Stop-gap spending measure funds MEADS missile defense

(Reuters) - A stop-gap spending measure passed by the Congress last week will allow Lockheed Martin Corp (LMT.N) and its partners in Italy and Germany to complete the last year of development of a missile defense system, averting possible termination fees and international fallout.

The legislation funds the U.S. government through the end of the 2013 fiscal year on September 30, averting a shutdown this week, while giving the Pentagon and a few other agencies more say about how to achieve $85 billion in automatic spending cuts.

Cheryl Amerine, a spokeswoman for Lockheed, said the continuing budget resolution passed by Congress includes funding for the final year of development of the Medium Extended Air and Missile Defense System, known as MEADS, which was designed as a successor to the Patriot missile defense system.

Top U.S. defense officials and their counterparts in Germany and Italy had warned Congress that cutting off funding for the program could cause problems between Washington and its allies, who have spent a combined $4 billion on the program to date, and would have triggered steep termination fees.

U.S. lawmakers blocked the final $400 million in U.S. funding for MEADS when they passed a bill authorizing military spending late last year, arguing that they did not want to pay any more for a program the Pentagon has decided not to use.

But Lockheed and U.S. officials convinced congressional appropriators, who control the actual funding for arms programs, to fund the program in their legislation.

Military officials say completing the development program will allow them to use technologies developed for MEADS in future weapons programs.

Lockheed and the MEADS consortium plan a fourth quarter 2013 flight test to prove the MEADS missile defense system can intercept a ballistic missile. Lockheed plans to keep working with Italy and Germany on the three-nation missile defense program even after the United States stops participating.

Amerine said MEADS was significantly cheaper to operate than the Patriot system built by its rival Raytheon Co (RTN.N), and would provide significantly larger coverage areas.

Raytheon has continued to upgrade and modernize the Patriot missile defense system, arguing that the changes have made the system more efficient and less-labor intensive to use.

(Reporting By Andrea Shalal-Esa; Editing by Michael Perry)