Canada is back in the helicopter-buying business.
On Friday, the Canadian Ministry of Public Works and Government Services announced that after conducting an independent third-party review of its "Maritime Helicopter Project," it has decided to proceed with plans to replace its fleet of aged Sea King helos with new birds. On Dec. 31, Canada entered into new Principles of Agreement with principal contractor Sikorsky -- the basis on which it will sign a contract to have the United Technologies (NYSE:UTX) subsidiary proceed with building it a fleet of CH-148 Cyclone Maritime Helicopters.
As early as 2015, Canada expects to begin retiring its existing fleet of Sea Kings, and replacing them with 28 new Cyclones built by Sikorsky and General Dynamics (NYSE:GD) at a cost of $4.7 billion.
The news is good for the contractors in one respect -- the contract is still a go. However, Sikorsky will be required to pay Canada lump-sum "liquidated damages" of $88.6 million to compensate its client for delays in getting the helicopters built by the targeted 2013 delivery date. Sikorsky will also need to upgrade the helicopters' capability to suit Canadian needs, at no extra charge to the client.
In a corporate mea culpa, Sikorsky President Mick Maurer admitted: "We recognize that we and our sub-contractors must do better. We have completely restructured our approach, and added considerable new resources and technical expertise" with the aim of delivering Canada's new helicopters by the new deadline.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.