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The sale of assets between one of the partners in each of the two teams competing for a $700 million Air Force contract could raise prices or reduce investments in technology and quality for a critical component of an Air Force anti-missile program, the Federal Trade Commission has alleged. Today, the FTC announced it has reached a settlement of these allegations with General Motors and its subsidiaries, Hughes Electronics and Hughes Danbury Optical Systems. The FTC said the settlement will ensure continued competition for "deformable mirrors," part of the adaptive optics system that allow an anti-missile system to correct for distortions in the atmosphere. The affected system is the Air Force's Airborne Laser (ABL) program, which currently is in the design phase.

"This settlement will preserve competition for the Defense Department's premier anti-missile program and likely save taxpayers millions of dollars," said William J. Baer, Director of the FTC's Bureau of Competition. "The settlement also will help ensure that the Air Force receives the highest quality, most competitively-priced anti-missile defense system it can get."

In the deal at issue, Hughes Danbury Optical Systems, of Danbury, Connecticut, proposes to acquire the Itek Optical Systems Division of Litton Industries, Inc.. Itek is based in Lexington, Massachusetts.

As planned, the Airborne Laser (ABL) program would use a customized 747 aircraft to locate and destroy incoming short-range ballistic missiles during their launch or boost phase so that they fall back on the enemy's own territory. The goal of the system is to deter the enemy from launching missiles for fear of contaminating its own territory with nuclear, chemical or biological warheads.

The two teams that have been awarded contracts by the Air Force to develop the concept design for the ABL program are The Boeing Company/Lockheed Martin Corporation team and the Rockwell International Corporation/Hughes team. Itek has an exclusive contract to provide deformable mirrors for the Boeing team, and another firm -- Xinetics Inc., of Littleton, Massachusetts -- has an exclusive contract to provide the mirrors to the Rockwell/Hughes team.

According to the FTC complaint detailing the charges in this case, Itek and Xinetics are the only two firms with the expertise, personnel and facilities to design and fabricate the mirrors. Therefore, if Hughes acquires Itek, it will be involved in the supply of deformable mirrors to both teams. As a result, the FTC alleged, Hughes could:

  • increase the bid prices for the ABL competition by raising the price of deformable mirrors it provides to both teams;
  • decrease its investment in the technology or quality on one or both of the teams' design; and
  • gain access to competitively sensitive information relating to the Boeing Team's technical design and cost for its entire adaptive optics system.

The proposed consent agreement to settle these charges is designed to eliminate the Boeing team's dependence on the Rockwell/Hughes team by prohibiting Hughes from enforcing the exclusivity provision in the contract between Xinetics and Hughes. This will ensure that the Boeing team has a source alternative to Hughes/Itek for deformable mirrors. General Motors, Hughes Electronics and Hughes Danbury also have signed an ancillary agreement requiring them to dissolve the exclusivity provision immediately, even though the proposed consent agreement will be subject to a 60-day public comment period before the Commission determines whether to make it final and binding.

In addition, the settlement would prohibit the respondents from accessing proprietary information from Itek regarding the Boeing team's ABL technical design or the cost of its adaptive optics system.

The Commission vote to announce the proposed consent agreement for public comment was 5-0. It will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaint, proposed consent agreement, interim agreement and the analysis to aid public comment are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov

 

(FTC File No. 961 0018)

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