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Justice Department investigating Sikorsky, alleges overbilling

🕐 2 min read

WASHINGTON – The Justice Department has launched a criminal investigation against Sikorsky, manufacturer of the Black Hawk helicopter, for allegedly overcharging the Navy for servicing two classes of aircraft.

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.

The Justice Department also alleged that Sikorsky Support Services submitted false certificates for aircraft maintenance from 2006 to 2012.

Sikorsky, which Lockheed Martin recently agreed to acquire from United Technologies, was advised of the investigation July 13, according to its second-quarter earnings report filed Wednesday.

Prosecutors are seeking $148 million in recovery, the earnings report said.

A United Technologies spokesman said that Sikorsky intends to cooperate with the Justice Department and that the corporation discussed the investigation with Lockheed during negotiations for Sikorsky’s sale.

“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,” United Technologies executives said in the earnings report. “We also believe that we have other substantial legal and factual defenses to the government’s claims.”

Such maintenance contracts are increasingly popular among defense companies during a time of declining Pentagon spending on new weapons systems.

“There’s a big trend in moving toward services because there’s not a lot of new equipment out there because it’s cheaper to maintain the existing fleet,” said Michael Blades, a senior aerospace and defense industry analyst for Frost & Sullivan. “There’s a lot of money to be made in that area.”

But the complexity of such deals can lead to disputes. “There are so many transactions involved when it comes to servicing the existing fleet and so many opportunities for disagreement,” said Richard Aboulafia, vice president of analysis with the Teal Group.

A Justice Department spokesman declined comment. Lockheed Martin did not respond to a similar request.

United Technologies shares closed down 1.8 percent, trading at $99. Lockheed shares were flat, losing less than 1 percent.

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