Germany to buy MEADS defense system from MBDA, Lockheed

(Adds comments from German official, Raytheon, byline)

By Andrea Shalal

WASHINGTON, June 9 (Reuters) - Germany said on Tuesday it will buy the MEADS air and missile defense system from Europe's MBDA and Lockheed Martin Corp instead of an updated Patriot system offered by Raytheon Co, but said the companies would have to meet demanding performance milestones to retain the contract.

Germany funded a quarter of the $4 billion invested by it, the United States and Italy to develop the Medium Extended Air Defense System (MEADS) as a successor to the Patriot air defense system fielded in the 1980s.

Germany is the first country to choose the MEADS system, a decision worth up to $4.5 billion to the system's manufacturers, and industry officials say its decision could trigger a similar order from Italy and possibly the Netherlands.

German Defense Minister Ursula von der Leyen announced the decision and said MEADS would make it possible to put a protective shield around entire cities and military camps.

Von der Leyen said Germany plans to keep the huge new procurement program on track by setting up specific controls and milestones. If the companies fail to meet those targets, Germany could still cancel the contract and give Patriot maker Raytheon another chance at the deal, she said.

German opposition parties criticized the decision to proceed with the MEADs program, saying there were significant technical, financial and strategic concerns about the system.

Lockheed and MBDA, a consortium that includes Italy's Finmeccanica SpA (Other OTC: FINMF - news) , Airbus Group (Swiss: AIR.SW - news) and Britain's BAE Systems Plc, hailed the German decision.

MBDA said MEADS would give the German military a powerful state-of-the-art system that can handle current and future threats, and said it recognized its responsibility in building a solid basis for the successful introduction of the system.

Lockheed, the largest U.S. weapons maker, said in a statement that it was fully committed to the success of Germany's Taktisches Luftverteidigungssystem (TVLS) with MBDA.

It said the system was designed to significantly reduce operation and support costs by covering a larger area with less manpower and equipment, and less demand on airlift.

Raytheon said in a statement that it had not been formally notified of any decision by the German government, and would continue to support its "consideration of alternatives prior to a final contract award".

The United States, citing budget cuts, opted out of the system in 2012. Poland recently chose Raytheon's updated Patriot system instead of MEADS. (Reporting by Andrea Shalal; additional reporting by Thorsten Severin and Klaus-Peter Senger in Berlin; Editing by Peter Galloway)