WASHINGTON (Reuters) - Textron Inc (TXT.N: Quote, Profile, Research) and Boeing Co (BA.N: Quote, Profile, Research) have been awarded a five-year contract to build 167 V-22 tilt-rotor transport aircraft, a deal valued at $10.4 billion, the Defense Department announced on Friday.

The contract covers fiscal years 2008 through 2012 and includes 141 Marine Corps and 26 Air Force versions of the aircraft, a hybrid that takes off and lands like a helicopter but flies like an airplane. Taxpayers will save $427 million as a result of the multiyear deal, Navy officials said.

Under the terms of the deal, deliveries will begin next year and continue through 2014.

In development for over 25 years, the V-22 suffered three fatal flight tests before it was found suitable in 2005 for military use.

The Osprey is designed to replace the aging workhorse CH-46 Sea Knight helicopter. It can fly twice as fast at more than twice the altitude, with three times the payload and six times the range, according to the Navy.

A multiyear contract is good news for the contractors because it makes it easier for them to buy raw materials, streamline production and make hiring plans.

(Reporting by Andrea Shalal-Esa; Editing by Andre Grenon, Gary Hill)