Last checked at 
(Fixes dateline to Jan 24. No changes to text)
* Defence systems gap has caused concern among NATO members
* Procurement programme 460 million euros - source
* Germany under pressure from Trump to up military spending
By Andrea Shalal
BERLIN, Jan 24 (Reuters) - Germany is nearing a decision toreplace its aging short-range air defence systems and help filla gap that has caused concern among NATO members after Russia'sannexation of Crimea, two sources familiar with the issue said.
A decision to move ahead would pave the way for aprocurement programme valued at 460 million euros through themiddle of the next decade, with 2 billion euros in furtherspending likely in a later phase, said one of the sources. Newlasers and radars could be added later at additional cost.
A spokesman said the Defence Ministry had taken an initiallook at the issue but had not yet made a decision about how toproceed.
One of the sources said officials had a favourable view of asystem developed for Sweden by Diehl Defense, a privately heldGerman weapons maker, which includes a variant of its IRIS-Tmissile and a dual-cab tracked vehicle built by HagglundsVehicle AB, a unit of BAE Systems.
Diehl's IRIS-T missile, used by Germany for its EurofighterTyphoon fighter jets, could be adapted for ground-based launchwith a software change. The company also builds a longer-rangeIRIS-T SLS for Sweden's programme designed for surface-to-airuse.
A spokesman for Diehl declined to comment on the expecteddecision. Diehl submitted a separate proposal to build a missilefor a medium-range air and missile defence system that the German government is evaluating.
Once the decision is finalised, the Defence Ministry willmap out its functional requirements, to be completed in May, thesource said. That would be followed by development of a formalacquisition strategy.
GROWING GAP
U.S. and German military officials last year identified agrowing gap in short-range air defence weapons, or SHORAD, inEurope, including the ability to defend against a swarm ofunmanned aircraft or drones.
Germany, under pressure from U.S. President Donald Trump toincrease military spending, also identified missile defence as apriority in a 2016 white paper and is working with theNetherlands to better coordinate NATO air and missile defences.
Acquisition decisions on the new short-range air defenceequipment are not expected until 2018 or later, but the ministrycould add some 20 million euros to the defence budget this yearto fund initial work on the programme, the sources said.
Current plans call for Germany to buy new equipment forshort- and extremely-short range air defence for all 16 of itsexisting fire units, according to one of the sources.
U.S. weapons maker Raytheon Co builds an alternativeto Diehl's system called Network Centric Air Defence Systemtogether with Norway's Kongsberg Gruppen, which has been sold toNorway, Spain, the Netherlands, the United States, Finland, Omanand an undisclosed country, according to Raytheon's website.
Both sources said German officials had flagged their plansto NATO officials, who welcomed the move.
"It's great news for Germany and NATO that Germany is movingahead to increase its short-range air defences," said onemilitary official familiar with NATO's needs.
Belgium and Slovakia were also looking to increase theirshort-range air defence capabilities, said one of the sources.
Thomas Karako, senior fellow at the Washington-based Centerfor Strategic & International Studies, said there was growingdemand for air and missile defence capabilities to hedge againstairborne threats to NATO, including those from Russia.
It was also critical to better integrate air and missiledefences across the alliance.
"NATO countries have been aware of the integrated air andmissile defence challenge for some time," he said. "We have toget on it, but we're not there yet." (Reporting by Andrea Shalal; Additional reporting by SabineSiebold; Editing by Janet Lawrence)