ROME (Reuters) - An Abu Dhabi sovereign wealth fund plans to sell the executive-jet business of Italy’s Piaggio Aerospace to a state-backed Chinese consortium in a deal that is now under scrutiny by Rome, a source familiar with the matter said.

FILE PHOTO: Flight attendants chat beside a P180 Avanti II business jet from Piaggio Aero Industries as Sukhoi Su-27 aircraft from the Russian Knights aerobatic team fly past during a flight demonstration on the first day of the China International Aviation & Aerospace Exhibition in the southern Chinese city of Zhuhai November 13, 2012. REUTERS/Bobby Yip

The deal comes at a sensitive time for Chinese investments in the European Union, with the head of the European Commission recently proposing to limit state-backed foreign takeovers in hi-tech manufacturing, among other industries.

An Italian defense firm such as Piaggio Aerospace must notify the government of any big asset sale, even if it does not involve a defense asset.

Piaggio Aerospace makes the executive turbojet P180, based on a novel design with rear-facing propellers and a small nose wing. Piaggio’s defense and security arm makes surveillance drones adapted from the same basic platform.

Piaggio Aerospace is already owned by a foreign state investor, Abu Dhabi fund Mubadala [MUDEV.UL]. It and Piaggio Aerospace both declined to comment.

“Recently, Mubadala told the Italian authorities that it wants to sell its commercial business that makes the P180 to state-controlled and private Chinese companies,” the source said without providing the identity of the potential buyers.

“Mubadala will first sell the license, then the intellectual property. The government is looking into it because the defense sector is considered strategic.”

The source did not elaborate.

A second source familiar with the matter said Mubadala was in talks to sell the commercial business, which includes the P180 jet, but did not identify the buyers or their nationality.

Rome can veto asset sales and takeovers in strategic sectors such as defense, energy, telecoms and public security.

Italy has never exercised this veto but this month it welcomed, along with France and Germany, a proposal by European Commission chief Jean-Claude Juncker to more closely vet foreign direct investment in strategic assets, especially when carried out by non-EU firms controlled or financed by foreign states.

In July last year, Piaggio Aerospace announced it was seeking buyers for its engines and civil maintenance businesses. That same month, Mubadala sold its 80 percent stake in Swiss aircraft maintenance firm SR Technics [SRTHD.UL] to China’s HNA Aviation.

The Chinese executive jet market has struggled to take off, mainly because of government controls over the civilian use of airspace. Sales have been slowing since 2012 and the private jet fleet is expected to grow just 1 percent this year in China.

However, Beijing has made repeated promises over the past year to develop general aviation, including building new airports and freeing up airspace.