Conflicting scenarios describe the state of aerospace and defense: There is the industry that saw sales increase 8% to nearly $600 billion last year, topping $50 billion in collective profit for the first time. This healthy sector boasts backlogs at near-record levels, a strong cash flow, and its largest customer, the Pentagon, continues to spend vast sums of money.

On the other hand, the A&D industry has been abandoned in droves by institutional investors, suffered through a strike that halted production at its largest U.S. manufacturer and seen demand for commercial and business jets plummet faster than anyone's worst nightmare.

Both views are accurate, to a degree. And that's what makes it so difficult to forecast the road ahead as a credit crunch and the worst economic downturn since the Great Depression batter businesses worldwide and defense spending begins to flatten after an eight-year surge. The results of this year's Top-Performing Companies (TPC) study provide clues, however, about how well A&D companies are positioned to withstand tough times.

A half-decade of robust sales and profit growth, a focus on leaner and better-integrated operations and supply chain management and a backstop of government sales are buffering many A&D companies as the commercial aircraft industry slides deeper into the downturn. How deep? During the first four months of 2009, gross orders for jets were down 93% at Airbus and 87% at Boeing compared with the same period a year earlier, according to D.A. Davidson & Co. analyst J.B. Groh. Textron's Cessna, which as recently as October had expected to deliver a record 535 Citation business jets in 2009, now forecasts just 290-300 and has laid off half its workforce because of mass deferrals and cancellations. And Embraer has posted its first quarterly loss in years.

"The industry is entering an extended period of difficult times," warns Michael J. Dyment, managing director of Nexa Capital Partners, a Washington firm that provides strategic financial advisory services in the aerospace sector. He notes that the global airline industry is still cutting capacity as it seeks to stem losses, fuel prices are on the rise again and financing conditions remain difficult for potential aircraft buyers. "There's a lot of bad news that hasn't taken hold yet," Dyment says.

That's because while the global economic malaise waylaid the business jet industry almost immediately last fall, immense backlogs at Boeing and Airbus are enabling the two aircraft giants and their suppliers to minimize - or at least defer - a lot of the pain. Despite huge drops in new orders, Airbus maintained its delivery rates during the first four months of 2009 and Boeing's deliveries were up 3%. "I can't think of another industry with 3-5 years of backlog," says James W. Thomas, PricewaterhouseCoopers' U.S. Aerospace & Defense Advisory leader.

Another positive factor is that military contractor operations have largely been unaffected by the economic storm, save for having to prop up pension plans that plunged in value when the stock market collapsed last year. It is hardly surprising that three of the winners in the TPC's four rankings categories were military contractors: Lockheed Martin, FLIR Systems and Ceradyne.

While Pentagon budgets almost certainly will be cut as President Barack Obama moves to reduce a gargantuan $1.3-trillion federal budget deficit, military spending is not likely to turn down as sharply as it did after the Cold War ended in the 1990s. "Compared to the automotive and housing industries, aerospace is a good market to be in," says Dan Greenfield, director of investor relations at specialty metals supplier Allegheny Technologies.

To be sure, this year's TPC scores reflect both the Boeing strike and the economic headwinds that hit in 2008. The median score of the 10 A&D companies with revenues greater than $20 billion fell for the first time since 2004. "The 2008 results suggest that 2007 was the peak in terms of performance," says Steven C. Grundman, director of the A&D consulting practice at CRA International in Boston. "It was the year after the best year."

But the median score remains significantly higher than early in the decade, a sign that the industry is in a stronger position than it was when hard times last hit, after the 9/11 terrorist attacks. Companies have strengthened their balance sheets by paying down debt, implementing productivity drives and avoiding overpriced acquisitions that load up goodwill.