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IMMEDIATE RELEASE

Release No: 151-95
March 27, 1995

DOD IS SATISFIED THAT DEAL BETWEEN ALLISON ENGINE CO. AND ROLLS ROYCE DOES NOTENDANGER NATIONAL SECURITY

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 export-controlled technology."

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. Government.

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 defense efforts."

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.


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