The rocket launch contracts will be re-assigned to Boeing rival, Lockheed Martin Corp., US Air Force Under Secretary Peter Teets told reporters.

The Pentagon has also suspended three Boeing business units and three former Boeing employees from applying for further government business.

The move follows an Air Force investigation into allegations that certain Boeing employees engaged in industrial espionage, using proprietary information illegally obtained from competitor Lockheed Martin Corp. during the bidding process for the 1998 Evolved Expendible Launch Vehicleprogram.

Both Boeing and Lockheed Martin were competing for some of the 28 launch contracts. In the end Boeing walked off with 21, with Lockheed picking up the remaining seven.

"We are extremely disappointed by the circumstances that prompted our customer's action, but we understand the US Air Force's position that unethical behavior will not be tolerated," said Boeing chairman and chief executive officer Phil Condit in a statement.

"We will continue to work with the Air Force to address the issues that caused this suspension."

SPACE.WIRE