Boeing Beats Lockheed to Win Navy Aircraft Contract

In an upset, the U.S. Navy Monday bypassed incumbent Lockheed Martin Corp. (LMT) to award Boeing Co. (BA) a $3.9 billion deal to develop a replacement for the Navy's fleet of submarine-hunting P-3 aircraft.

Navy acquisitions chief John Young said the new Multi-mission Maritime Aircraft (search), or MMA, would transform how the Navy carried out maritime reconnaissance and surveillance missions, ensuring a sustained forward presence, sea domination and network intelligence capability.

Boeing was in fierce competition with Lockheed Martin for the contract to build between 115 and 150 multimission marine planes. Boeing's entry was based on converting its popular 737 commercial jet for military use.

"I'm so proud that the Navy has decided that Boeing is the company to build this new plane, which is so vital to our long-term safety and security," said Sen. Patty Murray, D-Wash.

Lockheed Martin had based its proposal on an extensive upgrade of its P-3 Orion (search), long the Navy's primary patrol plane.

The decision came as Boeing is waiting to hear whether it will be able to move forward with its deal to supply 100 airborne tankers to the U.S. Air Force, based on a conversion of its 767 passenger jet.

Taken together, the contracts could mean billions of dollars for Boeing, at a time when its commercial airplane division badly needs the business.

Boeing shares rose 8 cents to close at $48.83 on the New York Stock Exchange (search) before the contract news. They gained 92 cents, or 2 percent, in the extended session.

Richard Aboulafia of the Virginia-based Teal Group (search) said the Navy would also derive some cost benefits from opting for the Boeing 737 platform, given its extensive worldwide logistics and support base.

"The 737 has a huge worldwide support base that's very attractive for a budget-conscious Navy," he said.

Congressional sources and others familiar with the contract said the Navy planned to buy about 150 aircraft over the coming years. The Navy planned to pick the winner of the high-stakes competition last week, but delayed its announcement out of respect for events honoring the late President Ronald Reagan.

Reuters and the Associated Press contributed to this report.