Deputy Secretary of Defense John Deutch on March 23, 1995 notified the
Committee on Foreign Investment in the United States (CFIUS) that after a
thorough review the Department of Defense has concluded that the national
security is not endangered by permitting the acquisition by Rolls Royce of
Allison Engine Company, so long as appropriate controls are installed to
preserve those technologies that are critical to the nation's defense.
Rolls Royce is a United Kingdom company that manufactures aircraft engines.
Allison is a U. S. designer and manufacturer of gas turbine engines and
components for aviation, industrial and marine applications. Last year the
companies notified CFIUS of a proposal for Rolls Royce to purchase Allison.
Deutch said that DoD had been working for the past four months with Allison
Engine and Rolls Royce to structure controls to the Department's satisfaction.
In his memorandum to the Department of Treasury, which heads CFIUS, Deutch
described aspects of the controls as "...Unprecedented in the extent of control
to be exercised over both classified technology and unclassified
The Deputy Secretary stated that the controls will take the following form:
Allison Engine will enter into a special security and technology agreement
with the Department of Defense. This agreement will contain restrictions on
transfers of information and technology without the prior approval of the U. S.
In addition, certain classified programs that involve leading-edge
technologies will be lodged in a newly created company, Allison Advanced
Development Company, Inc. (AAD). AAD will be governed by a separate proxy
agreement, separate management, and additional security procedures. AAD will
be responsible for performing those contracts with the Department that are
classified above Secret, as well as certain development programs classified at
lower levels (Integrated High-Performance Turbine Engine Technology and Joint
Advanced Strike Technology) that are the basis for the next generation aircraft
engines. Department of Defense approval will be required for the transfer of
any programs or specified technical data from AAD to Allison Engine.
Additionally, advance approval by a proxy holder is required for visits between
AAD and Allison or Rolls Royce.
Deutch cautioned that while meeting the Department's immediate security and
program requirements, the inclusion in a proxy company of development programs
classified at lower levels is unique and causes some concerns. He said that
the Department will reevaluate the proxy company requirement over time with a
view to alleviating or eliminating weaknesses caused by the proxy company.
Deutch also advised CFIUS that the Rolls Royce-Allison transacton may enhance
national and economic security. He pointed out that DoD has advocated greater
cooperation and integration with NATO allies on defense related technology and
manufacturing efforts. Deutch wrote, "We welcome participation of European
firms in the U. S. since it contributes to our national security and creates
jobs in this country and can add to our market and technology base, just as we
expect U. S. firms to be major participants without restriant in European
Upon conclusion of its national security review, CFIUS concluded on March 23,
that there were no national security issues sufficient to warrant an additional
45-day investigation of the transaction under the Exon-Florio provision of the
Defense Production Act, which gives the President the authority to suspend and
prohibit foreign acquisitions of U. S. businesses.
Note: Reporters may obtain a copy of Deputy Secretary Deutch's memorandum from
the Directorate for Defense Information, Room 2E765, the Pentagon, or by
calling (703) 695-0192.