The Justice Department has launched a criminal investigation against Sikorsky, the manufacturer of the Black Hawk helicopter, for allegedly overcharging the Navy for servicing two classes of aircraft.
According to a earnings report released Wednesday by United Technologies, which owns Sikorsky, 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.
“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.
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, executives wrote on the earnings report. A United Technologies spokesman said Sikorsky intends to cooperate with the investigation and that United discussed the investigation with Lockheed during negotiations for Sikorsky’s sale.
A Justice Department spokesman declined comment. Lockheed Martin did not respond to a similar request.
“There’s a big trend in moving toward services because there’s not a lot of new equipment out there because its 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.”
One of each plane costs about $1 million, according to the Naval Air Systems Command.
The Justice Department also claims SSSI submitted false certificates for aircraft maintenance from 2006 to 2012.
“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. “We also believe that we have other substantial legal and factual defenses to the government’s claims.”
United Technologies shares closed down 1.8 percent, trading at $99. Lockheed shares were flat, losing less than 1 percent.