Carole Hedden Washington

Sometime in the next three months, Anthony Eddy may receive a layoff notice. The 29-year-old engineer has had several different assignments during his six-year career at Lockheed Martin, rising to the position of communications systems lead, a post in which he designs and tests satellites at a facility near Philadelphia. He is heavily involved in R&D and just finished his master's degree in electrical engineering.

Like nearly half his fellow aerospace and defense (A&D) professionals under 30, Eddy still owes money on student loans racked up a decade ago while he was earning his B.S. degree in electrical engineering at Purdue University. He was not skating through on borrowed money; he worked two internships at a major A&D company, served as a dorm resident adviser to offset housing costs and has been paying off his loans faster than required.

Robert Stevens, Lockheed Martin's outgoing CEO, warned lawmakers in July that the company may be forced to cut 10,000 jobs—about 8% of its workforce—if Congress fails to halt another $500 billion in automatic cuts to the defense budget due to take effect next January under a process known as sequestration. The hope is that a lame-duck Congress will reach a compromise after the November elections to forestall the cuts to Pentagon spending.

But A&D contractors cannot wait until then. By law, they must give employees advance notice of major layoffs or facility closures. Add to that the massive legal penalties that would have to be paid to unravel major military programs. And so, the industry heads into the unknown, and young workers like Eddy are left to wait and wonder.

Uncertainty about which defense programs will be cut, and how deeply, already has the industry hunkering down, as revealed by Aviation Week's 2012 Workforce Study, which garnered responses from 37 companies that employ 80% of the U.S. A&D sector. These companies plan to hire 28,000 workers this year—about as many as the entire staff at Google. But the U.S. A&D industry will lose twice that many employees—56,000—to attrition and retirements, pushing total employment below 600,000 for the first time since 2004.

There are bright spots amid the gloom. Record backlogs of commercial jets at Boeing and Airbus are reflected in green-field manufacturing sites, which are sprouting from Singapore to Mobile, Ala., where Airbus plans to open an A320 final assembly line on Boeing's home turf. Other pockets of growth focus on alternative fuels, information technology and cyberdefense, where expertise in supporting government national security agencies can be leveraged to meet the needs of hospitals, financial institutions and local utilities.

“Every aerospace and defense company I've talked to is trying to achieve the right size, and as part of that they are both hiring and reducing,” says Richard Stephens, Boeing's senior vice president for administration and human resources. “We have been working to get the workforce right.” As defense budgets turn down in the U.S. and Europe, Stephens sees an industry that is more diversified than it was a decade ago. “Yes, there is a very large defense component, but we go beyond defense,” he says. “We are much more diversified.”