Two of the nation's largest defense contractors, The Boeing Co. (BA) and Lockheed Martin Corp. (LMT), said late Monday they have agreed to create a joint venture to produce rockets for the U.S. military.

The surprise announcement would end a bitter rivalry and set the stage for the two aerospace giants to drop pending litigation involving the rocket business.

The joint venture, to be named United Launch Alliance (search), would be the sole provider of rocket launches to be used by the U.S. Air Force, NASA and other government agencies.

The move comes just two months after the Air Force lifted a 20-month ban prohibiting Boeing (search) from bidding on satellite launch contracts, saying the Chicago-based company had corrected problems that led to accusations that it stole information from Lockheed Martin (search) in 1998.

Boeing was suspended in 2003 and stripped of some $1 billion in launch contracts after it was found in possession of thousands of sensitive documents belonging to Maryland-based Lockheed.

A Boeing spokesman said the two companies can put their past disputes behind them.

"Well, we think we can come together as a team," said spokesman Dan Beck. "These are consummate professionals in the rocket launch business. We recognize that if we are going to meet the needs of government customers in most cost-effective, reliable manner this is a step that needed to be taken."

Lockheed chairman, president and chief executive officer Robert J. Stevens agreed.

"This combination will permit our national customers to achieve their mission objectives while reflecting current budget pressures and providing the government with full cost visibility," he said in a statement.

Both companies have developed versions of the so-called Evolved Expendable Launch Vehicle (search), or EELV, in collaboration with the Air Force and have flown them successfully.

The deal would need approval of government regulatory agencies, including the Federal Trade Commission (search). A spokesman for the FTC could not be reached for comment late Monday. The agreement was announced after the stock market closed for the day.

In a joint news release, the two companies said United Launch Alliance would be based in Denver and structured as a 50-50 venture. The new business would combine services currently provided separately by Boeing's integrated defense division and Lockheed's space systems company for launches of each company's respective rockets — the Boeing Delta and Lockheed Atlas rockets.

The companies said the joint venture would result in annual savings to the government of about $100 million to $150 million.

Maj. Karen Finn, an Air Force spokeswoman, said the service supports efficient and innovative access to space.

"Providing reliable space launch for national security space at reduced cost to the nation is also critical. We understand the Lockheed-Martin and Boeing agreement is subject to government and regulatory approval and the Air Force is looking forward to the final outcome," Finn said.

Under terms of the joint venture, Boeing's Delta and Lockheed Martin's Atlas rockets would continue to be available as alternatives on individual launch missions.

Assembly work would be done primarily at Boeing's manufacturing and assembly facility in Decatur, Ala., with support from launch facilities operated by the companies at Cape Canaveral Air Force Station (search) in Florida and Vandenberg Air Force Base (search) in California.

The joint venture would have about 3,800 total employees at sites in Colorado, Alabama, Florida, California and Texas. Consolidation of the two organizations is expected to results in loss of an undetermined number of jobs, Boeing's Beck said.

Completion of the transaction could come by the end of 2005, he said.

The agreement follows extensive talks that were pushed by the Air Force amid a growing sense by both companies that as competitors, they would not be able to turn a profit on separate rocket-launch businesses.

If approved by federal regulators, the companies are expected to request suspend pending civil litigation related to a previous competition for rocket launches under the EELV program.

"We've obviously had a civil lawsuit pending over our launch vehicles," said Jeffrey MacLauchlan, Lockheed's vice president for financial strategies. "But actually we collaborate on a lot of projects."

Air Force and Pentagon officials have been receptive to a deal in preliminary talks but have not reviewed any of the details, MacLauchlan said.

The companies don't expect regulatory challenges, even though the joint venture would be the exclusive provider of a multibillion dollar service.

"A great deal of what the government buys is not in a competitive arrangement," MacLauchlan said. "This is the most logical ... cost-effective way to meet the government's national security needs."