By Andrea Shalal-Esa
WASHINGTON, Nov 12 (Reuters) - U.S. arms makers Raytheon Co and Lockheed Martin Corp are considering ways tosweeten their offer to build a Patriot missile defense systemfor Turkey after Ankara said it could still back away from aprovisional $3.4 billion deal with China, sources familiar withthe issue said on Tuesday.
"There are internal discussions going on about improving thePatriot offer," said one source, who is familiar with the talksbut not authorized to speak publicly.
A second source confirmed that preliminary discussions wereunder way within industry and the U.S. government about how theoffer could be adjusted to be more competitive with bidssubmitted by the Chinese firm, and a European group.
Both sources said no decisions had been made and it wasimportant to allow Turkey - a member of NATO - time to make upits mind.
Turkey announced in September it had chosen China's FD-2000long-range air and missile defense system against rival offersfrom Franco/Italian Eurosam SAMP/T and Raytheon.
It said China offered the most competitive terms and wouldallow co-production in Turkey, but the decision caused alarm inNATO countries worried about China's growing clout.
Secretary of State John Kerry and other U.S. governmentofficials raised concerns after Ankara's choice of the missiledefense system built by China Precision Machinery Import andExport Corp, a firm that is under U.S. sanctions for violatingthe Iran, North Korea and Syria Nonproliferation Act.
"We continue to convey our serious concerns about theTurkish government's contract discussions with a Chinese company- which is currently sanctioned by the United States - for anair and missile defense system that will not be inter-operablewith NATO systems or collective defense capabilities," said oneState Department official.
State Department officials said Kerry had expressed hisconcerns to Turkish Foreign Minister Ahmet Davutoglu in NewYork, and Assistant Secretary of State Victoria Nuland, whooversees European and Eurasian affairs, has discussed the issuewith senior Turkish officials.
Washington sees Turkey as a key partner in the Middle East,with common interests from energy security to counter-terrorism,but Ankara is not the deferential ally it once was as it seeksan increasingly independent role on the world stage.
One of the sources said the U.S. companies were examiningwhether they could scale back their bid to bring it more in linewith what was offered by the Chinese firm, which did not includethe capability to target medium-range missiles.
That may involve changes in the missiles that would beprovided with the Patriot system.
The companies are also reviewing the offset agreements andco-production deals involved in the U.S. bid, the sources said.
Turkey was seeking some space launch capabilities, but itwas unclear if U.S. officials would approve the export of suchsensitive technologies as part of an offset package accompanyingthe missile defense deal, said one of the sources.
The sources said the U.S. proposal was more comprehensiveand offered Turkey greater capabilities than the Chinese system,as well as ongoing maintenance and technical support for thePatriot missile defense system. They said the offer alsoincluded substantial co-production arrangements.
"It's really not certain how it will work out," said one ofthe sources. "But there is a lot of interest in at leastexamining what could possibly be done."
Sources familiar with the discussions have said the dealcould affect Turkey's plans to buy radar-evading F-35 fighterjets built by Lockheed.
Turkey helped fund development of the F-35 and hopes itsparticipation results in component orders for Turkish firms.
Pentagon officials have confirmed that the DefenseDepartment's policy chief, James Miller, visited Turkey thismonth, but declined to give any details about his discussionswith Turkish officials about the missile defense deal.
Turkish Defense Minister Ismet Yilmaz last week said Turkeyhas asked bidders for the missile defense system to extend thetheir bids and offer improved terms - in case talks with theChinese firm failed.
Executives at Raytheon and Lockheed say they remain preparedto work with Turkey on the issue, but have declined comments onany specific efforts to revise their offer.
"We welcome the opportunity to continue discussions with theTurkish government for their critical missile defense needs,"Lockheed spokesman Gordon Johndroe told Reuters in an email.
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