WASHINGTON (Reuters) - The U.S. Defense Department said on Tuesday it was "closely monitoring" the potential sale of helicopter maker Sikorsky Aircraft by its parent company, United Technologies Corp and that it would evaluate any deal on a case-by-case basis.
Sources familiar with the situation say Lockheed Martin Corp, maker of F-35 fighter jets and the Pentagon's biggest supplier, is the leading candidate to buy Sikorsky, the Pentagon's leading helicopter supplier, in a deal that could value the business at more than $8 billion.
Lockheed is in advanced talks with UTC and a deal could be announced early next week before both companies report their second quarter earnings, the sources said.
Textron Inc, the parent of Bell Helicopter, had been bidding for the firm but has dropped out of the running, according to one of the sources.
Pentagon spokeswoman Maureen Schumann declined comment on the potential bids, but said it was important to the department to maintain competition and avoid market distortions.
The U.S. Defense Department can object to a merger or acquisition involving its key suppliers during a federal antitrust review, which in this case could be led by the U.S. Justice Department.
Lockheed has had its eye on the more than 90-year-old helicopter maker for years, said one of the sources. The deal would allow Lockheed to diversify its portfolio and reduce its dependence on the $391 billion F-35 fighter jet program, the sources said.
The F-35 program already accounts for about 18 percent of the company's overall revenues, and that percentage is slated to rise to 25 percent by 2025 - well over the 20-percent threshold viewed as reasonable by investors.
But the acquisition would expand Lockheed's influence and importance to the U.S. military, a fact that has caused some concern among U.S. military services, according to several sources familiar with the issue.
"Scale is a big issue. It will be studied carefully," said one of the sources, who was not authorized to speak publicly given the sensitivity of the issue. The concerns were unlikely to scuttle a Lockheed purchase, the source said, but could prompt antitrust officials to impose some conditions on a deal.
A second source said some U.S. military officials were also worried that Lockheed could scale back investment in Sikorsky's internal research and development efforts as part of a drive to boost the helicopter maker's margins.
Sikorsky is teamed with Boeing Co to compete for a huge future contract to develop a next-generation helicopter for the U.S. military.
Reporting by Andrea Shalal; Editing by Christian Plumb and Tom Brown