* Lockheed leads consortium building missile defense system
* Italy and Germany helped fund program
* Raytheon pushing upgrades of older Patriot system
By Andrea Shalal-Esa
WASHINGTON, Jan 7 (Reuters) - A consortium led by Lockheed Martin Corp is continuing to work toward a fourth quarter 2013 flight test to prove its MEADS missile defense system can intercept a ballistic missile, although some U.S. lawmakers have sought to cut off funding for the three-nation program.
Officials with Lockheed and the MEADS International consortium, which includes partners from Italy and Germany, on Monday said they were "cautiously optimistic" that U.S. lawmakers would reach a compromise to allow funding for the final year of development on the missile defense program.
"There are many options that could result in a path toward the MEADS program being funded," Mike Trotsky, a senior executive at Lockheed's Missiles and Fire Control business, told Reuters on Monday. He said halting work on the test could lead to delays and budget problems later if lawmakers ultimately approved the funding.
President Barack Obama last week signed a $633 billion policy bill that authorizes funding for the U.S. military in fiscal year 2013 which began Oct. 1, despite concerns about some aspects of the bill, including its ban on MEADS funding.
The measure prohibits a final U.S. payment of $400.9 million for the last year of development work on the Medium Extended Air and Missile Defense System (MEADS), a joint ground-based missile defense program. The United States, Italy and Germany have spent about $4 billion to develop MEADS over the past decade as a successor to the Patriot missile defense system.
Lockheed, the Pentagon and officials in Italy and Germany are hoping that congressional appropriators, who control the actual funding for arms programs, will still allow the Pentagon to fulfill its final funding obligations for the program.
Otherwise, they argue, the U.S. government may face termination fees nearly equal to the money required to finish the system, and could lose access to the technologies developed under the international program.
Trotsky said the money slated for fiscal 2013 would pay for the intercept test and about 1,000 staff still working on the program in the three countries. It would also repay some money lent to the program in earlier years by Italy and Germany, he said. The program had about 2,000 workers at its height.
The White House has warned that banning funding for the MEADS program could harm Washington's broader relationship with its allies, jeopardizing the kind of multinational projects favored by the Obama administration as budget pressures mount.
In the meantime, officials said they are using money carried over from last year to continue preparing for the biggest test the new system has ever faced, which will show whether it can intercept a tactical ballistic missile.
In November, the MEADS system demonstrated its 360-degree capability to detect, track and destroy an "air-breathing" target, a term used to describe airplanes and cruise missiles, versus ballistic missiles.
The Pentagon announced last year that it would stop funding the MEADS program after development ended in fiscal 2013, calling it unaffordable in the current budget climate.
That prompted Republican Senator John McCain of Arizona and other lawmakers to call for an immediate funding freeze, but Italy and Germany say Washington will be held liable if it unilaterally pulls out of the development program.
Lockheed and MEADS executives say the MEADS system offers broader protection against missile attacks that the older Patriot system, and is easier and cheaper to transport. They say it is needed more than ever given Washington's pivot to focus more on the Asia-Pacific region with greater distances to cover.
They say the technologies developed under the program can be transferred to future integrated air defense systems that protect troops against a range of threats -- as long as Washington makes the final required payments.
Meanwhile, Raytheon Co, which had bid against Lockheed to build the MEADS system, is continuing to modernize and upgrade its Patriot missile defense system, which first entered the U.S. Army's inventory in 1982.
Tim Glaeser, vice president with Raytheon's Integrated Defense Systems business, said new foreign orders since 2008 have generated hundreds of millions of dollars for upgrades such as new digital processors, touch panel screens in the manned ground stations, and portable trainers.
Those changes have made the overall system more efficient and less labor-intensive to use, he said, noting that operating and support costs were 30 to 50 percent lower in some cases.
Glaeser said Raytheon expects several new countries to buy the system in coming years, in addition to the 12 already operating Patriot. Raytheon is in talks to sell Patriot systems or upgrades to Poland, Turkey, Qatar, South Korea and Kuwait, he said.
He said the company is also working with the U.S. government to see if it would approve Patriot sales to India, although he acknowledged that India had very "complex requirements" and foreign military sales sometimes took a long time to finalize.
Critics may say Patriot is an old and obsolete system, but Glaeser says, "Nothing could be further from the truth. It has a proud past and very, very bright future."