Arizona company loses unfair business practice suit against Honeywell

WASHINGTON – A federal appeals court Friday rejected an Arizona aeronautical company’s claim that a major competitor used its market dominance to “unfairly smother competition” in the aeronautics maintenance business.

A three-judge panel of the 9th U.S. Circuit Court of Appeals said Aerotec International had not produced sufficient evidence to support its claim that Honeywell International had leveraged its monopoly power in the repair services market to cause injury to Aerotec.

Circuit Judge Margaret McKeown wrote that Aerotec’s antitrust claims were invalid because “antitrust laws require injury to competition” and not merely to a competitor.

“As the Supreme Court reminds us, ‘the law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself,'” she wrote in the opinion for the appellate court.

The court said Aerotec has about 1 percent of the market for repair of auxiliary power units (APU), small engines that provide power to airplane systems like instrumentation, air conditioning and cabin lights.

The specialized units are produced by two major manufacturers in the world, Honeywell and Hamilton Sundstrand. Honeywell dominates the manufacturing of the units, with a 76 percent share of the commercial aircraft market, 89 percent for business planes and 79 percent for military aircraft, the court said.

Besides manufacturing the units and their replacement parts, Honeywell also repairs the units, putting it in competition with independent operators like Aerotec.

Aerotec is highly dependent on Honeywell for the parts needed to do its repair work but is also low on the priority list to get those parts, according to the court. Honeywell supplies its own repair business first, then distributes parts to airlines that do their own maintenance, then to Honeywell repair affiliates and finally to independents like Aerotec, the opinion said.

As part of its pitch for repair business, Honeywell bundles parts and repairs to gain the business of major airlines in a competitive market. Independent operators end up paying more for original manufacturer parts from Honeywell, so they regularly use alternate parts and repair methods to keep their costs down.

Aerotec claimed that Honeywell complicated the process it took to get parts, created unfair deals to undercut independent businesses and restricted trade by forcing airlines into de facto trade agreements with the manufacturer.

In 2007, Aerotec was able to win a major deal with Saudi Arabian Airlines – winning the deal over Honeywell – followed by a deal two years later with Air India.

But its success did not last long. Saudia faced a shortage of APU parts for its Boeing 777s and Aerotec, because it was low in Honeywell’s parts allocation system, was not able to supply the parts in time. The airline, in the meantime, continued what the court called a pattern of late payments that left Aerotec with “millions of dollars” of debt.

Saudia left Aerotec in 2009 for a Honeywell affiliate and Air India later left for Honeywell.

Aerotec sued, claiming violation of state and federal trade laws, but a federal district court dismissed the case, saying there was insufficient evidence for the case to proceed. Friday’s circuit court ruling upheld the lower court’s decision.

“There is no real dispute that Aerotec was a competitor to Honeywell, albeit a small one, in the APU repair market,” McKeown wrote. “But the antitrust laws require injury to competition, not merely injury to a competitor.”

Calls to Aerotec’s attorney were not immediately returned Friday. But a Honeywell spokesman welcomed the decision.

In an emailed statement, Honeywell spokesman Steve Brecken said the company has stood by the fact that “none of its business dealings with Aerotec were anti-competitive.”