Lockheed Martin Corp, the world's largest defence contractor, beat Boeing Co. for a $1.46 billion US Air Force contract to build a new network of navigation satellites intended for military and civilian use.

The US Defence Department contract entails delivery of two Global Positioning System III satellites, with options for 10 more. With all options exercised, the total value of the contract could reach $3.57 billion, US Air Force sources said.

GPS satellites are dual function satellites, which allow both civilian and military use. The current constellation of 33 GPS satellites allows so-called smart bombs, as well as missiles of different kinds, to be guided to their targets. They also help civilian pilots, drivers and hikers pinpoint their locations.

Unlike earlier generations, the new GPS satellites will offer similar accuracy to both military and civilian users. With the 12 new GPS III satellites, locations will now be accurate to within 9 inches on high-quality GPS receivers, instead of about 9 feet on average devices until now.

Apart from improved accuracy and anti-jamming, these GPS III satellites will also feature a signal that will be compatible with the European Union's Galileo constellation.

The US Air Force said that it could build a further 20 satellites and retains the option of awarding the  contract for these to Lockheed or to call for new bids.

The first of the GPS III satellites will be launched in 2014.

Other companies that will supply systems for the new GPS III satellites will include ITT Corp, which will supply a critical payload, as well as General Dynamics Corp, which will supply network communications subsystems.

Meanwhile, Boeing's woes with military contracts appears to be continuing with yesterday's loss adding to an April loss of a $35 billion contract for refueling tankers for the US Air Force, as well as a $3.74 billion US Navy unmanned spyplane order, both of which went to Northrop Grumman Corp.

It also lost out to Lockheed for a $766 million radio contract in March.

The USAF  tanker contract loss, may have been particularly galling as Northrop's partner for the venture will be EADS, the parent of Toulouse, France-based Airbus SAS. Airbus and Boeing compete with each other for large commercial planes.