Mr. Arment: I think the group has exceeded expectations, driven by healthy end market demand for both commercial aerospace and defense. The majority of companies are executing above stated guidance ranges and reporting record backlogs, which provides solid visibility for the next several quarters. Expectations have moved up, but probably not enough due to supplemental funds within defense and higher aftermarket growth in aerospace.
TWST: Let's start on the commercial aerospace side. What's your outlook there
for the next year or two?
Mr. Arment: Air traffic demand has been above its historical average by over 100
basis points during the last six months, averaging about 6%. Rising traffic and
record load levels are resulting in a complete global recovery in the commercial
airline sector. The increased need for capacity additions and high aircraft
utilization rates of existing aircraft are driving both aircraft orders and
aftermarket spending higher. Also, the international market has played a much
bigger role in this cycle in the recovery of aircraft orders than in previous
upturns. So far, over the last three years, North American orders represent only
12% of the announced orders versus a similar cycle back in the 1988-1990 period
when announced orders by North American carriers topped 35%. Assuming the global
economy remains intact, we should continue to see deliveries at Boeing (BA) and
Airbus increase through the end of the decade. North American and European
legacy carriers should begin to order aircraft by the end this year, which
likely extends the delivery cycle running at peak levels to 2012. New entrants
are also fueling demand within China, India and the Middle East. So the outlook
for Boeing, Airbus and their suppliers is very solid for a minimum of the next
24 months.
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