The agreement with Sikorsky Aircraft Corp., which is still being vetted by government lawyers, paves the way for next year's retirement of Canada's aging fleet of Sea King choppers, said several defence and government sources.
"We have a contract," said one senior official, who spoke on condition of anonymity because he was not authorized to speak to the media.
The inability of the Conservatives to replace the five-decade-old anti-submarine helicopters, which operate primarily off the decks of navy frigates, has been a huge political embarrassment and the revived Cyclone delivery just happens to coincide with the run up to the 2015 election.
Even still, the Cyclones — a military version of Sikorsky's S-92 helicopter — won't be fully operational until 2018.
Former defence minister Peter MacKay once referred to the program as the "worst procurement in the history of Canada.”
Public Works, which oversees the $5.7-billion project, announced in January the government would try to reach a revised agreement to allow for the delivery and gradual introduction of the yet-to-be proven Cyclones.
So far, only four of the 28 aircraft, which were initially ordered in 2004 by Paul Martin's Liberal government, have been delivered for flight testing at the air base in Shearwater, N.S., near Halifax.
Defence and government sources said Monday no additional money would be put into the program and Sikorsky would only get paid for the delivery of capable aircraft.
It will be early next month before all of the legal text of the agreement is signed by government officials.
It's the second time the Conservatives have negotiated a contract amendment with Sikorsky, which has missed previous deadlines to deliver completed helicopters, accruing more than $88-million in penalties in the process.
How the new arrangement may or may not affect those fines is unclear.
The air force is prepared to take ownership of up to eight test helicopters before the Cyclones are declared capable, said another defence official, who was also not authorized to speak publicly about the deal.
Word of the new arrangement came as the U.S. Federal Aviation Administration issued a special air worthiness bulletin about the Cyclone's civilian equivalent, warning of salt crusting on engines of helicopters used in that country for search and rescue.
The watchdog said Monday the "concern is not an unsafe condition," but pilots should be alert for a loss of power or the stalling of compressors in light of the findings.
There have been myriad technical concerns in converting the S-92 into a more hardened military version; many in the defence industry say both the government and Sikorsky under-estimated the challenges.
Canadian air force evaluators warned over a decade ago that the Cyclone might not measure up in terms of engine performance, acoustic noise and its ability to resist electronic interference, The Canadian Press reported last fall.
The agency viewed highly technical appraisals by engineers whose reports helped inform the Liberal government's decision to buy the aircraft, even though the maritime military version existed only on the drawing board.
As part of the now-concluded contract re-negotiation, the air force was asked to revisit its list of expected capabilities, said the sources.
"What took place was more a technical discussion of what we're going to get and when," said one official.
The air force was asked to spell out clearly what aspects they "required" as opposed what they "desired" in the new helicopter in an exercise that had apparently not been done in the previous two contract amendments.
The question of whether the Harper government would stick with the Cyclone hovered over Parliament last fall after former public works minister Rona Ambrose ordered a review of whether Sikorsky could deliver on its promises.
Documents obtained under the Access to Information Act show that in addition to a report by consultants, officials also conducted an independent analysis of the financial implications of the existing program on the country's defence industry.
Rival aircraft makers were also asked what they might be able to provide if the government chose to cancel.
Internal documents showed last January that more than $1.7 billion has already been spent in preparing to receive the troubled choppers.
Note to readers: This is a corrected story. An earlier version described the maritime helicopters as search and rescue helicopters.