UPDATE 2-Canada to impose fines on Sikorsky for helicopter delay

Mon Feb 11, 2013 5:31pm EST

* Ottawa says Sikorsky failed to meet delivery deadlines

* Government says will levy significant penalties

* Sikorsky says trying to deliver as fast as it can

By David Ljunggren

OTTAWA, Feb 11 (Reuters) - Canada will impose significant additional financial penalties on United Technologies Corp's Sikorsky unit for delays in delivering search and rescue helicopters, Public Works Minister Rona Ambrose said on Monday.

Canada signed a C$5 billion ($5 billion) deal with Sikorsky in 2004 for 28 Cylcone helicopters, the first of which was supposed to be delivered by early 2009.

But the project has been plagued with delays, some of which Sikorsky blamed on major modifications requested by Canada. In December 2008, the deal was renegotiated to push back delivery of the first helicopter to June 2012, but Canada is still waiting.

"Our government expects Sikorsky's obligations under this contact to be met and to date they have not been met. In fact they have missed every deadline and every timeline," Ambrose told the House of Commons.

"We have already applied millions of dollars in liquidated damages and we are going to be applying significant additional charges that will begin to accrue against this company for failure to deliver. We continue to aggressively insist that Sikorsky meet its obligations."

The affair is the latest in a string of military procurement problems for Canada's Conservative government. Last December, Ottawa scrapped a sole-source plan to buy F-35 jets from Lockheed Martin Corp after cost estimates ballooned.

The Sikorsky contract allows Canada to impose escalating penalties the longer the company takes to deliver the first aircraft. The charge could hit C$80.6 million if that helicopter is not formally handed over by June 2013.

Sikorsky has already provided four helicopters for training purposes, but the company said they remain on the firm's books because Ottawa has yet to officially sign for them.

"The remaining 24 Cyclones are in production, assembly or flight testing. Sikorsky and the government of Canada are in discussions to try to reach an agreement that will provide the remaining aircraft to the Canadian Forces as quickly as possible," Sikorsky spokesman Paul Jackson said by e-mail.

The helicopters will replace Canada's creaking fleet of Sea Kings, which first came into service some 50 years ago. In 2012, Defence Minister Peter MacKay blamed what he called "the worst procurement in the history of Canada" on the previous Liberal government.

The story started in 1993, when the then Progressive Conservative government signed a deal with Finmeccanica SpA's AgustaWestland unit for helicopters to replace the Sea Kings.

That government was defeated shortly afterwards and replaced by the Liberals, who scrapped the deal on the grounds it was too costly. It took the Liberals another decade to sign the initial contract with Sikorsky.

In 2010 Canada's auditor-general rapped the military for bungling the initial contract, saying officials wanted so many changes they had in effect "entered into an agreement with Sikorsky to develop a new helicopter."

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