December 14, 2006

Nation's aerospace industry enjoys a record profit year
Sales expand for third time in a row due to modest defense and major commercial spending.

Copley News Service

WASHINGTON -- The aerospace industry enjoyed record-high sales and profits this year, with a surge in orders for commercial aircraft, engines and parts adding to modest gains in spending on defense and government equipment, the industry's top official said Wednesday.

Total sales jumped $14 billion, to a new high of $184.4 billion, the third straight year of gains, Aerospace Industry Association President John Douglass said.


Profits grew more modestly.

"The good news is, next year we know we're going to grow by about $11 billion" in sales, Douglass said in the industry's annual progress report and forecast. He predicted additional growth over the next several years based on a sharp jump in the backlog of commercial aircraft on order.

The breakdown of the various types of aerospace products released by Douglass showed civil aircraft sales jumping $7.4 billion, to $54.6 billion; while military aircraft nudged up $700 million, to $53.5 billion; and space systems gained $800 million, to $39.4 billion.

Although there are concerns in the industry that efforts to control the federal budget deficit could force cuts in defense spending, Douglass said he was confident that neither party would reduce support for the military while troops fight in Iraq and Afghanistan.

A key benefactor of the surging airliner sales is Boeing, which has regained its lead in commercial aircraft sales over Airbus, a European-based aerospace giant that has suffered from some well-publicized stumbles in major new programs, including the super-jumbo A380 airliner.

The booming market for commercial airliners also helped boost aerospace industry employment by about 23,000 jobs, to a total of 636,000. That continues the slow recovery from the deep drops in employment triggered by the 1990s defense cutbacks and the plunge in U.S. airliner sales following the Sept. 11, 2001, terrorist attacks.

Employment in the industry is only two-thirds of what it was at the beginning of the 1990s.

But Douglass noted that the recent growth in employment was in "high-paying production jobs," while administration and support positions dropped, improving the industry's efficiency and international competitiveness.

Despite the jump in sales, the industry's profits increased modestly, from $12.6 billion to $13.3 billion, which Douglass said was partly due to working on government contracts.

Although U.S. airlines are beginning to order new aircraft, orders from foreign airlines and air cargo carriers were the main drivers of the expanded commercial sales. Those orders, plus increased foreign sales of military airplanes, helicopters and missiles, drove international sales to a record $81.8 billion, Douglass reported.

Those foreign sales, offset by only a slight increase in imports to $29.6 billion, produced a record-high trade surplus in aerospace products of $52.2 billion.

Aerospace is one of the few sectors of the U.S. economy that has a trade surplus.

"The increasing trade surplus in the industry shows its importance on the global stage and positive impact on the U.S. economy," Douglass said.

Douglass emphasized that the foreign sales of aerospace products continued to be restricted by export control laws that are relics of Cold War efforts to prevent the Soviet Union and its allies from improving their military capabilities by buying U.S. technology.

Although the industry is committed to keeping advanced weapons out of the hands of potential enemies, Douglass said the export controls restrict sales of mundane components that are used in military equipment, although they are widely available on the international markets.

Douglass said the industry would continue to press Congress and the White House to change the restrictions, one of the association's top legislative goals for years. He was optimistic that with Democratic control of Congress, progress could be made on that issue and in stopping the push for "buy American" restrictions, which came mainly from House Republicans, including outgoing House Armed Services Committee Chairman Duncan Hunter, R-Alpine.

Douglass also pleaded for a return to previous levels of federal investment in aerospace research and development -- which he called key to maintaining the U.S. lead in the field -- and for major funding for the long-planned next generation of air-traffic control systems.