The Pentagon additionally re-assigned seven rocket launches to Boeing's arch-rival, Lockheed Martin Corp. and temporarily barred Boeing from seeking further government satellite launche business, US Air Force Under Secretary Peter Teets said.

The sanctions stem from an Air Force probe of Boeing's actions during the bid process for the 1998 Evolved Expendable Launch Vehicle program. Boeing ultimately won 21 of the rocket launch contracts, with Lockheed picking up the remaining seven.

But both the Air Force and the US Justice Department subsequently launched probes of the Chicago-based defense contractor after allegations that members of Boeing's rocket launch division improperly sought and used proprietary Lockheed information in putting together their bid.

Lockheed sued Boeing in early June, alleging that more than 37,000 proprietary documents were taken. That lawsuit will continue, said Lockheed spokesman Tom Jurkowsky.

"We feel that they [the Air Force] reached their decision using their own best judgment and we acknowledge their decision," he said.

Both Lockheed and Boeing said it was to early to get a sense of the decision's financial impact.

On the legal front, two former Boeing managers were indicted in the government's legal prong of the investigation Friday.

A Los Angeles grand jury charged the pair with "conspiracy to conceal and possess trade secrets," the Pentagon said.

Both could face up to 10 years in prison and a fine of 250,000 dollars, according to the Defense Department.

Boeing said last week it hired Senator Warren Rudman to investigate the matter. He is expected to deliver his findings, which will be made public, within months, Boeing said.

Legal woes aside, Boeing announced a sweeping overhaul of its space operations earlier this week to focus almost exclusively on government work in the near term because of weak demand in the commercial satellite and space launch sector.

Boeing's Delta IV program used in the EELV contract, which was to help keep costs low by offsetting government work with commercial work, is effectively now only to be used for government space launches.

That shift will cost Boeing more than one billion dollars. Boeing closed down 49 cents at 32.20 dollars Thursday, while shares of Lockheed Martin, which also reported its quarterly results, fell 1.83 to 51.55 dollars.

In a statement, Boeing chairman and chief executive officer Phil Condit expressed regret, but said the company would continue to cooperate with the official probes into the episode.

"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 Condit.

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

SPACE.WIRE