MILAN -- Italian carmaker and industrial group Fiat said on Monday it had signed a memorandum of understanding with U.S. equity firm The Carlyle Group for the sale of its aerospace division Fiat Avio.
Fiat said Avio's enterprise value -- comprising assets and debt -- had been agreed at 1.6 billion euros ($1.7 billion) and that due diligence for the long-expected deal would take about five weeks.
In a statement, Fiat also said Italian state-controlled defence firm Finmeccanica would take part in the talks as an "industrial partner once opportune decisions are taken".
Fiat has been seeking to sell assets to help fund a turnaround at its loss-making car arm Fiat Auto and to cut the group's debt pile.
Italian newspapers have reported that Finmeccanica could end up with 30 percent of Avio, with the rest held by Carlyle.
Italy's government is believed to be anxious for partial Italian ownership of Avio because the company is a leading contractor to the country's armed forces. There has also been speculation that Carlyle and Finmeccanica could be interested in merging Fiat Avio with MTU, the aviation engine arm of DaimlerChrysler.
Last week, Finmeccanica officials denied they might sell part of the group's 18-percent stake in chipmaker STMicroelectronics to buy into Fiat Avio, saying any deal could be financed by debt instead.
Finmeccanica had previously considered making a joint bid with French defence group Snecma but said there had been differences between them about the risks of the deal.