear market in 1995 because they did not want to invest
in the landing gear market.
Allied testified that it was not getting a large share of
the Airbus market for wheels and brakes, probably because
AlliedSignal is not competitive either on price or on quality.
Allied did not tell us why they were not named as a supplier on
the Bombardier regional jet 700.
Why is a monopolist like the Crane Co. and a company that
is afraid to compete like AlliedSignal opposed to this merger
and opposed to the business and job growth that will result
from having a financially strong entity which can draw on the
best practices of two fine industrial companies? Well, the
answer is obvious. First, they do not like competition. Second,
Crane wanted to buy Coltec and Allied twice tried to buy
Coltec's aerospace business. As late as 1997, Allied made plans
to buy BFGoodrich. Neither company was willing to step up and
pay what our businesses are worth, so they decided to abuse the
legal process and the political process to interfere with this
merger. They are like school yard bullies. If they cannot have
something, they do not want anybody else to have it either.
Do not let AlliedSignal and Crane, through their paid
distinguished advocates, wrap themselves in a flag proclaiming
to protect consumers. Let us not kid ourselves. There will be
no increase in ticket prices as a result of this merger--the
deregulated air travel market will not allow it. There will be
no loss of safety for those that fly as a result of this
merger--the FAA will not allow that, nor will Boeing.
Let me close by referring to a June 2 letter to President
Clinton, signed by 240 leading independent economists in the
United States, including economists from Ohio University, Case-
Western, Indiana University and Ohio State. Let me point out
that neither Coltec nor Goodrich paid to have these economists
write the letter or state their position.
The letter refers to the increasing practice of companies
turning to the government for protection, claiming antitrust
concerns rather than competing on the basis of product quality
and price. In pursuit of antitrust protectionism, these
companies attempt to short-circuit the workings of the market.
They are attempting to replace the decisions of the marketplace
with the decisions of bureaucrats and politicians. Successful
innovators are penalized, scale economies are lost and
competition is thwarted, not enhanced. Instead of preventing
prices from rising, antitrust protectionism keeps prices from
falling.
Now is not the time, nor is the BFGoodrich/Coltec merger
the deal, to institute further antitrust protectionism. This
committee needs to tell AlliedSignal and Crane Co. to go
compete and this committee needs to let BFGoodrich and Coltec
move ahead together to compete in the marketplace, to grow
their businesses and, in doing so, to grow jobs.
Thank you.
[The prepared statement of Mr. Tubbs follows:]
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Mr. McIntosh. Thank you, Mr. Tubbs.
Our final witness on this panel will be Professor Bauer
from the Notre Dame Law School. Professor Bauer, if I could ask
you to summarize your testimony and particularly emphasize
additional points from the last hearing.
Mr. Bauer. Congressman McIntosh, Congressman Kucinich,
Congresswoman Tubbs Jones, thank you for inviting me to testify
before the subcommittee. It is a pleasure to be in Cleveland
for the second phase of these hearings.
I will accept Congressman McIntosh's invitation to offer a
brief summary of my statement and then hopefully reserve time
for questions at the end of that.
Although the merger under scrutiny involves the aircraft
landing system industry, to use an old cliche, you do not have
to be a rocket scientist to conclude that this merger raises
numerous red flags regarding its adverse impact on competition.
As has been said multiple times already this morning,
presently in the market for the design and manufacture of
landing gear for large commercial aircraft and for many
military aircraft, there are only three companies in the entire
world and only two companies in the United States. Looking at
the market share for commercial wide-bodied aircraft landing
gears, Coltec has approximately 30 percent of the market,
BFGoodrich, approximately 34 percent of the market and Messier,
which is owned by the French Government, also approximately 34
percent of the market--a total of upwards of 98 percent of the
market accounted for by three firms.
If this merger is consummated, after the merger, there will
only be two firms left in the world and only one firm left in
the United States. In short, this will be a merger resulting in
a domestic monopoly in the design and manufacture of commercial
wide-bodied landing gears.
The Chair noted earlier this morning some of the remarks I
made at our hearings in South Bend about the advantages that
flow to industry and to the market from competition.
Innovation, more and better products, lower prices, and
indirectly, more jobs. What about the loss of competition? The
firms which were formerly competitors no longer have to compete
vigorously against each other to innovate. They are not quite
as driven to produce more and better products. And they do not
have the stimulus to reduce their prices.
So the effect of the elimination of competition in this
industry will be felt by aircraft manufacturers; the U.S.
military; by airlines which are consumers of replacement parts
including replacement wheels and brakes; by consumers,
including you and me who fly in those airplanes; and by you and
me again as taxpayers, who may have to pay more when the U.S.
military pays more for both original equipment and replacement
parts.
There is a second effect that may flow from this merger.
Today, BFGoodrich is an integrated company, making not only
landing gears but also making aircraft wheels and brakes. And
in that capacity, BFGoodrich is a competitor of AlliedSignal.
There has been, over the last several years, a trend in this
industry toward designing and manufacturing and selling
integrated landing systems, including in those integrated
landing systems, landing gears and wheels and brakes.
AlliedSignal presently has a strategic alliance agreement
with one of the parties to the merger, Coltec, which provides
for the sharing of information and which gives AlliedSignal a
partner in the design and sale of integrated landing systems.
But after the merger, when BFGoodrich and Coltec become a
single entity, that merged entity will have both the
opportunity and the incentive to favor BFGoodrich wheels and
brakes relative to AlliedSignal's wheels and brakes.
There are a number of possibilities that will flow as a
result of that merger. BFGoodrich may not release information
to its competitors in the same way it does today. The design of
wheels and brakes so that the interface operates properly may
become more difficult. BFGoodrich will clearly be in a position
to sell landing gears to AlliedSignal and others at elevated
prices, or it will have the choice not to sell to AlliedSignal
at all. The effect then of the merger, the vertical component
of the merger, is harm to competitors, harm to competition and
higher prices to consumers.
Let me talk about the law regarding acquisitions and
mergers. The statute, as you all know, is section 7 of the
Clayton Act. The Clayton Act was amended in 1950. Since 1950,
there have been a number of decisions from the Supreme Court of
the United States describing how one should evaluate both
horizontal and vertical mergers. But the principal determinants
are to look at the market shares of the merging companies, both
before and after the merger, to look at the concentration of
firms in the industry, to look at the changes in concentration
as a result of the merger, and then to consider potential
defenses, including efficiency.
This merger will result in a merged firm having 64 percent
of the domestic market, only two companies in the world and
only a single company in the United States.
Mr. Chairman, I would like to address, because you referred
to it again this morning, the merger guidelines drafted by the
Department of Justice and the Federal Trade Commission. Those
guidelines are intended to give guidance to business and to
industry as to those mergers which the enforcement agencies
will and will not challenge. So that industry knows as to
certain measures there is a safe harbor, but as to other
potential mergers, these are problematic and there is a
substantial probability that the enforcement agencies may
challenge them.
Those guidelines set forth three categories and use an
index drawn up or devised by two economists known as the
Herfindahl-Hirschman Index [HHI]. The HHI can range at its very
lowest from a number of one up to its very highest if there was
a single firm with 100 percent of the market, 10,000. The three
categories are below 1,000, 1,000 to 1,800 and the third
category where the HHI is over 1,800. In that third category
where the HHI is over 1,800 and where the merger would result
in a change of the HHI of more than 100, the guidelines say
these mergers are quite likely to cause competitive effects and
therefore suggests that the agencies are likely to challenge
those mergers.
Let us look at the numbers here. Before the merger, in the
market for commercial wide-bodied aircraft, the HHI is already
3,230. After the merger, it will rise to 5,272, for a change of
over 2,000 points. So you can tell, HHI over 1,800, here post-
merger 5,270, and a change of 2,000 percent over the threshold
in the guidelines.
But Mr. Tubbs says, and correctly so, we do not only look
at the numbers. There are other factors to look at. And among
the factors in the guidelines are that one of the firms may be
a failing company. I do not believe either Coltec or BFGoodrich
are failing companies.
A second possible defense is that there may be low barriers
to entry. Well, Mr. Linnert has told us, well maybe for $200
million you can build a plant, but the barriers to entry here
are enormous. There are technological barriers, there are
engineering barriers, there are capital barriers, there are
time lag barriers, there are certification barriers. You just
do not go in and startup a landing gear business overnight.
And then the third thing that the guidelines identify are
efficiencies. I am not sure what the efficiencies are, I hear
that there is going to be a stronger company, but it sounds to
me like the greatest efficiency that is going to flow from this
is we can close one of these plants and that will allow us to
work more efficiently--two plants rather than three.
So no great surprise, my conclusion, my personal
conclusion, this is a merger that the Federal Trade Commission
should have challenged. And if I can add three points, and I
will do it quickly in view of limitations on my time.
No. 1. Simply to remind the committee and everybody else
that the decision by the Federal Trade Commission under the
Hart-Scott-Rodino procedure, not to challenge this merger, is
not affirmative approval. They do not say we think this merger
is good, all they say is we are not going to take any action
here. And in fact, the letter sent on April 26, 1999 to
BFGoodrich explicitly says, ``This action is not to be
construed as a determination that a violation of Section 7 of
the Clayton Act or Section 5 of the FTC Act may not have
occurred.'' That is for Judge Sharp to decide, not for the FTC
and not for this committee and not for you or me.
Second point, the Seventh Circuit opinion. Let me now add a
few comments about the June 23, 1999 decision of the U.S. Court
of Appeals for the Seventh Circuit. In my testimony before the
subcommittee last month, I noted that under the Hart-Scott-
Rodino pre-merger notification procedure, the enforcement
agencies do not give their affirmative approval to proposed
mergers, but only indicate that they will not challenge them. I
therefore stressed that the Commission's decision in April not
to seek to stop this merger should not have any effect on
AlliedSignal and Crane's lawsuit presently pending in the U.S.
District Court for the Northern District of Indiana.
The Seventh Circuit reached the same conclusion, pointing
out that, ``Courts do not generally defer to an agency's
decision not to challenge a merger'' and that, ``to the
contrary, Federal regulators will not necessarily challenge
every potentially troublesome merger, which is why Congress
made private enforcement `an integral part of the congressional
plan for protecting competition.' ''
And then I went on to observe in my statement, but I will
save time, the Court of Appeals also expressly noted that the
District Court did not abuse its discretion in concluding that
the plaintiffs had ``shown a sufficient likelihood of a Clayton
Section 7 violation.''
Finally, Mr. Chairman, if I can refer very briefly to the
op-ed piece that Mr. Tubbs referred to in the South Bend
Tribune last Friday by Kevin Arquit. I should add that the
South Bend Tribune has asked me if I would respond to that
piece and so my response will also appear this week and I will
make that a copy of this committee's record.
But let me just note two things that Mr. Arquit said. He
says, ``The idea that the FTC missed the boat''--I am quoting
from his piece--``The idea that the FTC missed the boat in
approving this merger, as alleged by its critics is hard to
imagine, given its aggressively activist stance of late.'' Let
me give you the FTC's own data--this comes from them, not from
me. In the last year, 1998, there were 4,643 filings and 33
enforcement actions, 0.71 percent. Now if that is aggressively
activist, then I can play one-on-one with Michael Jordan. Mr.
Arquit also talks about the viability of foreign competitors
and he puts it in the plural. But in fact, there is only one
foreign competitor, Messier, and we have evidence that at least
with respect to certain programs, the Department of Justice
does not like to do business with other than American
companies.
So this opinion, while interesting and provocative, is
flawed and I will just stand on the statement that I am going
to make in response to it.
Mr. Chairman, thank you very much.
[The prepared statement of Professor Bauer follows:]
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Mr. McIntosh. Thank you, Professor Bauer, and let me ask
unanimous consent that your response to that be included in the
record when you have submitted it to us. In fact, what we will
do is keep the record open for an additional 15 days for
additional information that may come as a result of the
questions posed here.
[The information referred to follows:]
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Mr. McIntosh. Let me start the questioning with the panel.
Mr. Linnert, you mentioned and stated there was a risk in the
business essentially, that if you make a misstep or you borrow
money at the wrong time, do not get a contract that could be
potentially very disastrous for any one of the companies there,
and that the merger will allow you to avoid some of those
risks.
Stepping back, not from the company's standpoint, but from
society's standpoint, if that analysis is correct and there are
those risks there, if you have got fewer players in the field,
then the possible negative outcome takes on a much greater
implication. From society's standpoint, you have got, say five
companies and one of them makes a misstep and fails, you have
got four others that provide the service or the product. But
when you only have one in the United States and two worldwide,
then the potential negative impact of one of those risks from
society's standpoint, again I will emphasize that, seems to me
significantly greater. And that is one of the concerns that we
have in looking at the appropriateness of this type of merger.
I wanted to put that out there so you could see that our
perspective has to be that broader one than one individual. But
I wanted to also give you an opportunity to elaborate how you
thought from the combined company standpoint, those risks would
be diminished.
Mr. Linnert. Sure, thanks. A couple of points I would like
to make.
First, one of the things that Mr. Oliver testified to in
Washington at the hearing--and let us take the different
markets, because as you just talked about, the risk to society
of maybe less companies in a given field, you have to look at
it by the market that they are in. So let us take military for
the moment. I believe what Mr. Oliver testified was that while
Messier-Dowty, Coltec and Goodrich have a predominant share of
this military market----
Ms. Tubbs Jones. Excuse me, Mr. Linnert. I believe that
people in the back may be having difficult hearing you. Would
you pull the microphone over closer, please.
Mr. Linnert. Thank you.
Again, takes a market analysis, what Mr. Oliver did was
speak about the military markets. One of the points he did make
is while Messier-Dowty, Goodrich and Coltec are the predominant
suppliers of military landing gear, they are not all. I will
come back to that point. But while they are the predominant
suppliers, one of the points he emphasized was quality of
competition.
Professor Bauer talked about this HHI index, that is a
starting point. The next thing you look at is quality of
competition. And what the Department of Defense, I believe said
at that hearing was that they thought the Coltec/Goodrich
merger created a stronger, higher quality competitor for
landing gear long-term. Now we are the larger ones in the
military field, but we are not the only ones.
Let me just read off some other names of folks who are
actually on military programs already. You have heard about
Messier-Dowty, but Heroux in Canada manufacturers military
gear, as does Castle Precision, APPH, SHL and then Goodrich and
Coltec. So there are other folks who are capable of making
military gear and are already on some programs. And I have a
chart that will show that. This is a chart that shows the
multi-national military landing gear suppliers and it shows the
programs tested, the F-18, it gives you the number of suppliers
on the C-17, T-45s. So again, I just want to point out there
are more players here than just two in the world.
But going back again to your question, Congressman----
Mr. McIntosh. My eyes are not as good as they used to be.
Just so we know which column is BFGoodrich and which is Coltec,
if you could----
Mr. Linnert. Yes, sir. The first column is Goodrich and
this is McDonnell Douglas, this is Menasco, which is the name
of the Coltec landing gear business.
Mr. McIntosh. Right.
Mr. Linnert. Messier-Dowty, Heroux and some of the others.
But going back to your question about how society would
look at this. Again, quality of supplier in terms of being a
strong competitor able to invest in technology and in research
and development is a factor I believe Department of Defense did
look at.
Now let us take a different market, let us take that large
commercial market that folks are concerned about. There is
principally BFGoodrich and Coltec and then Messier-Dowty. Now
this is the large landing gear programs. A couple of folks who
are missed whenever people talk about those lists are--and I
will just read off the names--SHL, which is a subsidiary of
Israeli Industries. They provide the landing gear for the
Boeing 717; Heroux, which is a Canadian firm, provides landing
gear for C-17, that is large gear, so they are capable also of
being in that market. Why do they not have a bigger share? It
is background, BFGoodrich, Coltec and Messier-Dowty are strong
competitors. And again, I think when you look at the quality of
the supplier, both in terms of financial strength, ability to
invest in R&D and ability to grow, I think that is a factor,
Congressman, as you point out, that should be considered.
Now the only other market that is of relevance--I spoke
about military and large commercial--the other markets are
regional and business. Those are more vibrant markets than
military or large commercial, and we can go into a whole long
list of people who compete there.
Mr. McIntosh. And I remember from your chart, the other
one, those were where you had multiple competitors.
Mr. Linnert. Right.
Mr. McIntosh. Looking at that, if you merge the first and
the third column, then at least in terms of U.S. suppliers, you
really get down to one with McDonnell-Douglas being the one
exception there for one of the planes, that is a supplier for
most of the aircraft, than for the military.
And as I was listening to Senator DeWine, I think the
question he was asking is how does that benefit the military.
And presumably you all made some arguments to them and they
could not repeat them back to him, or at least did not. So let
me give you a chance now--and Mr. Tubbs, if you want to add to
that too.
Mr. Tubbs. Well, let me just--because they are not out
there because they are not now on a military program, but
Castle Precision, which is a U.S. company is on the MD-80 and
90 which are fairly good size regional aircraft. They are also
a major spare parts supplier to the U.S. military. So it is not
to say that you do not have another build-to-print shop, as
Allied calls them, out there. You have Castle Precision.
Let me give you an anecdote about research and development.
We cannot get on Airbus, we, the American companies, cannot get
on Airbus. Part of the reason is because in order to get on
Airbus, we have to fund the research and development and if
they do not sell one airplane, we do not get any of our money
back. So we are taking the total investment risk of research
and development. We cannot do that in the way--we have to have
returns for our shareholders in the United States. A
government-supported company like Messier-Dowty certainly will
do that.
Part of the thought here is if you put Goodrich and Coltec
together, you can get the economic strength to go in and offer
to invest in their programs so that we can sell to Airbus. The
same thing holds true in a military program. We need the
financial strength to invest into the business so that if it is
awarded, we get a return on our contract. Messier-Dowty is with
Boeing already, as I talked about, on the Joint Strike Fighter.
So what we are talking about is not past market shares,
those have already been awarded, those are already determined.
What we are talking about is the future, and the future is we
need to be strong in order to invest in the future.
Mr. Linnert. What the Department of Defense witness said at
Senator DeWine's hearing, he did talk about, you know, research
and development, he did talk about quality supplier. A third
point that he made is when he was looking at--when the Senator
kept asking a question about, well, you know, are you not
concerned that there would only be one domestic supplier, and
his answer seemed to be I want a strong domestic supplier. But
what he also said was this, he said the military owns the
design rights to the landing gear, their landing gear, just
like Boeing does. When you own the design rights, landing gear
is something that you could go different places and have built
to your print.
And Professor Bauer said maybe there are barriers to entry
in terms of somebody starting things up, but the point is this,
military owns the design, they already use foreign suppliers
and they can go any place they want in order to have that
landing gear made. And he did add this, he said--I do not want
to put words in his mouth, but I think he said landing gear was
not in the military hierarchy of components of an airplane that
they were worried about secrecy or national defense.
Mr. McIntosh. OK. But so that we understand your point
there, again I think it is something I did not know when we
first started these hearings, but you have made apparent to me.
There is this difference between sort of past contracts,
designs that are already there. And you are describing
airplanes where the military already has the designs versus the
ones going forward. And you have got different interests, the
military would have different interests as to both. And if I
understand your point correctly, you are saying as to those
existing aircraft, there is some protection for them because
they own the design rights.
Mr. Tubbs. Yes, that is correct.
Mr. McIntosh. Let me--and I think my colleagues from Ohio
will probably go into this in more detail, but let me just ask
you, Mr. Linnert, you talked about the preliminary study that
has been much cited here and the options, the three options,
none of which resulted in the Cleveland plant staying open.
Mr. Linnert. Right.
Mr. McIntosh. But tried to emphasize no decision has been
made.
Mr. Linnert. Right.
Mr. McIntosh. Let me ask you two questions with respect to
that. Has the management considered an option that is not
reflected in that study that would keep that plant open? Is
there an active option that is being considered and developed
and researched by the company there?
Mr. Linnert. I think evidence that there has been
continuing study about how to keep that plant open--I mentioned
the $30 million that has been invested since 1993. Let me just
quote a couple of metrics, if I might. Our folks took a look at
the Cleveland operations from 1993 until now and they had some
metrics they came up with. Sales from the Cleveland facility
have improved 200 percent in that time period. Safety incident
rate has improved by 360 percent. Quality measures are all
improved, productivity is improved, cycle time is improved.
Another thing that I will point out, in terms of a metric,
is back in 1993, there was little attention to training
development, little internal advancement opportunities. We
believe we made significant investment in employee training and
development activities. Significant investment has been made in
the engineering talent that is at that plant because those
facilities, the Cleveland facilities are not just UAW
facilities, there is also an engineering staff there.
So again, we have made investments and I think that is an
indication--just what you started with, we want that facility
to be competitive, so there is no predetermined game plan here
to do anything other than measure all the Coltec and Goodrich
facilities post-merger on a level playing field.
And I guess I would like to quote from a letter, just to
reinforce it, a letter that Mr. Burner sent out to the
Cleveland landing gear folks. He said ``It has been indicated
that we are planning to close the Cleveland landing gear
facility.'' This is a quote from the letter. ``This is
absolutely not true. Currently we have no plans to close the
Cleveland operations.'' He talks about that study that was
done, he said, ``This review was limited in scope since it did
not include any operating data involving the Coltec facilities.
Absolutely no decision has been made, based on this preliminary
analysis.''
He goes on to say though, we will do it, we have said it as
plain as we can, post-merger, we will do a study of our landing
gear, all our landing gear operations to try and take a look at
what is the best, most efficient, cost-productive, customer-
friendly operation we can have. We just have not predetermined
the outcome.
Mr. McIntosh. OK. And I do not want to put words in your
mouth, so correct me if I am not distilling this correctly. You
are saying there is no decision. There is that preliminary
study and I assume you not disavowing the work that was done
there, that will be part of the deliberative process. But I did
not hear you say there is another study or an additional study
that indicates the plant would be kept open.
Mr. Linnert. That is correct. The next study that will be
done is post-closing of the merger.
Mr. McIntosh. OK, let me now turn to Ms. Loeb and focus in
on the question that we started to raise with the back and
forth with Mr. Tubbs.
If I am remembering correctly--and I think it again hinged
on this analysis of business going forward versus supplying
contracts that have already been awarded and having the ability
to manufacture for existing aircraft and replacement parts--
that if you looked out 5 years, the estimate was the work force
in South Bend at the AlliedSignal plant would be reduced
somewhere 500 to 600 employees if they were only relying on
that replacement business. Is that accurate, am I remembering
that correctly?
Ms. Loeb. Representative McIntosh, I am going to apologize.
As you can see, I was handed a note by counsel, so I am going
to try to answer your question in generalities. Counsel has
advised me because of the trial and the testimony of Mr.
Montalbine, that I should not answer specifically, but that I
can talk to you generally--more generally about that.
Mr. McIntosh. Also I was going to offer you, you may not be
familiar with those estimates since you are in the legal
department. I mean if you need to get more data, I want to be
sure the answer is correct.
Ms. Loeb. I can assure you that I do not have the data that
Mr. Montalbine would. But I also have been advised by counsel
not to discuss----
Ms. Tubbs Jones. Again, would you use your microphone? The
people in the back cannot hear.
Ms. Loeb. I apologize. I would like to say a couple of
things about the point that you were just making. One of the
things that is fascinating to me, having listened to Mr. Tubbs'
testimony, during which at length he berated AlliedSignal for
not being willing to make the investments needed to compete in
this business. He has just sat here after making that testimony
and said that BFGoodrich and Coltec, the incumbent major U.S.
suppliers, are not willing or able to make the investments
needed in this business in order to compete for Airbus
aircraft. Basically what they have told you is either they are
undermining their suggestions about the ease of entry or they
have told you that indeed it is very unlikely and very
difficult for a company like AlliedSignal to enter without the
technology. This is one of the reasons why we have offered to
buy an ongoing business. And as I said, I reiterate today our
offer to do so.
With respect to your question concerning historical versus
going forward competition, I think your point or where you seem
to be leading, Congressman McIntosh, is exactly correct. Many
names are being bandied about, about build-to-print shops and
being put up on charts, but the reality of who can actually
compete to design and manufacture new landing gear structures
for new aircraft is very different from the list that is put on
this board. And I would submit to you that for certain
aircraft, especially our large commercial aircraft and certain
very high technological and high capability requirement
aircraft in the military, that it is really only in the United
States, Goodrich and Coltec that are capable of competing going
forward.
Mr. McIntosh. Thank you.
Mr. Linnert. Congressman, could I make one comment about
that, because I just want to make sure--I think what
Congressman Roemer said only was that there would be no
immediate impact. I think those were the words. And then you
asked him correctly about the next 5 or 6 years. And the reason
that time became relevant is because the arbitration panel
ruled that the strategic alliance agreement would stay in
place. So I think that is what he meant to say, is there could
not be an impact until after that.
Mr. McIntosh. I think that is right.
Mr. Linnert. I would suggest that.
Mr. McIntosh. I think that is right. You have got that
potential as well as this different dynamic in the market where
your companies are supplying both on existing planes and
aggressively, as you should be, trying to get market place in
future aircraft that are built.
Thank you.
I see my red light is on. Let me turn now to Representative
Kucinich for a round of questions.
Mr. Kucinich. Thank you very much, Mr. Chairman.
I have just been notified that the mayor of the city of
Cleveland has asked to submit his testimony right now and I
would be more than pleased, as a former mayor of Cleveland, to
defer to him at this time and then I will, with the Chair's
permission, with unanimous consent, then proceed with my
questions. So if Mayor White is here, we would be happy to have
him come forward.
Mr. McIntosh. That is a great suggestion.
Mr. Kucinich. He is supposedly on his way over.
Mr. McIntosh. Why don't you start your questioning and then
I would ask the panel's indulgence in order to accommodate the
mayor's schedule, we will interrupt and come back to you after
that.
Mr. Kucinich. I am going to ask if staff would just look
down the hall and see if he is coming, because I think, with
the Chair's permission, I do not want to interrupt this line of
questioning.
Mr. McIntosh. OK. Perhaps while we are waiting, let me ask
a question I wanted to get back to, and then turn it back to
Representative Kucinich.
But--and I understand you all are parties to a lawsuit and
therefore, this has to be carefully weighed with what you say--
is there a chance that a win-win solution can come out of this?
And I guess I would ask each of you to weigh that.
Mr. Linnert. I will be happy to take a shot. Allied has
offered publicly and privately to buy our landing gear
business. We have said publicly and privately it is not for
sale. We are in the landing gear business, we want to stay in
the landing gear business, so our business is not for sale. And
business means manufacturing facilities, customer contracts,
research and development programs--we are not going to sell
that business.
Mr. McIntosh. That would not necessarily preclude, if the
company went ahead and made a decision--which you have told us
they have not made yet--about the Cleveland plant, to create an
opportunity there where it can be a win-win solution.
Mr. Linnert. If what you are suggesting is if after the
study is complete, if a decision was made--do you want me to
keep going?
Mr. McIntosh. Keep going.
Mr. Linnert. If a decision was made to close the facility,
whatever State it is in, or country, because remember one of
these facilities is in Canada--after the consolidation is
complete, if there is a facility left over or vacant, sure, we
would be happy to consider selling it to anyone who would be
interested in buying that.
Mr. Kucinich. Mr. Chairman, as I indicated earlier, I would
defer my round of questioning until the mayor of the city of
Cleveland has a chance to present his testimony.
So at this time, it is an honor for me to introduce to the
chairman somebody who Congresswoman Tubbs Jones and I know very
well and we are very happy to have him here in front of our
subcommittee--the mayor of the city of Cleveland, Michael
White. Mayor White.
Mr. McIntosh. Thank you, Mayor for coming. Let us make sure
that we have a seat with a microphone, if we could, for you.
While you are seated, let me tell you, I was delighted as we
came into the city today, to see the wonderful condition of the
downtown, and you had an opportunity to testify before our full
committee about 4 years ago when Mr. Clinger was in Cleveland
with the commit- tee. I was impressed then by your ideas on how
to make our Nation's cities an even better place to live and
raise a family, and I can see you have been working hard at
that, or at least the results are evident by a Hoosier who has
come over here to visit in Ohio.
So thank you for taking time to join us today, and please
present a summary of your testimony. We will put the entire
written remarks into the record.
STATEMENT OF MICHAEL R. WHITE, MAYOR, CITY OF CLEVELAND, OH
Mayor White. Thank you very much, Mr. Chairman. Let me,
first of all, welcome you to Cleveland and just indicate to you
how this old Buckeye's heart feels so warmed by a Hoosier
saying such great things about what is going on in one of the
cities of the Buckeye State. I also want to just pay my
respects to my Congresslady, Congresswoman Stephanie Tubbs
Jones, and also one of my predecessors, the now Congressman
Dennis Kucinich, who is also, as well as Congresswoman Jones,
doing an outstanding job on behalf of our city.
Let me also thank you for affording us the opportunity to
speak with you about our concerns regarding the merger matters
before you involving a number of important companies in the
United States of America. Ladies and gentlemen of the panel, I
would just like to very quickly focus you on three fundamental
issues.
No. 1, I do not believe that the issue that is before you
is solely about the issue of two corporate giants and the
effect of that merger on the landing gear industry and the
military of this country. I think even before you can get to
that question, the question of landing gears, the question of
mergers, the question of the stuff that lawyers are employed
for, for many many years, there is a human element to the
discussion that is taking place. And I would just respectfully
submit to you today that it is that human question that ought
to be the paramount question. And that question revolves around
650 men and women from all parts of Cuyahoga County, who come
to work every day and do the best they can. They do the best
they can on behalf of their employer, they do the best they can
on behalf of their families, they do the best they can on
behalf of the community and they do the best they can on behalf
of our Nation, since the work they do is so important.
If that is true, and I submit to you today that it is true,
then I think that we, as leaders of the community and the
country at the local, county, State and Federal level have an
obligation first to those 650 workers; second, to their spouses
and significant others; and last, but not least, to their
children. Because this discussion goes even beyond those 650
workers, it goes to all of the men and women and children and
aunts and uncles and grandparents who are financially or
otherwise dependent upon these breadwinners at this particular
plant.
So I come today first of all to say to you that I hope
within your deliberations, I hope that within the work of the
Congress, that you will help these companies arrive at a
position that you would want them to arrive at if the three of
you were members of the 650 employee contingent.
Second, Mr. Chairman, I come to just raise with you in a
very small way and to restate to you in a very small way, the
whole question of monopolies as it pertains to some of the
matters and some of the products that are manufactured by these
two entities. I have not come today to suggest to you that I
have any global or national understanding of what is before
you, but I do know this--and I think if there is any area where
Congressman Kucinich and I would agree, monopolies are bad. Bad
for the country, bad for the consumer and in the end, really
bad for the corporation because it does not create the
incentive to do better, it does not create the incentive to be
better. It does not create the incentive to think about how to
create a different and more unique product.
And I think in the area that we are talking about today,
the critical importance of the products that are being
manufactured, we need the very best. We need those products at
the cutting edge and we need to be better than anybody in the
rest of the world. So whether it is the private industry or the
military, we need to assure that these products are in fact
critically important.
I have last come just to ask you to assist us. The water is
kind of muddy. Mr. Chairman, on a good day, on a hot day in
Cleveland, Lake Erie is green, blue or greenish-blue. You can
stand our on Willard Park Garage and look out at our lake and
it is a beautiful sight to behold. But every now and then, just
like yesterday, we have a storm and that storm is very strong,
that storm is very powerful. Sometimes if that storm rages long
enough, that green or that blue or that greenish-blue lake is
no longer green, blue or even greenish-blue. It becomes tan or
even brown, but it becomes murky. You can no longer just stick
your hand in the water and see your hand or see some of the
fish at the docks, that swim by.
I would suggest to you from my small seat on the sidelines,
the issue of this merger, the real intent of the industries and
the corporations that are involved in this merger, are like the
morning after of a bad storm on Lake Erie. Their intentions are
not clear, their commitments are not understood, they have not
been forthright and direct about what their true intentions
are.
In my own small way, that kind of behavior has always
bothered me, because I have found that when people I deal with
or entities I deal with are not forthright, it is because they
do not want to be, not because they do not know how to be.
I hope, not on my behalf, but on behalf of the 650 families
and the thousands of other people who are dependent upon them,
and on behalf of our community, that you will keep them at the
table and that you will force them to be forthright and clear
about what their true intentions are, because it is only by
assuring that we understand their clear and firm intentions
that we can adequately protect those 650 workers, the thousands
of people who depend on them, our community and indeed, just
maybe, the United States of America.
I thank you for hearing my remarks. I thank you for coming
to Cleveland to look at this very important issue. Let me say
to you that there are many, many people in our community who
are depending on you to get to the bottom of what is going on,
and we are convinced that it is only the Representatives of the
Congress and the Congress, including the very esteemed and very
honorable U.S. Senator, Michael DeWine, that will enable us to
get where we need to go. And I do want to publicly, just as I
end, thank him as well for the outstanding leadership that he
has given to us.
Thank you, Mr. Chairman.
[The prepared statement of Mayor White follows:]
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Mr. McIntosh. Thank you, Mayor White, I think you have
indeed summarized the crux of the issue for us, particularly
starting from that very first perspective of what does it do
for the families whose jobs are at stake. And so thank you for
coming and I will assure you, we will get to the bottom of this
and leave no stone unturned in terms of finding out what is
intended and what will happen.
Mayor White. Thank you, Mr. Chairman.
Mr. Kucinich. Thank you, Mr. Mayor. Nice to see you.
Mr. McIntosh. Dennis, if you want to proceed with the
questioning of the panel please do so. To each of the witnesses
there, I appreciate your letting us be able to interrupt that
with the testimony, so we were able to include that in the
record.
Mr. Kucinich. Mr. Chairman, I have a unanimous consent
request. I have a number of documents, correspondence, et
cetera, that I am going to ask be submitted into the record, if
they may be.
Mr. McIntosh. Absolutely, we will include those at this
point in the record.
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Mr. Kucinich. I would like to start out by asking Ms. Loeb
some questions. Are you familiar with a phone call that Mr.
Bossidy made to me related to an assurance of AlliedSignal's
willingness to purchase the Cleveland Pneumatic Co.?
Ms. Loeb. No, Congressman, I am not familiar with that
phone call. I am familiar with general statements.
Mr. Kucinich. Are you familiar with a letter----
Ms. Loeb. The letter, yes, I am.
Mr. Kucinich [continuing]. That Mr. Bossidy wrote.
Ms. Loeb. Yes, I am.
Mr. Kucinich. And this letter is substantially the same
letter which--it mirrors your testimony today, would you not
say? You are familiar with the letter?
Ms. Loeb. Absolutely, yes.
Mr. Kucinich. And you stand by this, of course, it is in
your testimony; is that correct?
Ms. Loeb. Absolutely.
Mr. Kucinich. I read your testimony carefully and there is
a point in your testimony which is on page 4, where you say the
sale of CPC, Cleveland Pneumatic, or a portion, may not of
course be the only solution to the problems posed by the BFG/
Coltec merger, but it is an easy solution.
When I heard you say that and I read your testimony, you
are saying ``a portion.'' Is not the Cleveland Pneumatic Co. an
integrated manufacturing facility?
Ms. Loeb. Congressman, based on the information we have--
and obviously at this point it is still limited--it is our
understanding that there are several facilities that are a part
of that business. And we believe that we could operate a strong
competitive landing gear business going forward without buying
all of Cleveland Pneumatic, if buying all of the business were
an obstacle to being able to sell us something that would
enable us to compete. Now it has always been our understanding
that the crux of Cleveland Pneumatics is Cleveland, and that
there are other aspects of the business that may be assembly
facilities or something like that.
The other thing that we have said is that--and I would like
to make sure this clarification is here--that we would like to
buy a business and we look to a business to mean an ongoing
business with workers employed and contracts to fill that
business.
Mr. Kucinich. And that is substantially what this letter
says and what your statement was. Now do you foresee any
possibility or set of circumstances where BFGoodrich and
AlliedSignal could, let us say, come to an agreement, which
would still close the Cleveland Pneumatic Co.?
Ms. Loeb. Congressman, do you mean in the context of
settling the litigation?
Mr. Kucinich. I will run it by you again. Do you foresee
any set of circumstances, do you have any knowledge of any set
of circumstances, under which BFGoodrich and AlliedSignal could
come to an agreement where you would jointly decide in an
agreement to shut the Cleveland Pneumatic Co.?
Ms. Loeb. The first thing is that AlliedSignal will never
agree to shut the Cleveland facility, that is not a decision
that we could or would make. It is possible--we are, as you
know, pursuing----
Mr. Kucinich. When you say could or would make, you mean
because you do not own it.
Ms. Loeb. Because we do not own it.
Mr. Kucinich. Right.
Ms. Loeb. And we have made every attempt, in fact, to buy
it, so that we could keep it open and invest in it. So as you
have heard Mr. Linnert say again today, it is the ongoing
decision of Goodrich and the unwillingness of Goodrich to sell
us that business so that we can operate it, that is the
obstacle.
Mr. Kucinich. But it is possible you could conclude your
differences with BFGoodrich without that plant being at issue.
Ms. Loeb. It is possible that our wheels and brakes
business could be protected as an ongoing business through some
form of settlement. It is conceivable to me that it could be,
without our being able to obtain Cleveland. And that, as I
said, is something that we ourselves cannot resolve.
Mr. Kucinich. Mr. Bauer, can you foresee any set of
circumstances where if BFGoodrich and AlliedSignal came to an
agreement which did not involve the Cleveland Pneumatic Co. and
in effect resulted--as a secondary result--would mean the
closing of Cleveland Pneumatic, could you foresee that kind of
an agreement passing a competitive--an anti-competitive test?
Mr. Bauer. Let me start out, Congressman, by saying that
while I think I know a fair amount about antitrust, I do not
know nearly as much about the dynamics of this industry. But
the picture that I have tried to portray was that the impact,
the competitive impact that would flow from this merger would
be to unite in a single entity all of the domestic production
for the design and manufacture of certain landing gears.
Now as you know, there is at present a strategic alliance
agreement between Coltec, which is one of the entities to this
merger, and AlliedSignal, which as presently designed, gives
AlliedSignal certain measures of protection. I should say two
things----
Mr. Kucinich. I am familiar with that and I do not want to
go too much into that right now. The thing that I want to do,
with all due respect, is to go back to AlliedSignal and point
this out to the Chair that it is possible that we could--you
know, I am looking at AlliedSignal's qualification here where
they talk about a portion of CPC, and in looking at that
statement, I am comparing it with the letter that the chairman
or the CEO, Mr. Bossidy, wrote to me, which did not talk about
a portion.
As I look at that, what occurs to me is the possibility--on
one hand you have BFGoodrich, which has said Cleveland
Pneumatic is not for sale, but it is very clear that they could
shut it down without selling it. And on the other hand, you
have AlliedSignal, which, while they state verbally and in
writing that they are interested in purchasing Cleveland
Pneumatic, but they are not selling--BFGoodrich is not
selling--they well could be in a position where they come to an
agreement where Cleveland Pneumatic is left out of the picture.
And I am letting you know, Mr. Chairman, that this is something
that we need to keep an eye on, because while the Justice
Department essentially passed this decision along to the
Federal Trade Commission, I would like to state publicly that
if there is any set of circumstances in which AlliedSignal
comes to an agreement with BFGoodrich and Cleveland Pneumatic
is kept out that, that I would be prepared to vigorously pursue
action before the Justice Department to make sure that the
competitive aspects get reviewed, because they have not been
reviewed before the FTC in this manner. Nor have they been
reviewed by the Justice Department--or by the Defense
Department, which is something that Senator DeWine pointed out.
So I would like Mr. Linnert to answer some questions about
his company's plans for a landing gear facility here in
Cleveland. Now this plant currently employs approximately 650
workers, many of whom are constituents of mine or constituents
of Congresswoman Stephanie Tubbs Jones. I am concerned about
what is going to happen to their livelihood if BFGoodrich
decides to close this facility, which they say is not for sale,
after its merger with Coltec.
On the day the merger was announced, Mr. Burner, the chief
executive officer of BFGoodrich, sent me a letter stating that
aside from employees who would lose their jobs when the company
moved its headquarters to Charlotte, ``none of these other
3,400 [by the way] Ohio-based jobs would be affected by the
relocation of the headquarters.'' I will refer to this as
exhibit No. 1, Mr. Chairman, to Mr. Linnert, have you seen this
letter?
Mr. Linnert. Yes.
Mr. Kucinich. To the best of your knowledge, was this a
truthful and accurate statement?
Mr. Linnert. Yes.
Mr. Kucinich. In fact, when you testified before this
committee on June 19, you said again that no decision has been
made about the future of the Cleveland landing gear facility,
is that correct?
Mr. Linnert. That is correct.
Mr. Kucinich. Do you still stand by this statement?
Mr. Linnert. That no decision has been made about the
future of the Cleveland--yes.
Mr. Kucinich. I would like to draw to your attention these
documents that you have in front of you. The first document is
a February 24, 1999, memo from Hank Borisenko to Jack Carmola.
Can you tell me who these people are, Mr. Linnert?
Mr. Linnert. Jack Carmola is head of the Cleveland landing
gear business.
Mr. Kucinich. Mr. Borisenko?
Mr. Linnert. I do not know who Mr. Borisenko is.
Mr. Kucinich. He is a general manager in the BFGoodrich
finance department. Now this memo describes cost improvement
projects that would be part of the company's restructuring
after the merger. It provides in great detail an estimate of
the revenues that would be generated by selling the land,
buildings, equipment and the cost of severance pay for the
Cleveland employees.
I would like to draw to your attention in particular, the
third page in this, where it says ``Specific actions to
determine the restructuring reserve for landing gear
operations.''
The memo identifies two facilities, the Cleveland
manufacturing operation and the Cleveland plating operations
that ``can be closed within the first 18 to 24 months.'' It
goes on to state that ``closing of the Cleveland and Plating
operations is estimated to impact 583 employees'' including 334
employees represented by the UAW local 2333.
The second document, which I believe is dated March 1,
1999, goes through a similarly detailed financial analysis
related to the ``Cleveland closing.''
Now these are pretty specific documents, do you not think?
But according to your testimony, there is no specific plan to
close the Cleveland facility. Is that correct?
Mr. Linnert. That is correct. What we have said--and I said
it in my written testimony and I have said it orally today--
there was a preliminary study done based on BFGoodrich data
only. The documents that you are referring to are the documents
that relate to that study.
No study has been shown to senior management, no decision
has been made by senior management, and in fact, what senior
management has said and I read from Dave Burner's letter a
short time ago, a study will be done.
Mr. Kucinich. Well, I appreciate that, Mr. Linnert, that a
study will be done. But this is the third document I referred
to now. On January 6, 1999, a month before that memo was
written, a group of----
Mr. Linnert. I am sorry----
Mr. Kucinich. On January 6, 1999, I am going to refer now
to document four. On January 6, 1999, a month before the memo
was written, a group of BFGoodrich and Coltec executives held a
meeting to discuss the pros and cons of the combined companies'
landing gear facilities, including the labor relations climate
at each facility. This next document dated January 8 are the
typed notes from that meeting, which you saw at the last
hearing. They were sent from Ernie Schaub to Jack Carmola and
Roger Wright.
Now we know that Jack Carmola is the vice president of the
BFGoodrich landing gear division. Can you tell me who these
other people are?
Mr. Linnert. Jack Carmola, I think his title is general
manager, but he's head of the landing gear division. Roger
Wright is his counterpart for Menasco, which is Coltec's
business. Ernie Schaub, the gentleman who wrote the memo or
wrote the notes, is the vice president--group vice president
for one piece of aerospace, which does include wheels and
brakes and landing gear.
Mr. Kucinich. So these are pretty senior people. Now the
notes say, ``we thought that the following actions should occur
if we are to meet as many of our ideal-world objectives as we
can: `1. Close . . . Cleveland and Plating.' ''
Now according to the attached document, listed first under
the company's objectives, ``no union.''
Now do you intend to close the Cleveland facility as a way
to eliminate union jobs?
Mr. Linnert. Absolutely not. In fact----
Mr. Kucinich. Is the fact that the Cleveland work force is
unionized going to be a factor in your decision as to which
facilities to lose?
Mr. Linnert. Absolutely not. As I testified before, three
of our six landing gear facilities are represented by unions
and this memo, as it says up in the first paragraph, this
rating is obviously very subjective and the reason for that is
they did not have access to the Coltec operating data.
Mr. Kucinich. And may I ask you, these are documents that
you turned over to the Department of Defense as part of the
review of the proposed merger. Attached to this letter dated
February 1, 1999 from BFGoodrich's attorneys to the Department
of Defense, is a chart dated January 29, that evaluated the
combined company's landing gear facilities in terms of
equipment, people and expansion capability. Only one of those
five facilities got a down arrow for all three categories. And
this is document five, which I wanted to submit into the
record. Can you tell me which facility it was that got the down
arrows in these documents submitted to the Department of
Defense?
Mr. Linnert. Yes, the Cleveland facility.
Mr. Kucinich. And did Cleveland get the down arrow in the
category of people because they are union members?
Mr. Linnert. I do not know that.
Mr. McIntosh. Excuse me, Mr. Kucinich, can I interrupt you
just 1 second?
Mr. Kucinich. Yes.
Mr. McIntosh. Mr. Linnert, you have said repeatedly that
they made this analysis without the Menasco data, but the
second paragraph of Mr. Kucinich's document No. 4 has the
following sentence in it: ``A summary of both the Menasco and
the BFGoodrich facilities is attached. As part of this review,
we rated the plants as shown below.'' That seems to imply they
were considering the data from both corporations.
Mr. Linnert. No. The very next sentence, Congressman
McIntosh, says ``The rating is an overall rating and is
obviously very subjective.'' The reason is that our people
legally were not allowed to have the operating cost data or
competitively sensitive information from each other's business
until we close the merger. And in fact, the letter to the
Department of Defense transmitting the document that
Representative Kucinich was referring to says in the cover
letter, ``To restate the January 29 letter, the merger review
has not progressed to the point at which detailed information
necessary to create and decide upon such actionable plans can
be shared.'' So these folks did work based on Goodrich data
only.
Mr. McIntosh. So the different plants listed here--and I do
not know all the different facilities--those are all Goodrich
facilities?
Mr. Linnert. No, I can help you with that. Oakville is a
Canadian facility, that is a Coltec facility. There are
actually two facilities in Washington, Tullahoma is a facility
in Tennessee, that is a BFGoodrich facility. Dallas is a Coltec
facility and then Cleveland is a Goodrich facility. And then
there is one that is not on here, it is in Poland.
Mr. McIntosh. Well, then when it says, for example, expand
Oakville, the cost for machinery is $20 million----
Mr. Linnert. I am sorry, where are you at?
Mr. McIntosh. Page No. 2 of that exhibit.
Mr. Linnert. The February 1 letter?
Mr. McIntosh. January 6 meeting notes memo.
Mr. Linnert. Which page are you on now, page 2?
Mr. McIntosh. It is the second one in the order I have got.
It is BFGoodrich document----
Mr. Linnert. I see where you are saying.
Mr. McIntosh. That $20 million, that came from a BFGoodrich
estimate?
Mr. Linnert. Yes, whatever our projected costs are for
expanding the facility, that is what they would have used.
Mr. McIntosh. Even though it is a Coltec facility?
Mr. Linnert. Yeah, I assume what they did is apply a
standard expansion metric to any facility.
Mr. McIntosh. And Mr. Wright was participating in this
meeting from Coltec. Now if he said we can do it differently
than that, that would not have been reflected in the meeting?
Mr. Linnert. I would have assumed it would have been.
Mr. McIntosh. So presumably he agreed that----
Mr. Linnert. As an expansion cost number, yes.
Mr. McIntosh. I am a little puzzled on your assertion that
this is based on BFGoodrich data alone since they were
analyzing the plants owned by both companies.
Mr. Linnert. Well again--go ahead.
Mr. Tubbs. Mr. Chairman, I think that there is a little bit
of difference here. What Mr. Linnert is saying is that we never
allow them to talk in terms of operating data, so on an ongoing
basis, it would be hard for them to know whether a plant is
going to operate effectively in the future. When you are doing
rough cut expansion analysis, you can look at a building and
you can say (a) do I have enough land to expand, how many
square feet do I need, what is the normal cost of expansion, is
it $10 a square foot, $20 a square foot. So you can do rough
cut analysis. The fact that it is not $20.65 tells me that that
is a rough cut analysis and that--engineers who are making that
will make those kinds of judgments.
Mr. McIntosh. And your point would be further reflected on
the second page where it says ``ongoing savings, 400 people,
assume $80,000 per year,'' that obviously is an assumption.
Mr. Tubbs. It is an assumption based upon an average
salary, is what my guess would be.
Mr. McIntosh. Let me ask both of you and then I will return
the questioning to Mr. Kucinich, because I interrupted his
time, but do you anticipate there being significant changes of
those assumptions once you get the actual data?
Mr. Tubbs. Those assumptions on average cost of expansion,
I do not think you will have a 50 percent difference in that, I
think you might be able to fine-tune it in order to know what,
you know, once you start going to do your purchasing.
Mr. McIntosh. And the same thing on the $80,000 estimate?
Mr. Tubbs. Your average cost per employee fully loaded is a
general number. Maybe it is 77.3 versus 78.6, but it is not
going to be a 50 percent difference.
Mr. McIntosh. So just an observation and conclusion. I
mean, I understand you are saying maybe they have not done any
actual detailed review and that is yet to come. But based on
what you are telling me right now, I think it is fair for us to
assume the corporate personnel have a pretty good idea----
Mr. Tubbs. No, because you are still not looking at how
well a plant runs. That is fine to say if you do close it, what
will your costs be. That does not reach the question of should
you close it because it is not operating efficiently or it
cannot operate efficiently.
Mr. McIntosh. So the missing data from this memo is the
sales or profit attributable to the plant.
Mr. Tubbs. No, it is throughput, it is number of units you
can make. It does not reach your age of equipment, to judge
throughput and things like that. It does not give you any
operating rates and any of that kind of stuff. So it is not
just a P&L, you cannot just depend upon P&Ls to do that.
Mr. McIntosh. Thank you. Excuse me for interrupting you.
Mr. Kucinich. I appreciate the Chair's questioning, because
you are, as usual, getting into the heart of the matter as far
as the intent here.
Now on November 23, 1998, BFGoodrich CEO David Burner, in a
letter to me, wrote that the proposed merger would not affect
any manufacturing jobs in Ohio. We have documents, however,
which I believe show that BFGoodrich planned to close the
Cleveland facility long before Mr. Burner made that statement.
Now, Mr. Chairman, I would like to show two letters written
by Mr. Burner to the BFGoodrich Board of Directors concerning
this merger. The first letter, written November 19, 1998,
states that the merger also creates the opportunity for
significant savings through the elimination of duplicative
costs and improved operating efficiencies. The social, family
and community implications are serious and significant.
Now Mr. Linnert, what do you suppose Mr. Burner meant by
that? Was he referring to closing some of the landing gear
facilities?
Mr. Linnert. Could you refer me to where you were,
Congressman? I was trying to find the document, but I think I
have got it. The November 19 letter?
Mr. Kucinich. I will just continue. Now in a followup
letter written the next day, Mr. Burner attached--this is
document 7. I am now going to refer to document 8.
Mr. Linnert. OK.
Mr. Kucinich. In a followup letter written the next day,
Mr. Burner attached a summary of opportunities for synergies
which included, ``estimated consolidation costs savings'' for
landing gear manufacturing, $10 million in the year 2000 and
$15 million in the year 2001. Here it is right here. It has
been redacted as far as the numbers. ``Estimated consolidation
cost savings.''
Now can you tell me, Mr. Linnert, where those specific
consolidation savings from landing gear manufacturing are going
to come from?
Mr. Linnert. From looking at this, my belief is that the
estimate for landing gears, sensors and MRO consolidation, all
were estimates done by BFGoodrich people.
Mr. Kucinich. Where did the $10 million come from? If they
were done by your people, would you like to speculate where
that $10 million would come from?
Mr. Linnert. You mean what the form of consolidation was it
that was the underpinning for this study? It could have come
from a lot of things, it could have come from reducing from two
or three shift operations to one shift, it could have come from
becoming more efficient, I just do not know.
Mr. Kucinich. Now even before that, in a document titled
``Acquisition Overview'' dated November 16, 1998, which
discussed the proposed merger under the header ``Implementation
Plan,'' on page 4 is the statement, ``Our consolidation plan
for the merged enterprise has four main elements. The two
landing gear manufacturing entities will be combined and
rationalized.'' It then refers to Attachment C, which is the
same chart referred to by Mr. Burner, showing savings of $10
million in the year 2000, and $15 million in the year 2001.
This is exhibit No. 9, Mr. Chairman.
Now Mr. Linnert, do you still expect us to believe that
these specific savings do not refer to a specific plan for
consolidation?
Mr. Linnert. Yes. What these refer to is an estimate that
was done by Goodrich people. And as you can see from the same
chart, they looked at various overlaps between the company--it
was not limited to landing gear only, it also included sensors
and MRO. The detailed data to do an action plan as opposed to
an estimate, is not available, we are not allowed to share that
data.
Mr. Kucinich. Well, you know, I think you could expect us
to accept an answer, but I just wonder if Wall Street would
accept the numbers that were not backed up by any specific
plans for consolidation.
In a November 2, 1998 letter from Les Vinney, the company's
vice president of finance to David Burner, Mr. Vinney wrote,
``Attached is the Project Runway analysis. We have run our
models using various assumptions agreed upon by CS First Boston
and Morgan Stanley. These assumptions include: Synergies of
$36/67/80 MM in the years 99-00-01, respectively.''
Now Mr. Chairman, this is document No. 10, which I will
submit for the record.
Furthermore, BFG's presentations to Moody's and Standard &
Poor's also included estimates for savings from landing gear
consolidation of, guess what, $10 million in 2000 and $15
million in year 2001. And these are documents that BFGoodrich
presented to Moody's Investors Service November 19, 1998, which
I want to submit for the record; and here is what BFGoodrich
presented to Standard & Poor's November 18, 1998, exhibit No.
12, which I would like to present to the record.
Now Mr. Linnert, do you still stand by your statements that
these saving estimates, which you are using to sell the
proposed merger to Wall Street investors, do not include
specific estimates from closing any particular facility?
Mr. Linnert. They may include an estimate for a facility,
not a specific facility. They may include downsizing a
facility. I do not know exactly what they include. Those are
estimates. When you said CS First Boston, that was the
investment----
Mr. Kucinich. So a facility does not mean a specific
facility, just a facility, is that what you are telling this
committee?
Mr. Linnert. Yes, because again, what you have seen in that
prior study, one of the options involved other facilities
besides Cleveland.
Mr. Kucinich. As we see from the record, however, Mr.
Chairman and Mr. Linnert, all the documents which were present
in the records concerning BFGoodrich's intentions, all of them
involved the closing of the Cleveland facility, notwithstanding
your testimony to the contrary.
Mr. Linnert. So there is no misunderstanding, we have never
said we were not going to do a study. We never said we were not
going to consider closing a facility or other consolidation
opportunities. What we have consistently said----
Mr. Kucinich. No, I understand that from the record,
because you had to say that in order to pass muster with Wall
Street. I have documents here from Moody's and Standard &
Poor's which makes it very clear that you made--that BFGoodrich
made statements that consolidation was part of their goal
here--it is very clear.
Mr. Linnert. We have always said that.
Mr. Kucinich. Now according to David Burner, the first time
the merger was discussed was at a dinner meeting between the
CEOs on October 14, 1998, and this was followed up by a meeting
in New York City on October 21. Did you attend that meeting?
Mr. Linnert. Yes.
Mr. Kucinich. And do you know where the meeting took place?
Mr. Linnert. It took place at the Pierre Hotel.
Mr. Kucinich. The Four Seasons Pierre Hotel, is that
correct?
Mr. Linnert. The Pierre Hotel is the only name I know.
Mr. Kucinich. Do you know if the topic of closing of any
landing gear facilities was discussed at the meeting?
Mr. Linnert. My recollection is that we discussed the
synergies that could be obtained from various combinations.
Headquarters, landing gear, sensors and maintenance, repair and
overhaul operations were all----
Mr. Kucinich. When you say synergies, what do you mean by
synergies?
Mr. Linnert. Some type of cost savings or improvements in
efficiency or another synergy, for instance, is Coltec is a
highly leveraged company, we would be able to refinance all
their debt, that would be a financial synergy. It would result
ultimately in some kind of cost savings or efficiency
improvement.
Mr. Kucinich. Now Mr. Chairman, I would just like to submit
for the record that, according to Webster's Dictionary, synergy
is defined as a combined action or operation.
I have one more question.
I would like to show Mr. Linnert a set of handwritten notes
taken at that October 21 meeting in New York City. This is
exhibit 13, for the record. I would like for Mr. Linnert to
look at page 4, a little more than halfway down the page, it
says ``$50 million synergies, landing gear, \1/2\ in 12 months,
all in 2 years''
Mr. Linnert, I believe that this document, these
handwritten notes from the meeting at the Four Seasons Pierre
Hotel, demonstrates that BFGoodrich knew from the beginning
that it was going to close the Cleveland landing gear facility.
And I believe that this document, which was not in the
possession of the FTC and not in the possession of the
Department of Defense, needs to be in the possession of the
U.S. Justice Department so that we can see if an appropriate
antitrust review can be done from another level.
Mr. Linnert. Congressman Kucinich, for your----
Mr. Kucinich. And I would appreciate your response, of
course.
Mr. Linnert. Sure. The sentence that you are quoting
included a number of things. It said $50 million in synergies--
corporate headquarters, overhead, landing gear, \1/2\ in 12
months, all in 2 years. It included a list of where possible
synergies were. What is missing is financial synergies, as I
mentioned, and the sensors, which you have seen on other charts
as well as MRO.
In terms of antitrust analysis, I will go back to what we
said earlier, this transaction received unusual scrutiny in
terms of an anti-competitive review. The Department of Defense
took 4 months, and the Department of Defense not only reviewed
it against their own merger guidelines, which do include anti-
competitive review--not only did they do that because
AlliedSignal and Crane opposed our merger, they went in with
their antitrust and anti-competitive arguments--full analysis
by DOD.
More importantly, Congressman Kucinich, the Federal Trade
Commission, who is charged from a regulatory basis, with
looking at that issue, took 5 months. They gave AlliedSignal
the opportunity to not only interact with the staff, but with
each Commissioner, including the Chair, and Crane also. And at
the end of that process and an exhaustive analysis, they came
to the conclusion they would not object to this merger. That
does not mean Allied does not have a right to be in court. That
is fine, we will meet----
Mr. Kucinich. Nor does it mean that this committee does not
have the right to ask questions that perhaps the regulatory
agencies did not.
Mr. Linnert. Congressman Kucinich, as you know, we have
fully cooperated with this committee in every----
Mr. Kucinich. And you have, and I think we are all
grateful.
Thank you very much, Mr. Chairman.
Mr. McIntosh. Thank you, Mr. Kucinich. Thank you for
bringing that document to the committee's attention.
Let me turn now to our guest, Congresswoman Jones, if you
have any questions for this panel.
Ms. Tubbs Jones. I know that time is awasting here, so I am
going to try and be brief. I will not try and review all the
questions that my colleagues have previously asked.
But having had the opportunity to sit as a judge in a
preliminary injunction on many instances, I wanted to ask
Professor Bauer, in the litigation that you were testifying in,
who in fact was the other hired--the battle of the experts, who
appeared on the other side on issues that you raised, sir?
Mr. Bauer. Congresswoman, I should correct. Two things----
Ms. Tubbs Jones. You were a consultant, excuse me.
Mr. Bauer. I am a consultant and I am an attorney of
record. There has yet not been a trial and therefore there has
not yet been testimony. The trial is scheduled to start July
12.
Ms. Tubbs Jones. So you are saying that the judge in this
instance granted a preliminary injunction without any hearing?
Mr. Bauer. No, there was a hearing.
Ms. Tubbs Jones. That is what I asked about.
Mr. Bauer. There was a hearing, but the hearing involved--
the judge at that hearing, the hearing was held on April 30,
which was the day the merger otherwise would have closed.
Ms. Tubbs Jones. OK.
Mr. Bauer. At the hearing, counsel for AlliedSignal, Coltec
and BFGoodrich made presentations to the judge, and there were
voluminous documents presented to the judge, but there was no
testimonial evidence actually heard in court. There were of
course----
Ms. Tubbs Jones. Well, then your statement, Professor
Bauer, did you provide a written statement to the attorneys for
AlliedSignal to present to the court?
Mr. Bauer. I did not.
Ms. Tubbs Jones. OK.
Mr. Bauer. I mean I certain----
Ms. Tubbs Jones. So you have not ever testified in open
court on this particular issue in this case.
Mr. Bauer. Nor am I scheduled to do so.
Ms. Tubbs Jones. Nor are you scheduled to testify.
Mr. Bauer. Right.
Ms. Tubbs Jones. How is it then that you come here to be a
witness?
Mr. Bauer. Well, I have served as a consultant to
AlliedSignal and I----
Ms. Tubbs Jones. And you were invited by?
Mr. Bauer. The committee.
Ms. Tubbs Jones. OK, I want to understand. Is there another
person that serves on the other side in a similar capacity that
might be of interest to me to hear, that raises the same issues
that you raise?
Mr. Bauer. Well, I assume that both BFGoodrich and Coltec
have engaged antitrust experts----
Ms. Tubbs Jones. But as a consultant then, in preparation
for a trial, you do have the opportunity to review deposition
testimony or whatever else of another person on the other side
to assist counsel in making arguments; is that a fair
statement?
Mr. Bauer. To be sure.
Ms. Tubbs Jones. Have you done that?
Mr. Bauer. No, I've done it only on a very limited basis.
Ms. Tubbs Jones. OK. Well, briefly then, tell me what an
expert that would sit on the other side of this issue would say
in response to your statements with regard to the monopolistic
result of this merger. And the only reason I am asking this is
because having, as I said, been a judge, I always like to hear
both sides of an argument before I reach a conclusion.
Mr. Bauer. Well, Congresswoman, I feel somewhat sheepish
trying to--I guess the phrase is--be the devil's advocate.
Ms. Tubbs Jones. Do not feel sheepish, I am giving you an
opportunity to be bold. Go ahead.
Mr. Bauer. No, I appreciate that--and to articulate the
views to support this merger. Mr. Tubbs showed the committee
this op ed piece from the South Bend Tribune that appeared last
week by Kevin Arquit. Mr. Arquit is a former high staff member
in the Bureau of Competition at the Federal Trade Commission,
and he attempted to identify considerations which would support
the FTC's decision not to go ahead.
If you read Mr. Arquit's testimony, he--excuse me, his
article, do you have that in front of you?
Ms. Tubbs Jones. Yes, I do.
Mr. Bauer. In the second column, you see he says,
``Although market share is an important consideration to any
merger,'' and those were the HHI numbers that I referred to and
Mr. Tubbs dismissed, he says, ``they are by no means the only
determinant.'' And he identifies in his opinion other key
factors. And I would refer those to you.
Ms. Tubbs Jones. Hold on a minute, Professor Bauer. Since
Mr. Tubbs is here to testify, I can ask him those kind of
questions. Let me refer then to your own statement. Let us go
to page 7. It says, ``In short, the potential impact of this
merger on competition in the landing system market is
devastating.'' And it skips on and then you have, ``merger to
monopoly.'' What would someone sitting in your role on the
other side say in response to your statement ``merger to
monopoly?''
Mr. Bauer. Well, I think, Congresswoman, perhaps someone
would say two things. Monopoly, of course, requires defining
the relevant market. If the relevant market is worldwide rather
than only domestic, then there are two firms, and so instead of
having monopoly, there is a duopoly. That is one response.
Certainly a second response, somebody sitting on the other
side of the fence from me would say that there are strong
buyers in this industry and particularly firms like Boeing and
Airbus. And so that there is countervailing buying power, which
would offset the countervailing selling power on the part of
the monopolist.
A third argument that somebody sitting in my opposite
position I think would say is that there are efficiencies which
would flow from this merger. Certainly there are always
efficiencies which flow from any merger. The question--again
now taking my own position, the question is what are those
efficiencies, from what do those efficiencies flow and of
course one of the things we have talked about this morning is
that the alleged efficiencies may flow from the closing of a
plant.
And then, of course, to the extent that there are
efficiencies, are those offset by anti-competitive effects,
because section 7 of the Clayton Act, the final phrase says
that a merger is unlawful when there is a reasonable
probability of a substantial lessening of competition.
Substantial lessening of competition means that the anti-
competitive effects outweigh the pro-competitive effects.
But somebody attempting to defend this merger, I believe,
would talk about potential pro-competitive effects from the
merger. Call them synergies, that is a nice word; call them
efficiencies; whatever.
Mr. Tubbs. Congresswoman----
Ms. Tubbs Jones. I appreciate--I will get to you in a
minute.
Professor Bauer, let me ask you another question. I
appreciate your response to my question, you did a good job. It
was not hard, it did not hurt you, did it?
Mr. Bauer. Well, you know that this is what a law professor
does; you ask the question of one student and then you ask the
same question----
Ms. Tubbs Jones. So it is like being the student instead of
the law professor.
Mr. Bauer. You are putting me on the spot.
Ms. Tubbs Jones. Not intentionally, please know that.
Let us talk for a moment about a statement that Mayor White
made, which was the human element of the result of this merger.
Can you elaborate, if you will, step aside from the legal and
the ethical--well, I do not want to go ethical--the legal side
of it for a moment and say, based on your review, what the
human element of the--or impact of this merger might be.
Mr. Bauer. I think every person in this room is sensitive
to the potential human element. And the human element is the
ability of people who are capable of working hard, who have put
in substantial years for a company working hard, who have done
their best and who may lose their jobs, their livelihoods and
the impact that that is going to have both on them, on their
families, on their communities. And I think nobody is
insensitive to that.
I think, if I can--again, you are asking me to view this in
a larger sense--from an antitrust perspective, what antitrust
is designed to do is enhance competition because it is
competition which will, as I said before, increase innovation,
make for better and less expensive products or services; and
then I said in my testimony this morning, and indirectly
increase jobs.
But it may well be, and I think we all recognize that,
there may be situations in which competition may----
Ms. Tubbs Jones. Dr. Bauer, can you hold on 1 second? Our
esteemed chairman has to make a leave and I want to give him an
escape route, so why don't you just stop for a minute and let
me----
Mr. McIntosh. I will excuse myself and thank you,
Congresswoman Jones. Let me now turn over the Chair for this
proceeding to Representative Kucinich and let me particularly
apologize to the next panel and the representative of the UAW.
I will be reading your testimony with great interest and wish I
could stay to hear it personally. But Dennis and I will catch
up when we are back in Washington about a week from now.
This has been a very helpful hearing and very helpful for
me in understanding the dynamics here.
Please continue and I look forward to looking at the full
record. Thank you.
Mr. Kucinich [presiding]. Thank you very much, again,
Congressman McIntosh. Good luck to you and have a safe trip
home. Thank you.
Please proceed, Congresswoman.
Ms. Tubbs Jones. Dr. Bauer.
Mr. Bauer. Yes, you were asking me about the----
Ms. Tubbs Jones. The human element, right.
Mr. Bauer [continuing]. Role of the potential loss of jobs.
I think antitrust scholars and economists recognize that in
some situations, competition will be enhanced and the welfare
of the society at large will be enhanced, even though it may
result in the loss of jobs.
So I do not think one can take the position that the
potential loss of jobs is itself sufficient reason to say that
a merger should not go ahead, or other kinds of business
activities go ahead.
I think in this case what you have is a joining of various
elements. That is, my position is that this merger is harmful
to competition, it is harmful to consumers because it may
result in higher prices and less diversity. And in addition, it
results in substantial impact on local economies and the loss
of jobs.
So, Congresswoman, the loss of jobs by themselves are
certainly not, in my view, looking at it from an antitrust
perspective, sufficient to say the merger should or should not
go ahead. But it adds to the mix and makes us even more
concerned about the transaction.
Ms. Tubbs Jones. Last line of questioning with you, Dr.
Bauer. You are familiar, I am assuming, with the history of
Allied and BFGoodrich and Coltec and BFGoodrich and Allied;
correct?
Mr. Bauer. Yes.
Ms. Tubbs Jones. Does the fact that these three companies
have had prior relationships impact your position on whether
this merger is good for our country or bad for our country?
Mr. Bauer. Mr. Tubbs--and I do not mean to mischaracterize
it, so I am just going to paraphrase--referred to AlliedSignal
as the bullies in the playground or the disappointed suitors.
In my view from an antitrust perspective, it has no role
whatsoever.
Ms. Tubbs Jones. And that is because?
Mr. Bauer. In order for a private litigant to bring an
action to challenge a merger, the antitrust laws, section 16 of
the Clayton Act, imposes certain requirements for a private
litigant to seek injunctive relief for violation of the
antitrust laws.
In fact, in the 1980's, the Supreme Court, in two
decisions, made it more difficult for private plaintiffs to
bring an action. And in part, for reasons that were described
this morning. We do not want people who are merely affected
themselves to challenge a merger because they are unhappy. They
can challenge it if, and only if, they can show that the merger
is going to harm competition, if the merger is going to harm
consumers. And so there are cases which require both antitrust
injury and standing.
The Seventh Circuit, in their opinion, I believe it was
June 23, addressed that issue. The question, one of the
questions that BFGoodrich and Coltec raised in their briefs
before the Seventh Circuit is that these private plaintiffs are
not properly before this court because they lack standing, they
cannot show antitrust injury. They are just unhappy
competitors. And the Seventh Circuit rejected that position,
and I believe properly so.
So the fact that they are unhappy, for whatever reason, is
beside the point. The issue before the Court when the trial
starts next Monday, and the issue I think that this committee
is addressing is what is the impact under the antitrust laws,
what is the impact on consumers, what is the impact on
competition, what is the impact on national defense. And
AlliedSignal and Crane are empowered under the Clayton Act,
that has been part of the antitrust laws for a century, to take
the position of the public. In fact, there is a phrase
``private attorneys general'' used to refer to people in the
role of----
Ms. Tubbs Jones. It is like a taxpayer lawsuit.
Mr. Bauer. So I guess that is my view, that to the extent
that they legitimately assert competitive impact, that is what
is in play here.
Ms. Tubbs Jones. I am going to be a little more quick, but
my last question to you, Professor Bauer is, in fact there are
instances where preliminary injunctions are in fact granted and
ultimately permanent injunctions are denied.
Mr. Bauer. That is true in antitrust, that is true in all
kinds of cases.
Ms. Tubbs Jones. Right, right. Thanks.
Let me quickly go to Ms. Loeb and then I am going to allow
you gentlemen--ask you a few questions as well.
Ms. Loeb, you stated that AlliedSignal would honor any UAW
contracts of the employees at Cleveland Pneumatic Tool were you
permitted to purchase Cleveland Pneumatic Tool. Are all the
employees of Cleveland Pneumatic Tool or the Cleveland branch
union employees?
Ms. Loeb. I do not know that. Mr. Linnert might be able to
answer that, but I can tell you that----
Ms. Tubbs Jones. But you are representing whether they are
union, no matter what they are, you----
Ms. Loeb. We plan, if we were able to buy the Cleveland
Pneumatic business, it would be our intention to grow that
business, and therefore, we want to honor the contracts and the
terms of employment of the employees there.
Ms. Tubbs Jones. Would you--go ahead, I'm sorry, go ahead.
Ms. Loeb. To honor the existing contracts and to continue
to employ the employees there.
Ms. Tubbs Jones. Would you be willing to unionize or allow
those that are not union, if there are any of those, to
unionize? Are you willing to make that same commitment as well?
Ms. Loeb. I do not know that, under the law, we have any
ability to preclude anyone from unionizing.
Ms. Tubbs Jones. That is not the question I asked you. It
is a yes or no answer.
Ms. Loeb. I think I just answered it to the best of my
ability.
Ms. Tubbs Jones. It is a yes or no answer, would you allow
those that are not union to unionize?
Ms. Loeb. I think the answer is I do not think we as a
corporation have any ability to preclude anyone from unionizing
and it is certainly not our intent and I think it is certainly
not the spirit of the letters sent to Representative Kucinich
by our chairman to in any way infringe with union activities.
Indeed, it was our intent to make a very clear statement about
our commitment to this business and to growing this business in
Cleveland, that of his own initiative, Mr. Bossidy, our
chairman, stated quite clearly our intent, if we were allowed
to buy that business, to honor those contracts.
Ms. Tubbs Jones. Except that we have seen historically that
growing businesses in fact may mean that unions are displaced.
Is that a fair statement?
Ms. Loeb. I can tell you that it is not our intent.
Ms. Tubbs Jones. Answer my question. The question was, we
in fact seen that growing businesses often may well mean that
unions are displaced.
Ms. Loeb. I can tell you that I personally cannot speak to
that. I am not trying to be evasive, I am not the company's
employment lawyer, I am not familiar with that area of the law
and that is why I am trying to speak about----
Ms. Tubbs Jones. But you are prepared to sit here and say
then that if you were able to buy the business, unions would be
able to stay.
Ms. Loeb. I can say that because our chairman, Mr. Bossidy,
clearly said that in a letter that was made public to
Representative Kucinich, to Senator DeWine--our intent to buy
this business and grow it.
Ms. Tubbs Jones. OK.
Ms. Loeb. And to honor contracts----
Ms. Tubbs Jones. And what I am trying to understand, is
does grow include the possibility that unions could be
displaced.
Ms. Loeb. I can simply tell you I have not in any way ever
heard anyone inside AlliedSignal suggest that that would be the
case.
Mr. Kucinich. The record has shown a statement, written
statement, from Mr. Bossidy, which we have in the record, which
states--and I would like to quote from that. I understand the
Congresswoman's import of her question, it is well-taken, but
the third point that he makes, ``If we are permitted to
purchase CPC, we plan to continue to work with the current
union, just as we work with the unions at other AlliedSignal's
unionized facilities, and would honor the existing contract.''
That is what you are referring to. I think the
Congresswoman is referring to something else.
Ms. Tubbs Jones. Specifically I am saying that you say you
would honor the union contract, but you are also talking about
growth. And all of us recognize that sometimes when a company
speaks to the issue of growth, it does not always mean that at
some juncture you are going to honor the contract. How long is
the contract, do you have any idea how long the UAW contract
is?
Ms. Loeb. No, we do not have access to that information.
If I could just give some context to this, that I think is
very important here, Congresswoman. And that is that our
statements, I would hope, would be seen in the positive light
in which they were made and that is that we recognize or
believe, based on the documents that have all been presented
here, that there is a significant possibility that the
Cleveland Pneumatic facility here in Cleveland will be closed
if this deal goes through. And in attempting to resolve our own
antitrust concerns as well as to recognize that there was an
opportunity to address the kinds of issues that have been
addressed here today, including by Mayor White, we made an
affirmative offer to buy a business that we believe would be at
very significant cost. And rather than say that we will look
for cost synergies, to take costs out of this business, we
said--or to say we are going to look to deunionize this
business--we said we recognize there is a UAW contract here, we
affirmatively, positively want to work with the union here. We
want to grow this business. Now beyond that----
Ms. Tubbs Jones. I understand what you are saying, but let
me be clear on what I am saying to you. That I have seen
instances wherein we are in a hoopla about an issue and someone
steps up and says I will do it, I will take it, I will take it
over, and make promises that are empty umbrellas. And so all I
am trying to make an inquiry further on is your company is
stepping up to the plate, making all these positive statements,
I want to be clear on just what you are saying so we do not end
up in a dilemma like we are now or questioning what those
statements mean. That is the sole purpose of my inquiry.
Ms. Loeb. And I can tell you that I believe the statements
of our chairman were made in good faith and that----
Ms. Tubbs Jones. And I am not questioning his good faith.
Ms. Loeb [continuing]. And that those questions that were
made----
Ms. Tubbs Jones [continuing]. And I am allowed to inquire,
so let me keep going so we can get through.
Ms. Loeb. Sure.
Ms. Tubbs Jones. What has been the history of your
company's relationship with BFGoodrich?
Ms. Loeb. We are competitors in the marketplace. I believe
to a very limited extent, there may be some areas in which we
buy component parts from each other or sell to each other.
There has been a suggestion I believe made by Mr. Tubbs in his
testimony that we had planned to buy BFGoodrich at some point.
I can tell you unequivocally that that is not true. I can tell
you that people have examined looking at many businesses inside
the aerospace industry to determine whether or not they might
be proper acquisition candidates. I can tell you, as someone
who provided advice to people who asked whether that was do-
able, that I absolutely and unequivocally advised that it was
not. And so there is no broader relationship here.
Ms. Tubbs Jones. Did in fact you sell a portion of your
business to BFGoodrich?
Ms. Loeb. No, we did not.
Ms. Tubbs Jones. At no time?
Ms. Loeb. At no time.
Ms. Tubbs Jones. Did you sell some to Coltec at some point?
Ms. Loeb. Yes, we had a very small--I reiterate, very
small--landing gear business that we did not believe would be
competitive against Messier or with BFGoodrich on its own. It
was a very small landing gear business, limited to military, I
believe the F-18 aircraft. We went to Coltec, and we said can
we work together to team or partner in some way to become a
more effective landing gear competitor against Messier and
BFGoodrich, and they said to us we are willing to work with you
but only on the condition, only on the condition, that you sell
us that small landing gear business that you have and then we
will become effectively--we will enter into what became known
as the strategic alliance agreement--so that we would work
together as effectively a third landing gear, integrated
landing gear wheel and brake supplier. And we entered into a
10-year contract to do that.
Ms. Tubbs Jones. What year was the contract?
Ms. Loeb. It was in 1995 and it expires in 2005.
Ms. Tubbs Jones. And according to the negotiation--excuse
me, arbitration, that contract is recognized and still exists,
is that correct?
Ms. Loeb. Yes. Although I would like to say that I believe
the scope of the arbitration panel's decision is much broader
than has been characterized here. The arbitration panel simply
said that they did not believe that this merger per se violated
the strategic alliance agreement, but what they also said is
that very significant protection would have to be put in place
to protect our rights under the contract to enable us to
continue to compete.
Ms. Tubbs Jones. But it did recognize the agreement.
Ms. Loeb. It absolutely recognized that there is an
agreement, in effect, a legally effective agreement.
Ms. Tubbs Jones. Thank you.
Let me real quickly, Congressman Kucinich, ask a couple of
questions of Mr. Linnert, please.
Mr. Linnert, there has been some testimony in your letter
and our discussions, you said that at some juncture, the
Cleveland plant was considered to be closed. I am not talking
about the area that Congressman Kucinich went through, but
previously considered being closed, and it was not closed. Why
was it considered--why did you consider closing Cleveland
previously?
Mr. Linnert. My understanding is when we acquired that
facility in 1993, the equipment there, the condition of the
plant, its productivity was not what we would have liked it to
be. So we began to invest in that plant from 1993 coming
forward. My understanding is it was a--there was a series of
studies where it looked at--they looked at the efficiencies and
productivity of that plant and said is there a better way to do
this. Each time the decision was no, let us keep going and keep
investing. And to date, a total of just under $30 million since
1993 has been invested in improving both facilities.
Ms. Tubbs Jones. So what was it, if you are familiar with
what Cleveland did that caused you to say no, we are going to
keep it open, we are going to keep it open, we are going to
keep it open?
Mr. Linnert. My understanding, it was just the efficiencies
and productivity of the plant, the all-end costs of
manufacturing, I honestly do not know more than that.
Ms. Tubbs Jones. So if it is efficiencies and productivity,
are those areas that would have to be considered by you or
Coltec or whoever, before you would consider closing Cleveland,
if, as you say, the decision has not been made to close
Cleveland?
Mr. Linnert. Yes, when the study is done, at each of the
facilities, those are important things that will be looked at,
you know, in terms of what the operating efficiency is, what
the quality of operations is; as Bob mentioned before, what the
throughput is. Those will all be looked at. And I say that the
evidence that Goodrich is committed--as Congressman McIntosh
said at the start of this hearing, one of the purposes here is
to make sure folks have a fair chance to compete. That is what
we want too. Our investment in Cleveland indicates we are
trying to make that happen. We just negotiated a new energy
supply contract for that facility, getting a discount. We are
talking to the folks there about the cell form of
manufacturing.
I think those are evidences, we want that plant to compete
and compete well.
Ms. Tubbs Jones. You recognize that Congressman Kucinich,
Mayor White, Congresswoman Jones, the UAW in the back, we want
the opportunity to compete. Are you prepared then to make a
statement that you are going to give the Cleveland plant a fair
opportunity to compete in the decisionmaking if this merger
goes through?
Mr. Linnert. Absolutely, Congresswoman. And not only are we
going to give it a fair chance to compete, we are doing
everything to make sure it has that chance. As I mentioned
earlier, we are going to meet with Governor Taft's staff to
look at whatever offers or whatever help they can think of in
providing to make it more competitive. We will explore all
opportunities, yes.
Mr. Kucinich. Excuse me, Congresswoman, but the gentleman
can state that without having done a study?
Mr. Linnert. That we will give it all opportunities?
Mr. Kucinich. Please continue.
Ms. Tubbs Jones. I have to laugh, Congressman, let us
lighten up a little bit here. I even lost my train of thought,
hold on a second.
Mr. Kucinich. Talking about keeping it open.
Ms. Tubbs Jones. Oh, I know. As an attorney, Mr. Linnert,
you recognize the concern that is being expressed by my
colleagues and me with regard to the inconsistencies, for lack
of a better term, in the different paperwork that we received
with regard to the proposed merger, as well as the documents
that were presented for testimony. You recognize our concern.
Mr. Linnert. Yes, ma'am.
Ms. Tubbs Jones. And were you seated, as Congressman
Kucinich and I are seated, you would have that same concern
about leaders of a company who have presented these differing
presentations, is that a fair statement?
Mr. Linnert. That is exactly why we have taken the time to
meet privately and with this committee at every juncture to try
to explain exactly what will be done going forward. I agree. We
understand there is a concern and that is why we are here to
address it. And we have tried to address it privately also.
Ms. Tubbs Jones. But you understand why we are still leery.
Mr. Linnert. Yes.
Ms. Tubbs Jones. OK. Let me see--I would like to adopt as
my own many of the questions that my colleagues have already
asked. I do not want to go through much more of that.
Let me now go to my brother, Mr. Tubbs--and that is a joke,
for the record, Mr. Tubbs, and I have no relationship, though
you could not tell by looking at either one of us.
Mr. Tubbs, you wanted to respond to several of the
inquiries that I had made earlier with Professor Bauer. Do you
have your notes so you know what you wanted to say?
Mr. Tubbs. I just wanted to talk a little bit about what
Professor Bauer was talking about in terms of defining the
market. That seemed to be a key question that we have talked
about today. What market do we have and what does the airplane
market look like. And I do want to point out to the committee
that it was not too long ago that there were two producers of
commercial aircraft in the United States, McDonnell-Douglas and
Boeing, and now there is one, and it is McDonnell-Douglas-
Boeing. And that company is having to compete worldwide against
Airbus. So as we see the consolidation in the air frame market,
you also begin to see the consolidation in the supply market.
You have seen that with the United Technology/Sunstrand merger,
you see that in the Honeywell/Allied merger.
There was an article in today's Wall Street Journal about a
similar consolidation in the railroad parts industry following
the consolidation in the locomotive and freight car industry.
So as we look at the market, we begin to see things begin
to parallel at all levels, and when you look at this market
over here, there is a lot of people supplying a lot of parts
and a lot of different landing gear to a lot of different
people. So I think that we have got to remember that we are
talking as lawyers here, we like to carve things as closely as
we can, we like to define markets and submarkets as closely as
we can to make our point. But I think you have to step back and
look at the overall picture. You have one extremely large air
frame manufacturer in the United States, Boeing, competing
against one extremely large worldwide air frame manufacturer.
They are fighting real hard to survive and all of us who are in
the supply chain are also trying to survive in that business.
And I think we have got to step back and look at the whole
picture on this.
Ms. Tubbs Jones. Real quickly, this is my last question, I
promise.
Mr. Bauer was using your words to respond to one of the
questions I asked him. Can you put yourself in Mr. Bauer's
shoes for a moment and respond to the question I asked of him,
which is the potential impact of this merger on competition in
the landing system market is devastating. Could you support
that argument?
Mr. Tubbs. Can I support that it is devastating? No, I
cannot support that it is devastating? No, I cannot support
that it is devastating at all. I see multiple suppliers at all
levels, I see a Boeing company and a Lockheed Martin with
staffs of landing gear engineers who can do design. I can see
that they own the landing gear at the end of it.
I think at the end of the day, what you have is a very,
very strong landing gear company being able to support its
customers. So I do not think it is devastating at all.
Ms. Tubbs Jones. What will we get--assume--well, the FTC
and the DOD said they did not oppose the merger, and I am not
taking a position, that is not my job at this juncture--but my
question is on page 8 of Mr. Bauer's statement, he says, ``I
would next like to address some of the case law in this area.
What all of the cases, both the older and the more recent,
reveal is that with respect to a horizontal merger, the primary
concern is the extent to which the competition which formerly
prevailed between the parties will be eliminated.''
If that statement is in fact true, what are we going to get
in place of competition if this merger is permitted to proceed?
Mr. Tubbs. Well, both Ms. Loeb and Professor Bauer sort of
dismissed the idea of failing company and dismissed us being
able to invest. But let me talk a little bit about what a
Coltec is. A Coltec is a $1.2 billion company versus an about
to be $45 billion Allied/Honeywell company. We are leveraged
with about $600 million worth of debt. We need to have a
partner like a BFGoodrich, so that we can invest, we can put
the money into programs so that we are a stronger company. And
this is not just about landing gear, Congresswoman. This is
about fuel systems for helicopters, this is about gaskets that
go in chemical plants, this is about compressors that go in
every part of our infrastructure. These are all things that we
make. This merger makes our company stronger across the board
to be able to compete in many different markets. In the landing
gear side of things, you are getting a much stronger company,
who can now go and compete head on head with Messier-Dowty,
maybe take in--maybe get an Airbus contract so that we can
break the fortress Europe. I think you are getting a much
stronger company as a result of this merger.
Ms. Tubbs Jones. Ms. Loeb, lest I give the men in the room
the last word, let me give you the last word.
Ms. Loeb. I would like to say that we recognize that Coltec
and BFGoodrich are both much broader companies than just their
landing gear businesses, and indeed in some of those areas
outside of landing gear, we also compete. We have not in any
way objected to the merger with respect to any other aspect. We
do hope they will be able to form a much more efficient
company; however, this is what we believe is an unnecessary
aggregation of market power, specifically in landing gear, in a
way that will affect not only competition in landing gear, but
also affect competition in wheels and brakes and unfairly,
contrary to the law, unfairly preclude us from being a
competitor going forward and preclude consumers--and in this
instance you have heard many consumers, the airlines, make
clear their concerns about this--preclude the consumers from
getting the benefit of a true third competitor out there.
Ms. Tubbs Jones. I am done, Congressman Kucinich, thank you
very much.
Mr. Bauer. Congresswoman, could I respond for 30 seconds?
Ms. Tubbs Jones. Sure.
Mr. Bauer. Mr. Tubbs failed to see my problem, my
characterization of the merger as devastating.
The Sherman Act was enacted in 1890 and it has two
essential premises. One, that competition is good; and two,
that monopoly is not good. Presently in the landing gear
portion of this market, there are two vigorous American
companies. After the merger, there will only be one.
Mr. Kucinich. I think with that, we will conclude the
testimony of this panel. I want to thank all of you very much
for your participation and this panel will continue--this
committee will continue to be in touch with you regarding
whatever information we derive from our continuing research of
the records in this case.
But again, I want to thank you very much for your
participation today. I think that all of you have been very
thorough in presenting your point of view and the information
that you have.
At this time, I am going to call the third panel forward,
you have been very patient sitting there. Representatives of
the workers, Mr. Rich Vadovski of the UAW and also a
representative of the people in the community, the city
councilman, Edward Rybka. I would ask the gentlemen to take
your positions and before you are seated, it is the custom of
this committee, since we are a regulatory oversight and
investigative committee, to swear in all witnesses. And I will
ask you just to stand and raise your right hands.
[Witnesses sworn.]
Mr. Kucinich. The record will show that the people who are
to testify have been appropriately sworn and I will ask Mr.
Vadovski if he would like to proceed with his written
statement.
STATEMENTS OF RICHARD VADOVSKI, ASSISTANT DIRECTOR, REGION 2,
UAW; AND EDWARD W. RYBKA, COUNCILMAN, CITY OF CLEVELAND, OH
Mr. Vadovski. Thank you, Congressman Kucinich, and I would
like to also thank Chairman McIntosh as well as yourself for
holding this important field hearing here in Cleveland today,
as well as the participation from Congressperson Stephanie
Tubbs Jones.
I am Richard Vadovski, assistant director with the auto
workers region 2 here in Cleveland. UAW region 2 represents
90,000 active and retired UAW members in eastern Ohio, western
Pennsylvania and the State of West Virginia. There are
approximately 325 hourly UAW members represented by local 2333,
as well as some 350 salaried workers working at Cleveland
Pneumatic Co. of BFGoodrich. Because of your pursuit of
BFGoodrich's true aims in acquiring Coltec, the workers know
the seriousness of the situation facing us and our community.
We know that in spite of BFGoodrich's public assurances to
the contrary, BFGoodrich intends to use this merger to close
the Cleveland plant, eliminate the union and move jobs to the
south. Internal corporation documents prove this without a
doubt. Nevertheless, BFGoodrich has employed a public
disinformation campaign where they have lied to Members of
Congress, to public officials in Cleveland and to the public at
large.
At stake with this merger is not only the jobs of the
workers, the community as a whole directly benefits from these
good paying jobs. Six hundred and fifty workers earn and spend
a payroll in the area of $25 million in Cleveland's
neighborhoods. They pay $500,000 in payroll taxes alone to the
city of Cleveland. This, in addition to paying property taxes,
sales taxes, sin taxes, et cetera. Community economic
development experts will tell you that the workers' payroll is
spent and turned over three times in the community, where
workers spend their paychecks, where merchants sell their
goods, employ others who then spend and so on. It is fair to
say that the BFGoodrich payroll is the economic lifeblood of
the community around the plant. Closing the plant will cutoff
not just the workers and their families, but the community as a
whole.
Interestingly, poverty figures released recently by the
Council for Economic Opportunities in Greater Cleveland reveal
that family income is dropping. In this supposedly hot economy,
income for Clevelanders dropped by some 4.7 percent. The data
shows that Cleveland working family incomes, adjusted for
inflation, dropped from $24,829 to $23,654 per family during
the 1990's. In short, Clevelanders are losing serious economic
ground. The closing of this highly skilled plant, which has
decent paying jobs, will further devastate the Cleveland
economy.
Our union regards the merger as an attack on our members.
Thanks to the documents your committee has unearthed, it is
plainly obvious that BFGoodrich is deliberately using corporate
law to destroy the union, a democratically elected
representative of the workers at that plant. Our union has
pursued more detailed information from BFGoodrich as it relates
to the current contracts between the company and the union. We
think that plans to close the plant are relevant to the
necessary good faith of a collectively bargained and agreed
upon contract. We consider the plans of BFGoodrich to be a
willful violation of the contract, just as we would the
underpaying of workers or the unfair firing of an employee.
The government is the people's representatives. You, in the
U.S. Congress, are aggressively representing the public
interest by investigating the merits and representations of
this merger. I wish the same could be said about the Ohio
Attorney General. The internal BFGoodrich documents revealing
that Goodrich intends to lay off the 650 Cleveland workers if
it is allowed to merge with a North Carolina firm, have been
available to the Ohio Attorney General for months. But the
Attorney General of Ohio, who should care about the impact of
the merger on Ohio and the creation of monopolies, has done
nothing to stop the merger. Ohio Attorney General Betty
Montgomery has the power to help save Cleveland jobs and the
local community by filing suit in Federal court. Well, where is
she? Why does she not file a motion to stop the merger? Why is
she knowingly allowing BFGoodrich to close down Cleveland,
create a monopoly in the landing gear business, when the bulk
of the impacts of that merger will be felt in her own home
State and by her constituents here in Ohio?
We urge you to continue your investigation into this
monopoly grab by BFGoodrich corporate officials. The work you
are doing protects our Nation, this State and 650 decent paying
jobs here in Cleveland.
Again, thank you for this hearing here in Cleveland today
and my opportunity to appear here and testify. Thank you.
[The prepared statement of Mr. Vadovski follows:]
[GRAPHIC] [TIFF OMITTED]59989.219
[GRAPHIC] [TIFF OMITTED]59989.220
Mr. Kucinich. Thank you very much, Assistant Regional
Director Rich Vadovski.
At this time, we are going to turn to the city councilman,
Edward Rybka, who represents ward 12. Councilman Rybka holds a
seat that I once held and I am very grateful for his service to
the community and would ask him to proceed with his testimony.
At the conclusion of Mr. Rybka's testimony, we are going to ask
some questions of both Mr. Vadovski and Mr. Rybka.
Councilman, please proceed.
Mr. Rybka. Thank you, Congressman, and indeed it is a
privilege to have been serving as your successor as the
Broadway Councilman, and certainly it is a privilege to be
joining the UAW in this panel in representing the 650 employees
and their families. And last, it is a privilege to address both
Congressmen who represent the Broadway community. Thank you
very much, and to the chairman for having this hearing here in
Cleveland. Thank you for waiting this length of time to allow
us to address you.
Congressman Kucinich, I know you succeeded me--preceded me
here and I know the seat----
Mr. Kucinich. You never know about this business, I might
succeed you too. [Laughter.]
Mr. Rybka. Well, I also know the seat that you are sitting
in right now and I will refrain from any attempts at humor
there. But I also know the red light system and it is on
already.
Mr. Kucinich. I know some members of the media who would
understand the supreme irony of this seat, but we will not get
into that.
Mr. Rybka. I was more concerned as to whether or not you
were controlling the green and red lights.
Mr. Kucinich. I have never been as powerful as I am at this
moment, I will tell you.
Go ahead, Mr. Rybka.
Mr. Rybka. Thank you. And again, I do not wish to take time
trying to address antitrust or national security except that
since 1980 when I graduated from law school and I think if I
remember correctly, the purpose for debate around those issues,
the purpose of those laws, is to protect the quality of life of
the citizens of this country. And may I suggest that the
quality of life of the 650 employees at the Cleveland
Pneumatic/BFGoodrich facility and their families deserve that
protection and that debate. Certainly the evidence, Congressman
Kucinich, that you have been able to document and present at
this hearing, and I might add that the hours I have sat here
and listened to this deliberation, have been most edifying for
myself and indicates these 650 employees and their families
have reason to be concerned about their futures and their
quality of life.
If I may briefly also, as a city official, address other
impacts, the impact on the revenue and the general fund of the
city of Cleveland with the closure of this kind of facility,
the loss of those jobs, personal property taxes. This is a
machine-intensive industry that generates a lot of personal
property tax, which is the primary revenue source for the
Cleveland Public Schools and the nearly 80,000 children in that
school system. They would be adversely impacted by the closure
of this plant as well.
And I might add one other impact. Across the street from
this existing facility is the other half of the former
Cleveland Pneumatic facility; offices, manufacturing facility,
huge complex, hundreds of thousands of square feet, totally
unoccupied, a total blight on the Broadway community, fenced in
by a cyclone fence to avoid an arson and a tragedy that has
previously happened in the Broadway community. We need to make
sure that this facility that today is operating with 650 people
does not contribute to that kind of urban blight and scenario.
I do not mean to belittle the importance of a communication
that goes to a Member of the U.S. Congress, but Congressman
Kucinich, I too have my November 23, 1998 letter from the CEO
of BFGoodrich, who also indicated and gave me assurances that
the other jobs in Cleveland besides the 170 corporate jobs,
were all safe and not in harm's way. Unfortunately, having
succeeded you now in this job for 13\1/2\ years, I have become
a little cynical, and did not quite trust that November 23
letter, and therefore, on December 21, 1998, sent my own letter
to David Burner. If I could read just a few of the sentences.
Mr. Kucinich. Of course.
Mr. Rybka. It addresses the concern I have with the
responses that you have been given assuring that this $30
million investment in the plant that has taken place since 1993
shows a bright future--we ignore this light in city council
also, so if you do not mind, I will ignore that red light for a
few seconds.
Mr. Kucinich. Proceed.
Mr. Rybka. ``I appreciate the assurances in the fourth
paragraph of your correspondence indicating that no other Ohio-
based jobs will be affected by the relocation of the
headquarters. However, I am troubled that as a rationalization
can be offered to relocate a corporate headquarters out of a
state where 3,400 other company jobs exist, just as swift a
rationalization could be made to further downgrade or to close
and relocate facilities to another location. At the minimum, if
a decision to downgrade or close is being considered, the City
and I be given the opportunity to address concerns. These jobs
are important to those who hold them and to the City.''
When I hear testimony that we are talking about one of
these two companies being $1 billion operation with $600
million of leveraged debt, then I suggest to you Honorable
Members of Congress and fellow elected officials that a $30
million investment is a drop in the bucket and it can easily be
rationalized away as the cost of doing business, the cost of
synergism and any other term of art that you might want to
throw into this debate and into this mix.
And I would add that there has probably been very few
issues in my term as the Broadway Councilman that have had more
of a roller coaster than has Cleveland Pneumatic/BFGoodrich. It
started off 12 years ago when Cleveland Pneumatic was making
plans for huge expansions, the opportunity to bring their
suppliers to locations adjacent to this facility, to grow this
plant. And then BFGoodrich became the owner and it was all nice
talk. But yet in the October 25, 1993 Crane's Cleveland
Business, ``Only Room for One, Goodrich Pits Plants Here and in
Tennessee Against Each Other.'' Cleveland Plain Dealer, same
thing, Tuesday, September 21, 1993, ``Pneumatic Warns of
Layoffs. BFGoodrich warned 325 hourly workers yesterday that
they are in danger of losing their jobs.'' It has been the
chronic scenario, it happens every time the union contract
comes up. And I am going to suggest that any affirmations that
were made today, especially couched in the light of a $30
million investment, a much needed investment, I do not disagree
at all with that, leaves me, though, still lacking in the
assurances that I need as representative of the people of
Broadway. And those 650 employees are my constituents as well,
even though they might not all live in the Broadway community.
And therefore, would urge this Congress working with the
Senate to continue its careful scrutiny of this merger and how
it impacts the lives of people.
Thank you very much.
Mr. Kucinich. Thank you very much, Councilman Ed Rybka. You
know, as you were speaking, I am looking at that chart there,
when you talked about all of the ups and downs of the Cleveland
Pneumatic Co.'s promises, hope for expansion, things put on
hold, multi-national military landing gear suppliers, just
count the number of flags, U.S. flags, foreign flags, and you
see that here we have a condition where of all this work that
is being done on all these different facilities in all these
different countries--or companies, it looks like America is not
really leading the picture worldwide. It is pretty well
dispersed and as a matter of fact, there are 9 U.S. flags there
and 11 foreign flags.
One of the subtexts of this committee's work, national
economic growth, also deals with how many jobs end up going not
only south but out of the country. And jobs that are lost--and
in this case, what makes it even more ironic is some of the
work that is being done is for the U.S. taxpayers. So we can
end up losing U.S. jobs, U.S. firms losing the jobs to foreign
firms, jobs that should be done in this country for the U.S.
taxpayers being farmed out of this country. So it is another
complicating matter.
Now to Mr. Vadovski, how many members do you have in region
2?
Mr. Vadovski. Approximately 90,000, Congressman, in region
2, both active and retired.
Mr. Kucinich. And at this particular facility, you have 650
jobs that you spoke to, correct?
Mr. Vadovski. Correct.
Mr. Kucinich. Now what is the range of pay that people
make? These are pretty good paying jobs, are they not?
Mr. Vadovski. To just maybe highlight a little, there are
650 total that we spoke, we are talking about all the jobs, not
just the union jobs, but----
Mr. Kucinich. Right, I understand that.
Mr. Vadovski. The rates range in the landing gear facility,
which has approximately 300 of our members, from $19.88 to
approximately $21.47 an hour, is the rate of the jobs.
Mr. Kucinich. So those are good paying jobs we are talking
about.
Mr. Vadovski. Correct.
Mr. Kucinich. These are jobs that help support families,
pay the mortgage, send kids to college.
Mr. Vadovski. Absolutely.
Mr. Kucinich. And they are jobs that are part of the social
and economic fabric of a community.
Mr. Vadovski. Yes.
Mr. Kucinich. And you are representing the members, but in
a sense you are also representing those families as well, who
are affected by this.
Mr. Vadovski. Yes, we are.
Mr. Kucinich. What is the overall payroll at that facility?
Mr. Vadovski. I believe we are looking at in excess of $25
million a year, of which $500,000 is paid in payroll taxes.
Mr. Kucinich. That relates of course to Councilman Rybka's
point of view.
Mr. Vadovski. Right.
Mr. Kucinich. You made a statement that I think is very
telling here. You are in contract negotiations right now, is
that correct?
Mr. Vadovski. There is some discussions with the local
union committee over some jobs. The labor agreement does not
expire at the landing gear division until mid-year of next
year.
Mr. Kucinich. Is there a reopener, are you in a reopening
period?
Mr. Vadovski. No, they are just talking about some
placement of some machinery.
Mr. Kucinich. Has it been your experience that talk of
moving is used as leverage in arriving at a contract that is
favorable to a company?
Mr. Vadovski. Oh, absolutely. Threats of closures and
moving, yes.
Mr. Kucinich. And, you know, how does your membership
respond to something like that?
Mr. Vadovski. Well, you know, they do not lay down over it.
They are not going to give away everything with no hope at the
end of that task of having anything left.
Mr. Kucinich. What is the mood of the membership right now
about this whole----
Mr. Vadovski. The mood of the membership is angry, angry at
not being told the truth by the employer that they work for,
that corporation.
Mr. Kucinich. And you feel you have not been told the
truth--why?
Mr. Vadovski. You know, I think just in the documents that
have been uncovered as a result of your efforts, the chairman
and the committee. The contradictions, the contradictions we
just heard here today in previous testimony about documents and
what the intent was and the discussions and who was involved in
those discussions. Did they talk about closure, did they talk
about consolidation? And it seems like every time you turn the
page, you have a different viewpoint as to what was said or
what was not said.
Mr. Kucinich. Did you get a copy of this letter dated June
30, 1999, from BFGoodrich's CEO David Burner to BFGoodrich
Landing Gear Associates--are you familiar with that letter?
Mr. Vadovski. Yes.
Mr. Kucinich. You have read it then?
Mr. Vadovski. Yes, I have.
Mr. Kucinich. This letter was distributed to the UAW
officials and to the UAW members?
Mr. Vadovski. Correct.
Mr. Kucinich. And this letter goes on to say that ``In the
past several weeks, newspaper and television stories based
primarily on comments from elected officials and officials of
AlliedSignal have indicated that we are planning to close the
Cleveland landing gear facility. This is absolutely not true.''
Now that is what BFGoodrich's CEO says. He goes on to say that
``We have been encouraged by the ongoing discussions with union
officials about the way to make the operations more
competitive. We work cooperatively with the UAW,'' it goes on
and on.
Have they been cooperating with you in regards to these
reports about the company's----
Mr. Vadovski. Absolutely not.
Mr. Kucinich [continuing]. Changing status?
Mr. Vadovski. Absolutely not. We have a number--the
servicing rep, the international representative, assigned to
that local union has sent in a number of letters requesting
various information and requesting various documents of which,
as of today, we have not received response to.
Mr. Kucinich. So despite the fact that Mr. Burner wrote a
letter a little more than a week ago, distributed it to the UAW
members and by reference to the community, saying that they
have no plans to close the Cleveland operations and saying that
they have been encouraged by ongoing discussions with union
officials and furthermore stating they are working
cooperatively with the UAW, you are saying they are not
cooperating with you and you are saying that for all intents
and purposes they are not communicating with you.
Mr. Vadovski. Yes, that is correct. And may I add my
opinion to this? This letter conveniently came out just a few
days prior to the hearing here.
Mr. Kucinich. Well, you know, when you are in the business
of holding investigative hearings, it is not unusual for
statements to be released in advance of the hearings to try to
put some coloration on the hearings. We understood that. I just
wanted to know what your testimony would be as the second
highest UAW official in the region, and you are telling us that
there has really been no communication with the membership
about this, notwithstanding the fact that Mr. Burner has
written a letter, period.
Mr. Vadovski. Correct.
Mr. Kucinich. OK. Councilman Rybka, a number of businesses
in this area depend on the maintenance of that plant, is that
not correct?
Mr. Rybka. Not necessarily in this area, but obviously in
the Greater Cleveland marketplace.
Mr. Kucinich. Restaurants----
Mr. Rybka. And retailers as well.
Mr. Kucinich. And in particular, if this plant were to
close, what kind of impact would it have on the small
businesses in the area?
Mr. Rybka. I think it would have an extreme impact. At 650
jobs, this is one of the larger employment locations in the
corporate limits of the city of Cleveland. So to take that much
of a job presence out of the Broadway community would have a
negative impact on the small restauranteur or the drug store
operation or wherever a convenience operation might be. And I
might add even Greater Cleveland wise, though, the suppliers to
this company. Going back 11-12 years ago when Cleveland
Pneumatic was focusing on an expansion, that was one of their
strategies, to assemble land to bring those suppliers closer to
this facility.
Mr. Kucinich. Has anyone from BFGoodrich come to you as the
Council representative of the area and asked for help in any
way to enable them to stay in the neighborhood?
Mr. Rybka. The December 21, 1998 correspondence I sent to
Mr. Burner was not responded to.
Mr. Kucinich. So no communication from them.
Mr. Rybka. No.
Mr. Kucinich. Thank you. Congresswoman Tubbs Jones.
Ms. Tubbs Jones. Just briefly. Thank you both for coming to
testify this afternoon and waiting through our questioning to
be heard.
Are you familiar, Mr. Vadovski--is that correct?
Mr. Vadovski. Right.
Ms. Tubbs Jones [continuing]. With any--you heard the
testimony earlier today about some contemplation of closing the
Cleveland plant previously. Are you privy to any of that
discussion, were you representing Cleveland Pneumatic Tool
during those times and were you as a representative of UAW
involved in any of that discussion?
Mr. Vadovski. No, I was not.
Ms. Tubbs Jones. Are you familiar with who in the UAW may
well have been involved in that process?
Mr. Vadovski. I think the corporation never discussed with
us the closure, you know. And I said earlier, Congresswoman,
that the contradiction between documents that have been
uncovered are very puzzling to us.
Ms. Tubbs Jones. Let me be clear, the closure I am
discussing is back in 1993 when they invested other dollars.
Were you the representative of UAW overseeing Cleveland
Pneumatic Tool at that time?
Mr. Vadovski. I was not the Assistant Director at that
time.
Ms. Tubbs Jones. OK.
Mr. Vadovski. And I was not involved in those negotiations.
Ms. Tubbs Jones. Could you, if you could, determine if
there are any UAW people that were around back in 1993 coming
forward? It might be of interest to both you and our hearing,
our members, to determine what was going on back with the UAW
and Pneumatic----
Mr. Vadovski. We still have members who were there at that
time.
Ms. Tubbs Jones. It might be of interest to us to learn
what it was that kept this plant open. I am confident it was
the work of the UAW workers and their productivity and all that
was going on that may have been a part and parcel, and it might
be useful as we go down this road.
Mr. Vadovski. I can say this, that it is a highly skilled
work force running some very close tolerance work that is, you
know, inspected by those customers very meticulously. And
again, it is the skills of workers in Cleveland which have
worked in that facility for many, many years.
Ms. Tubbs Jones. Thank you.
Councilman Rybka, only one question. Are you still prepared
to do what you could do, in your capacity as a Council person,
to assist in keeping Cleveland Pneumatic Tool and seeing what
could be done from your perspective to maintain that facility?
Mr. Rybka. That is the pledge I made in the December 21
communication that I sent and certainly it is a commitment I
have received from the city administration, that we would do
all we could legislatively or non, to the State, to the Federal
Government, to wherever, to help with the issues that surround
the viability of this facility.
Ms. Tubbs Jones. It is fair to say that you are looking for
a response to your December 21 letter.
Mr. Rybka. Yes.
Ms. Tubbs Jones. Thank you, Congressman.
Mr. Kucinich. I want to thank the witnesses, Mr. Vadovski
of the United Auto Workers region 2, for your leadership and
your participation, and let your membership know that this
committee is doing everything it can to try to get to the
bottom of this issue and to find out exactly what the truth is.
Hopefully we will be in a position to favorably report at some
point that we have been successful in our efforts to
demonstrate the economic importance of that facility and be
successful--from my own personal standpoint, I am hoping that
our efforts are going to help keep that plant open and I want
Councilman Rybka to know the same.
This is another in a series of meetings which the
Subcommittee on National Economic Growth, Natural Resources,
and Regulatory Affairs is having on the Goodrich/Coltec merger.
This committee has been involved in researching the records of
firms involved and we will continue to do so using the powers
which are vested in us by virtue of the Constitution of the
United States and the role of this committee as the
investigating committee of the Congress.
I want to thank all of the witnesses who appeared here
today for their presence and their cooperation. I want to thank
the members of the congressional staff for being here, both
from Mr. McIntosh's staff and from our own committee staff of
the subcommittee. I want to express my appreciation to the
representatives of Cleveland's media who have taken the time to
communicate this event back to the citizens of our town, and
thank all those in attendance in the audience.
This is a very serious matter because it relates to the
economy of this country and more specifically, Congresswoman
Tubbs Jones and I are concerned because this relates to the
economy of our community.
Without further ado, this meeting of the Subcommittee on
National Economic Growth, Natural Resources, and Regulatory
Affairs will be adjourned and I want to once again thank
Congressman McIntosh for his outstanding leadership on this
critical economic issue.
We stand adjourned. Thank you.
[Whereupon, at 1:34 p.m., the subcommittee was adjourned.]
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