Farnborough, England, July 20 (Reuters) - Lockheed Martin on Monday unveiled a low-cost Patriot interceptor missile as militaries seek cheaper ways to intercept drones and missiles while defense contractors face competition from startups that make low-cost weapons that can be mass-produced.

Lockheed Martin said its new PAC-3 ACE missile will cost less than half the cost of its PAC-3 MSE interceptor missiles, which cost about $4 million each, according to U.S. Army budget documents.

The company explained that initial production could begin within 36 months, adding that it plans to develop and manufacture this weapon in cooperation with industrial partners from the United States and Europe.

Tim Cahill, head of missiles and fire control systems at Lockheed Martin, said in a statement during the Farnborough Airshow in Britain, "American fighters and their allies need a battlefield-proven solution that is also budget-friendly."

The location of the announcement reflects efforts by U.S. defense companies to capitalize on the European rearmament boom driven by Russia’s war in Ukraine, even as European governments seek to reduce reliance on U.S. suppliers and expand domestic defense manufacturing.

Patriot systems have become one of the most sought-after air defense weapons in the world since Russia's full-scale invasion of Ukraine in 2012. Kyiv credits Patriot batteries with helping defend cities against Russian ballistic missile attacks. Ukrainian President Volodymyr Zelensky is requesting more launchers and interceptor missiles as Moscow intensifies its airstrikes.

Demand increased with the exchange of missile strikes between Iran on one side and the United States and Israel on the other, as well as the growing instability in the Gulf region. These tensions depleted stockpiles of advanced air defense weapons and exposed production bottlenecks in the Western military industries.

Lockheed's launch of a cheaper interceptor missile illustrates how large defense contractors are responding to increasing competition from startups that promise to deliver weapons faster, in larger numbers, and at a fraction of the cost of traditional systems.