In a tender notice dated May 24, the Canadian government said it planned to replace or update obsolete systems on its CH149 Cormorant fleet, increase its size and procure a rotary wing SAR flight simulator.

Leonardo declined to comment. Its shares rose more than 3 percent to 9.086 euros.

"Canada intends to carry out this project through a non-competitive process with the original equipment manufacturer, Leonardo," the Canadian government said.

The contract under discussion could be worth more than $1 billion and account for almost 7 percent of the group 2018 order intake with an operating margin topping 10 percent, Italian broker Banca Akros said in a report.

Canada has been operating a fleet of 14 AgustaWestland helicopters, now called Leonardo Elicotteri, since 2000.

(Reporting by Stefano Rebaudo; Editing by Susan Fenton)