By Calvin Biesecker

United States aerospace sales will continue to increase this year and next, and the expansion will continue to rest largely on the civil aircraft market, the Aerospace Industries Association (AIA) says in its annual market review and forecast.

In 2007 overall aerospace sales will reach a record $198.8 billion, a more than 8 percent boost from last year. That dollar amount is over $3 billion more than AIA had predicted a year ago before 2006 had closed (Defense Daily, Dec. 14, 2006). Next year total sales are expected to approach $211 billion, a nearly 6 percent gain over 2007, representing another record year.

Military aircraft and missile sales combined are expected to increase nearly 9 percent this year to $72.5 billion then slip about 2 percent in 2008 to $70.9 billion. The decline will be driven by a drop off in military aircraft sales due to delays in two major Air Force programs, the aerial refueling tanker and the Combat Search and Rescue aircraft, as well as Congress limiting somewhat the use of wartime supplemental bills to pay for Pentagon procurement needs, AIA says. Next year’s dip in military aircraft sales will be partially offset by an increase in missile sales, AIA says.

While AIA expects combined military aircraft and missile sales to fall slightly next year, absent from the forecast is defense spending on war-related “replacements and repairs, which promise to be in high demand over the next couple of years,” Marion Blakey, AIA president and CEO, said yesterday at the association’s annual year-end luncheon.

This year civil aircraft sales are expected to increase 16 percent to $53.3 billion, led by higher deliveries of Boeing [BA] passenger planes and strong demand for business jets. AIA also points to increased volume in general aviation aircraft as a contributor to the stellar year for civil aerospace. In 2008 AIA estimates that civil aircraft sales will climb 13 percent to $60.4 billion.

“With good news in nearly every sector, I am pleased to see the American aerospace industry’s strong international presence continuing to keep pace with our domestic successes,” Blakey said. “Our impressive trade balance and surging sales in the civil aircraft market have laid a foundation for the industry’s continued vitality.”

That future vitality rests in large part on an impressive backlog, which is seen increasing $57 billion in 2007 to $360 billion, attributable to soaring commercial aircraft demand. About 63 percent of the industry backlog is in the civil sector with the rest divided between space and defense, Blakey said. Four years ago the civil sector accounted for 34 percent of overall aerospace backlog.

“This change should result in an extremely stable financial base for our industry over the next several years,” Blakey said of increased commercial backlog. She also pointed out that most of the commercial backlog is due to foreign demand. As U.S. airlines begin ordering new aircraft the outlook for the future-years revenue forecast will strengthen, she said.

AIA also offers a glimpse of the outlook for the commercial and defense sectors beyond 2008. The strong commercial aircraft backlog will continue driving sales in this sector higher for at least another three to four years, AIA says. Sales in the defense market are expected to grow modestly in 2009 based on funds already appropriated although spending could be affected by how Congress manages FY ’08 war supplemental bills, AIA says. In the space arena AIA believes “we are on a modest upward cycle…particularly as demand for commercial satellites is increasing.”

AIA recently conducted an informal survey of some of the CEO’s of its member countries, who expect sales growth in 2008 and 2009 to be the same or better than 2007, Blakey said.

“That the leaders of these companies are almost unanimously expecting strong growth in 2009 when they don’t know election outcomes or who will be president shows remarkable confidence in our industry,” Blakey said.

Space revenues will edge up less than 2 percent this year to $39.2 billion, driven by gains in sales to NASA, DoD, federal agencies and the private sector. Next year sales in the sector are expected to increase 5 percent to $41.2 billion.

With higher sales come higher profits. The aerospace industry is expected to earn $17.8 billion this year, a whopping 26 percent increase. Industry is also squeezing more profits from sales as margins are expected to rise 140 basis points to 8.1 percent, marking the fifth straight year of margin improvement, AIA says.

The strong aerospace market continues to be buoyed by foreign demand, as exports of U.S. made aerospace products rose 9 percent to $92.5 billion, dominated by increased purchases of civil aircraft sales and to a lesser extent general aviation aircraft. Defense exports have fallen 18 percent to $3.7 billion this year. Imports of foreign-made aerospace products jumped 18 percent to $36 billion in 2007. Still, the overall healthy export environment is leading to a record trade balance for the aerospace industry of $56.5 billion this year.

All the good financial reports continue to mean positive news for aerospace employment, which is up about 7,700 jobs or 1.2 percent this year. The increase for production workers was 8 percent, or almost 26,000 jobs.