By Andrea Shalal-Esa
WASHINGTON (Reuters) - Defense Secretary Leon Panetta and his top weapons buyer warned U.S. lawmakers that failure to fund the final year of development work on a joint ground-based missile defense program with Italy and Germany could have serious diplomatic and financial consequences.
Panetta urged Senator Daniel Inouye, the chairman of Senate Appropriations Committee, to support $400.9 million in a final year of funding for the Medium Extended Air and Missile Defense System (MEADS) built by Lockheed Martin Corp and its partners in Italy and Germany.
Three other committees have already blocked funding for the program, which is jointly financed by the United States, Italy and Germany, although their moves have drawn a veto threat by the White House.
MEADS was intended to replace the U.S. Army's aging Patriot air and missile defense system, and has been in development for over a decade at a combined cost of over $4 billion.
Washington announced last year that it would stop funding the program after fiscal 2013, calling it unaffordable in the current budget climate. Some lawmakers like Senator John McCain have argued spending on the program should stop immediately.
Panetta told Inouye in a letter dated June 26 that completing development of the MEADS program would allow all three countries to benefit from their collective investment, while a U.S. pullout would be "viewed by our allies as reneging on our promises."
He said it could also negatively affect the willingness of U.S. allies to join future cooperative projects, and would likely lead to a dispute with Italy and Germany.
Frank Kendall, defense undersecretary for acquisition, technology and logistics, told Senator Richard Shelby, a strong supporter of the MEADS program, in a separate letter, that U.S. contracts with Italy and Germany would have to be terminated or significantly restructured if the funding was cut off.
He said Italy and Germany would likely argue that the U.S. Defense Department should have to pay termination costs and other financial liabilities for any contract modifications.
He said the move would also prompt Germany and Italy to buy European-built alternatives to upgrade their air and missile defense systems, and could undermine U.S. efforts to argue for more defense cooperation and burden-sharing.
U.S. withdrawal from MEADS would also jeopardize other ongoing cooperative acquisition programs and purchases of defense equipment from the U.S., he said. Italy has already scaled back its planned procurement of F-35 fighter jets, also built by Lockheed.
Kendall and Panetta both argued that failure to finish funding development of the MEADS program would also make it difficult for the United States and its partners to harvest certain radar, software and electronic technologies from the joint program.
That in turn, he said, would force the Pentagon to pay for new development efforts in the future.
Panetta said congressional failure to fund MEADS would also diminish a major breakthrough reached on missile defense at the NATO summit in Chicago in May, where NATO countries said they had reached "interim capability" on ballistic missile defense as an initial step towards establishing a NATO missile defense system.
"The United States relies on allies to share the burden of peacekeeping and defense in coalition activities," Panetta said. "In this context, I believe that it is important to live up to our commitments to our allies."
Earlier this month, German and Italian officials warned U.S. lawmakers that their plans to cut off funding for the MEADS program would endanger U.S. ties with their countries.
(Reporting By Andrea Shalal-Esa; editing by Christopher Wilson)