FRANKFURT (Reuters) - German defence group Rheinmetall (>> Rheinmetall AG) has tied up with buyout group Blackstone (>> Blackstone Group LP) to bid for Airbus's (>> Airbus Group) defence electronics unit, two sources familiar with the matter said, in a deal worth up to a billion euros ($1.1 billion).

The consortium is one suitor that has been shortlisted in the sale dubbed "Orlando", alongside private equity groups Cinven, Carlyle (>> The Carlyle Group LP) and KKR (>> KKR & Co. L.P.), the sources said, adding that French peer Thales (>> THALES) remained interested.

The sale is part of a plan by Airbus to dispose of assets with combined revenues of around 2 billion euros, as the aerospace group struggles with low defence spending in Europe. It lacks the scale of rivals in defence electronics.

Airbus, Thales, Rheinmetall and the buyout groups declined to comment.

Airbus Finance Director Harald Wilhelm said on Friday the group was making "good progress" on the sale of certain defence assets, with negotiations under way on all those up for sale, but did not expect any deals to close before 2016. [nP6N12L00U]

The sources said the defence electronics sale was not yet nearing an end due to the complexity of carving the business out of the group.

Disposals of other smaller businesses are also gaining pace.

Airbus has attracted bids from Eaton (>> Eaton Corporation PLC), Parker (>> Parker-Hannifin Corp), Total's Hutchinson (>> Total) as well as buyout groups such as Bridgepoint, Bregal and Liberty Hall for its PFW Aerospace unit, several sources familiar with that process said.

The PFW suitors declined to comment, except for Parker and Total, which were not immediately available for comment.

(This version of the story refiles to clarify refers to Airbus electronics unit in headline)

(Reporting by Arno Schuetze; Additional reporting by Tim Hepher in Paris and Anneli Palmen in Duesseldorf; Editing by Georgina Prodhan)

By Arno Schuetze