Boeing’s $3.75 billion cash deal to buy Hughes Electronics will likely be delayed until September as the European Commission (EC) continues its inquiry into how the proposed merger would affect the launch industry, according to a report released Tuesday by Merrill Lynch analysts.

Though it will probably take until September "the transaction could be approved sooner depending upon how long the [European Commission] takes to review," the report said. Boeing has said that its expects approval by August.

The EC is concerned that Boeing’s acquisition of the satellite-manufacturing operations of Hughes
Electronics could encroach on the business of European launcher Arianespace, the world’s number one commercial launch company.

"Given the recent development of Boeing’s launcher business and the market position of Hughes in satellites, there are risks that such behavior could substantially affect the competitiveness of other launch service operators and thus possibly create a dominant position by Boeing in the launch service market," the EC said in a statement a few weeks ago.

The report, by Merrill Lynch analysts Tom Watts and William Pitkin, also said:

• The EC approval likely will contain special conditions to ensure fair competition between Boeing launchers and Arianespace.
• Hughes Space will enhance its position with customers if it shows no favoritism to Boeing’s launch vehicles after the merger.

The EC‘s initial investigation found that the deal could bolster Hughes' roughly 40-percent market share in geostationary (GEO) satellite manufacturing. Competitors include the Alcatel portion of the recently established Astrium partnership, Lockheed Martin and Space Systems/Loral.

Rivals Lockheed Martin and Arianespace have been lobbying on both sides of the Atlantic, asking both U.S and European officials to intervene in the merger. They have expressed concern about remaining competitive if the proposed sale goes through.

According to news reports, the Federal Trade Commission is looking into the deal.

The acquisition, announced in January, would allow Boeing to offer a broadened range of space services, from satellite construction to rocket launches with the Delta family of rockets that it acquired in 1997 through its merger with McDonnell Douglas.

Hughes plans to use the proceeds from the sale to pay for its wireless high-speed internet projects and its DirecTV satellite dish service.

Under rules of a 1999 bilateral agreement on antitrust cooperation with the U.S., the European Commission has four months to adopt a final decision after it finishes its investigation.