Germany to scrutinise MBDA proposal for missile defence system

By Sabine Siebold

BERLIN (Reuters) - Germany's defence ministry on Wednesday said it had received a proposal to secure the contract for a $4.5 billion (£3.47 billion) missile defence system from European arms maker MBDA and hoped to submit it to parliament for approval next spring.

"Given the inevitable development risks involved with advanced technology, we will study the proposal very carefully before it can be turned into a firm contract," Defence Minister Ursula von der Leyen told Reuters in an interview. "It's important to me that we learn from the mistakes of the past."

Germany chose the Medium Extended Air Defense System (MEADS), made by MBDA and Lockheed Martin Corp (LMT.N), last year over Raytheon Co's (RTN.N) Patriot system, but said the firms would have to meet tough performance milestones to retain the contract, one of Germany's biggest arms projects.

The MEADS system was developed jointly by Germany, Italy and the United States, although the U.S. Army later decided not to buy the system for its own use. Germany is buying MEADS to replace its Patriot air defence system fielded in the 1980s.

Lockheed and MBDA had hoped to finish negotiations with Germany by the end of year, but those prospects dimmed after the companies missed their goal of submitting a proposal by the end of July.

Experts say the project could still slip into 2018 or later due to German elections next year if the German parliament does not approve it in early 2017 before the federal election campaigns get into full swing.

MBDA, jointly owned by Airbus Group (AIR.PA), Britain's BAE Systems Plc (BAES.L) and Italy's Leonardo Finmeccanica SpA (LDOF.MI), had no immediate comment.

Von der Leyen said Germany was determined to avoid signing the kind of superficial and risky contracts that had led to major cost increases on past weapons programmes.

"We are applying tougher standards to procurement projects and are keen to sign a carefully vetted, differentiated contract," von der Leyen said. "The goal is to avoid that unexpected risks result in a future burden for the government."

Von der Leyen said companies were used to such careful contracting procedures in the commercial world, although they had not been applied previously by the government.

MBDA and Lockheed are also in talks with Poland about a potential purchase of the MEADS system, although Warsaw has said Raytheon's Patriot system is leading that competition.

(Reporting by Sabine Siebold and Andrea Shalal; Writing by Andrea Shalal; Editing by Elaine Hardcastle)