The contract to develop and demonstrate the new plane could lead to Boeing building 109 of the aircraft, said John Lockhard, senior vice president/general manager Boeing Naval Systems.

"Obviously this is a terrific day for us and our customer the U.S. Navy," he said.

Boeing was in fierce competition with Lockheed Martin for the contract for the multimission marine planes, which will be used to hunt submarines, maritime patrol and other functions.

Boeing's entry is based on converting its popular 737 commercial jet for military use.

Under the contract, Boeing and its subcontractors - engine-maker CFM International, Northrop Grumman, Raytheon and Smiths Aerospace - will produce seven test aircraft. Plans eventually call for the Navy to replace its aging fleet of 223 P-3 Orion aircraft with 109 of the new planes.

"This is a huge win for Boeing and its employees in Washington and around the country," said Sen. Patty Murray, D-Wash. "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."

Rep. Norm Dicks, D-Wash., said Boeing's entry showed greater range and speed than the Lockheed Martin model.

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

The decision comes 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.

Aerospace analyst Paul Nisbet of JSA Research called it Boeing's biggest contract victory this year, even though the planes will contribute only a small percentage to company revenues and estimates of Boeing's earnings are unlikely to be altered. The contract should boost production of the 737 line by about 5 percent, he estimated.

"It's a great win and it'll go for many years, as long as those planes are alive, and that's probably 40 years from now," Nisbet