March 8, 2018 / 9:13 AM / 16 days ago

MBDA and Lockheed form joint venture for German missile defense project

BERLIN (Reuters) - The German unit of European missiles maker MBDA and U.S. arms company Lockheed Martin Corp (LMT.N) have formed a joint venture to press ahead with a new air and missile defense system being negotiated with the German military, they said on Thursday.

Lockheed Martin's logo is seen during Japan Aerospace 2016 air show in Tokyo, Japan, October 12, 2016. REUTERS/Kim Kyung-Hoon

The 60-40 MBDA-led venture will serve as prime contractor for the new multibillion-dollar TLVS system, which the two companies have been negotiating to get under contract with the German defense ministry since 2015. It is aimed at replacing the Patriot air defense system fielded in the 1980s.

Dietmar Thelen, the top MBDA executive in the venture, said its formation was the next natural step for the long-time business partners. He said the move did not mean a contract was imminent but the two sides were making progress.

“We’re getting closer every day,” he told Reuters in a telephone interview.

The German defense minister announced in 2015 that it had chosen the Medium Extended Air Defence System (MEADS) — developed with $4 billion in funding from Germany, Italy and the United States — over Raytheon Co’s (RTN.N) Patriot system.

However, the two sides have been struggling to work out the details and terms of the program ever since.

Discussions between the companies and the government were complicated by new procurement guidelines aimed at increasing the transparency of the process and reducing the risk of technical delays and cost overruns endemic on new projects.

Government sources said the initial proposal submitted by MBDA, which is jointly owned by Airbus Group (AIR.PA), Britain’s BAE Systems (BAES.L) and Italy’s Leonardo (LDOF.MI), also lacked the required detail and specificity.

Gregory Kee, who will lead the venture from the Lockheed side, said the ministry’s procurement arm was expecting a single prime contractor to deliver the new weapons system.

    “This formal registration of the joint venture is intended to provide that capability to act as a single prime contractor to ensure that our German customer receives the most advanced system in the world,” he said.

    Both executives declined to forecast when the contract could be finalised.

    “We continue to support the process and are responding to the government’s requirements. We respect that process. Until that process is complete, we can’t talk about the price or the timetable,” Kee said.

    The TLVS program was initially slated to cost about 4 billion euros ($4.96 billion), but sources familiar with the proposal say the final cost is likely to be several billion euros higher.

    The MEADS system was developed jointly by Germany, Italy and the United States, though the U.S. Army later decided not to buy the system for its own use.

    Editing by David Goodman

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