United Technologies: US probes Sikorsky on Navy contract

Sikorsky Aircraft in Stratford (file).

United Technologies Corp. said a federal criminal probe is under way into allegations that the Sikorsky helicopter unit and two subsidiaries overbilled the U.S. government for years in connection with a 2006 Navy contract.

“Sikorsky and its subsidiaries intend to cooperate fully in the investigation, which was discussed as part of the transaction with Lockheed Martin and is not expected to affect the close”, a United Technologies spokesman said in a statement.

Prosecutors allege that Sikorsky and subsidiary companies Derco Aerospace and Sikorsky Support Services illegally billed the U.S. Navy for overhead costs associated with servicing T-34 and T-44 aircraft, training airplanes used by the Navy and Marines, according to details contained in Sikorsky’s earnings report. SSSI subcontracted another Sikorsky unit, Derco Aerospace, to procure spare parts.

The government is seeking $148 million in damages and other penalties related to the lawsuit.

“We believe that Derco was lawfully permitted to add profit and overhead to the cost of the parts, and maintain that SSSI did not submit any false certificates”, wrote United Technologies executives in the earnings report.

“The government’s complaint asserts numerous claims for violations of the False Claims Act, for breach of contract and for unjust enrichment”, UTC said in the filing.

One of each plane costs about $1 million, according to the Naval Air Systems Command.

If the government prevails, the outcome could have a material adverse effect on results of operations in the period in which a liability would be recognized and on cash flows for the period in which damages would be paid.

The criminal investigation comes as United Technologies hopes to complete its announced sale of Sikorsky to Lockheed Martin Corp. for $9 billion.

United Technologies shares closed down 1.8 percent, trading at $99. Lockheed was off 0.6 percent at $201.65 on a down day for the U.S. market broadly.