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  • 2011 Forecast: Not So Bad, After All
    Posted by Joe Anselmo 4:13 PM on Dec 20, 2010

    What a difference a year makes. On Dec. 15, 2009, the International Air Transport Association (IATA) predicted the global airline industry would lose $5.6 billion in 2010. Last week, Geneva-based IATA said the world¹s airlines will instead turn a projected profit of $15.1 billion this year, a swing of more than $20 billion.

    While carriers still face big challenges -- including the risk of higher oil prices and slim profit margins that fail to cover the cost of capital -- the industry clearly has rebounded from the global economic downturn more quickly than anyone imagined. IATA is projecting another $9.1 billion in profits in 2011, with passenger and cargo demand both growing by more than 5%.

    That reversal of fortune was underscored in a separate forecast unveiled last week in Washington. The Aerospace Industries Association (AIA) projects that sales of civil aircraft by U.S. companies declined 6% this year, to $48.2 billion. But while AIA originally saw the downturn extending through 2011, it now expects civil aircraft sales will grow 4% next year, despite the drag of a struggling business jet sector. “Aerospace has proven to be remarkably resilient,” says AIA President Marion C. Blakey. ”We’ll be one of the real bellwethers of the economic recovery.”

    A year ago, not even AIA’s forecasters believed Boeing when it said there was no compelling need to cut production rates in response to a slump in new orders. Since then, both Boeing and Airbus have announced plans to substantially increase their output in the coming years to meet rising demand. This optimism is rooted in overseas markets. As the U.S. economic recovery limps along and Europe grapples with fallout from its debt crisis, AIA projects demand for civil aircraft will be driven primarily by Asia. Consider this: North American customers now account for just 22% of Boeing’s backlog, down from 64% a decade ago.

    Meanwhile, AIA finds that the sky is not falling on military contractors, despite mounting concerns that aerospace will not escape unscathed from the budget deficit turmoil in Washington. Sales of military aircraft by U.S. contractors increased 8% this year to a projected $64.5 billion, more than offsetting the decline in civil aircraft sales. But while AIA sees military aircraft sales rising another 2% in 2011, Blakey says it is clear that military contractors will need to rely more heavily on exports to generate growth as Pentagon budgets tighten.

    The cuts in Defense Secretary Robert Gates’s $101-billion efficiency drive “have pretty much taken us as far as we can go,” Blakey says. But she also is well aware that weapons spending will be a tempting target -- along with Social Security and Medicare -- as lawmakers look to rein in a seemingly out-of-control deficit. After all, the U.S. now spends about twice as much on military aircraft as it did a decade ago.

    “We’re as much for deficit reduction as anybody,” Blakey argues. “But some of those ideas are dangerous.”

    Tags: AWCOL, TW99

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