Profits rise for aircraft builders, but fall for commercial carriers

NEW YORK, 7 Nov. 2005. The commercial aircraft manufacturing industry posted earnings before interest and taxes (EBIT) of $2.6 billion in the first half of 2005, a 36 percent hike from the same period last year and 175 percent over the first six months of 2003, according to a new report.

Nov 7th, 2005

NEW YORK, 7 Nov. 2005. The commercial aircraft manufacturing industry posted earnings before interest and taxes (EBIT) of $2.6 billion in the first half of 2005, a 36 percent hike from the same period last year and 175 percent over the first six months of 2003, according to a new report.

At the same time, airline industry profits, the primary driver of demand for commercial aircraft with 100 or more seats, remain almost non-existent.

These and other findings are available in the report, "Aerospace & Defense Industry Survey," published twice yearly by Standard & Poor's, a provider of independent investment research, ratings and indices.

Most of the recent earnings and profitability rebound in aerospace is due to improved operating leverage from volume sales increases, as well as draconian multiyear cost-cutting efforts, the report says.

"Several factors drove the rise in order ratings, including a 225 percent hike in foreign airline orders, a 115 percent hike in U.S. airline orders, and an 80 percent rise in unidentified orders," says Robert Friedman, an S&P equity research analyst and author of the report. "Although the airline industry continues to post large losses, the domestic and foreign discount airline segments are in relatively good financial health and are behind the rebound in U.S. and foreign commercial aircraft orders."

It is difficult to predict when the U.S. airline industry's fortunes will improve, Friedman says. While he expects passenger traffic to remain strong, the domestic airline business continues to be rocked by various challenges. Several of the legacy airlines are in dire financial straits and many also suffer from intensifying competition from discount carriers and from spiking oil prices. S&P predicts that the domestic airline business will post an operating loss of about $5.5 billion in 2005.

** Defense and aerospace will grow slowly **

Standard & Poor's Aerospace & Defense Industry Survey also looks at the business health of aerospace defense manufacturers as well as the regional and corporate-jet industry.

Using Lockheed Martin's and Boeing's space operations as a proxy in the defense area, it concludes that space revenues rose about 4.5 percent in the first half of 2005, mostly due to the absence of large space-related restructuring charges taken by Boeing in the latest six-month period. Similar mediocre margins are expected for the next several years.

Standard & Poor's, a division of The McGraw-Hill Companies, is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. With approximately 6,300 employees located in 20 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, see www.standardandpoors.com or http://sandp.ecnext.com.

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