LONDON Engineering services group Babcock (BAB.L) is in exclusive discussions to take a stake in helicopter transport services company Avincis, a source close to the situation said on Sunday.
The source said the joint venture would mean Babcock taking a stake in Avincis alongside its two current shareholders.
Britain's Sunday Times said the firm is expected to pay 1 billion pounds ($1.6 billion) in cash and take on about 500 million pounds of Avincis' loans as part of the deal.
Part-ownership of Avincis would give the FTSE 100 contractor, which began an international expansion drive three years ago, access to potentially lucrative defense contracting markets, particularly in Spain and Italy.
"Babcock International Group PLC confirms that it is in exclusive discussions regarding the establishment of a joint venture with respect to Avincis," the company said in a statement.
"However, there can be no certainty that these discussions will lead to any transaction or any certainty as to the terms upon which any such transaction might proceed."
Avincis, which provides air services from search and rescue to oil rig passenger transport in 10 countries, confirmed in a statement that talks are underway.
Shares in Babcock have risen 37 percent so far this year, compared with a 21 percent rise in the FTSE 100, and are near an all-time high, seemingly defying a backdrop of austerity and greater scrutiny of public contractors in Britain.
(Reporting By Christine Murray; Editing by Ruth Pitchford/Kate Holton)