Prospects of the global commercial aerospace sector are strong, says S&P

Standard & Poor''s has said the increasing demand for new jetliners - particularly from airlines in Asia and the Middle East - the growing air traffic and the steadily improving financial results of many airlines supports the resurgence in the fortunes of global aerospace companies.

The two leading commercial airplane manufacturers, Boeing and Airbus, continued to see strong demand for their jetliners from 2005 to 2007, S&P said in its industry report. It said the companies'' backlogs surged to record levels, equivalent to more than five years of production. This should lead to higher deliveries in the next few years.

The agency said airlines from China, India, and the Middle East, as well as the rapidly growing low-cost carriers in most regions ordered both single-aisle aircraft and long-haul jetliners to serve expanding international routes in 2007.

Large US carriers that have postponed fleet renewal plans owing to financial problems are planning to order new jetliners over the next three years, which should extend the current upturn, S&P added. In the longer-term, S&P said, it expects commercial aerospace fundamentals to remain solid, with a projected air traffic growth of about 5 per cent per year.

The agency warned, however, that a slowing US economy could cool the demand for business jets somewhat. Strong backlogs and a continuing rise in international demand should cushion the impact, it said. S&P said it continued to see a ''mixed outlook'' for regional jets.

On defence aviation, S&P said it considers the outlook on US contractors to be generally ''stable to somewhat positive'', despite recent political changes in Washington. The US government''s defence spending remains strong because of a higher-than-expected 2008 budget request.

But growth rates are likely to slow with possibly reduced or delayed funding for certain programmes. The 2008 defence budget request, submitted in February, is more than 10 per cent higher than 2007''s, even after excluding the costs of the Iraq and Afghanistan wars. The US has requested $142 billion for war costs in 2008, in addition to a base defence budget of $481 billion.

However, competing domestic spending priorities, war costs, a change in the factions that control the US Congress, and a new administration in 2008, may result in some programmes being reduced, stretched out or cancelled in future budgets, S&P said.