Affected market: Monopropellant thrusters (for satellites etc)
The OFT's decision on reference under section 22(1) given on 2 March
Aerojet-General Corporation (Aerojet) – a subsidiary of GenCorp Inc – is
active in the research, development, manufacture and sale of propulsion
products and systems for aerospace and defence applications. Aerojet
produces a full range of a specific category of propulsion products
known as in-space propulsion thrusters at a facility located in the US
(Redmond, Washington). Atlantic Research Corporation (ARC) – a
subsidiary of Sequa Corporation – is also a supplier of propulsion
products and systems and it too produces a full range of in-space
propulsion thrusters at two facilities: one in the US (Niagara, New
York), and one in the UK (Aylesbury, Buckinghamshire). Operations in
the UK are conducted by a subsidiary company, ARC UK Limited (ARC UK).
On 2 May 2002, Aerojet agreed to acquire substantially all of the assets
of ARC, as well as the shares of ARC UK, for $133 million (£71
million). This resulted in the US Federal Trade Commission (FTC)
issuing a formal Complaint based on its view that the proposed
acquisition would be in violation of Section 7 of the Clayton
Act. Section 7 prohibits mergers whose effect 'may be substantially to
lessen competition or to tend to create a monopoly in the relevant
On 15 October 2003, the FTC announced that it had accepted a Consent
Agreement submitted by GenCorp and designed to remedy the
anti-competitive effects of the merger. This Consent Agreement allowed
Aerojet to proceed with its acquisition of ARC provided that GenCorp
divest ARC's in-space propulsion business – including all of ARC UK –
within six months of completing the deal. In order to protect
competition while the divestiture is pending, the FTC has issued a Hold
Separate Order to ensure that ARC's in-space liquid propulsion business
(again, this specifically includes ARC UK) is preserved as a viable,
competitive and ongoing operation until divestiture is achieved. A Hold
Separate Trustee (a Mr Charles Wilkins of KPMG LLP) has been appointed
and all rights, powers and authorities necessary to permit the Trustee
to perform his duties have been transferred to him.
The merger of the Aerojet and ARC enterprises was completed on 17
October 2003 and the statutory deadline for considering this merger was
extended in accordance with section 25(1) of the Enterprise Act 2002
(the Act). A satisfactory submission was received on 22 January 2004.
The administrative target in this case is therefore 18 March 2004.
As a result of this transaction – but subject to the FTC's Hold
Separate Order – the Aerojet and ARC enterprises have ceased to be
distinct. The turnover test in the Act is not met. However, the
parties overlap in the supply in the UK of monopropellant in-space
propulsion thrusters and the share of supply test in section 23 of the
Act is met. A relevant merger situation has therefore been created.
The parties overlap in the supply of in-space propulsion thrusters.
These essentially are engines that are used to manoeuvre spacecraft,
such as satellites, through space after a launch vehicle has delivered
them to the upper atmosphere. Such thrusters allow for the spacecraft
to be placed into their intended orbits (a process known as apogee
insertion), or for their positions in orbit to be maintained (attitude
There are two primary types of in-space propulsion thruster:
monopropellant and bipropellant. One essential difference between the
two types is that monopropellant thrusters draw from a single liquid
fuel source (typically hydrazine), whereas bipropellant thrusters
operate using a combination of both a liquid fuel (typically
monomethylhydrazine) and an oxidiser. Monopropellant thrusters
generally produce between one pound to five pounds of thrust, thus
making them well suited for pulsed operations of short duration and
therefore ideal for attitude control. The process of apogee insertion
requires considerably more thrust (ranging between 90 to 140 pounds of
thrust). A typical bipropellant propulsion system consists of separate
thrusters for attitude control and for apogee insertion. As well as
having considerably greater propulsion force, bipropellant thrusters are
generally more fuel efficient and expensive than their monopropellant
counterparts. The two types of thruster are therefore not considered
Each of the parties produces the full range of in-space propulsion
thrusters (see [note 1]). In the UK, however, the only area of
horizontal overlap between the parties is in the supply of
monopropellant in-space propulsion thrusters.
The FTC concluded that, for the purposes of its analysis, the relevant
geographic market was the US. Foreign suppliers of in-space propulsion
thrusters are not considered effective competitors for US customers
since they face a number of regulatory restrictions concerning
importation and (particularly for Department of Defence programmes)
national security issues.
The parties have submitted that they view the supply of in-space
propulsion thrusters to be largely worldwide. Third party comments,
however, suggest that European suppliers of in-space propulsion
thrusters are preferred for projects involving the launch of European
spacecraft. Taking due account of these submissions, the scope of the
geographic market in this particular case would appear to be at least
Europe-wide. However the overlap between the parties in the wider
European market is limited as Aerojet supplied only (see [note
Within the UK, there is currently only one purchaser of monopropellant
thrusters: Astrium (part of the EADS group). The parties' joint share
of supply (see [note 3]) is 25-35 per cent (see [note
4]) – an increment of 5-15 per cent. The remaining 65-75 per
cent of the supply to Astrium is accounted for by DASA (itself also an
associate company within the EADS group).
Barriers to entry and expansion
The FTC concluded that there are significant impediments to new entry
into the supply of in-space propulsion products. A potential new
entrant would firstly need to develop the expertise needed to
successfully design, manufacture and market the products. R&D costs
in the manufacture of in-space propulsion thrusters are high and highly
skilled technical capabilities are required. Thrusters must be
rigorously tested before marketing and any new entrant would have to
establish a successful track record in order for customers to readily
incorporate the products as vital components in any spacecraft.
Barriers to entry in the supply of in-space propulsion thrusters are
therefore considered to be very high.
The sales opportunities available to manufacturers are relatively
limited. Astrium has submitted that it is possible to exert buyer power
– particularly where orders are sizeable.
No vertical issues are raised by this case.
THIRD PARTY VIEWS
The OFT did not receive any third party responses suggesting that the
completed merger raises competition concerns or would have done so but
for the FTC's divestiture order.
VIEWS OF OTHER GOVERNMENT DEPARTMENTS
The MOD was consulted and had no issues or concerns arising from the
The parties overlap in the supply of in-space monopropellant thrusters
in the UK, with combined shares of supply amounting to 25-35 per cent.
There is only one UK purchaser of this type of product. Neither that
third party customer nor the MOD expressed any concerns over the merger.
ARC currently supplies monopropellant in-space propulsion thrusters
through its UK manufacturing subsidiary, ARC UK. In response to a
Complaint filed by the FTC, Aerojet's parent company, GenCorp,
negotiated a Consent Agreement whereby it is committed to divest ARC's
liquid propulsion business, including ARC UK, by mid-April 2004 –
pending which it is currently being 'held separate' from the merged
entity by an approved Trustee.
The Hold Separate arrangements preclude the possibilities for the
parties to exercise any potential post-merger market power in the UK
supply of monopropellant in-space propulsion thrusters. Any overlaps
between the parties will be removed following the forthcoming
Consequently, the OFT does not believe that it is or may be the case
that the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- The FTC's market analysis defined various categories of in-space
propulsion thrusters: monopropellant, bipropellant apogee, dual mode
apogee, bipropellant attitude control – all of which formed separate
- Details excised at the request of the parties for reasons of
- Exact figures replaced by ranges at parties' request.
- Based on sales value figures supplied by Aerojet. The market for the
sale and purchase of monopropellant in-space thrusters is 'lumpy' –
some customers may have no requirement to purchase such thrusters from
one year to the next. Share data is therefore based on the parties'
knowledge of the total sales achieved by the three sources of UK supply.