Aerospace Update

The Aerospace Industries Association 2007 Year End Review and 2008 Forecast is linked from the Forecast link on the top banner of the Aerospace Analysis and Forecast report.

AIA forecasts that U.S. aerospace industry sales will grow 6 percent, or $12 billion, to a record $210.6 billion in 2008. The increase will be driven primarily by increased delivery of civil aircraft, engines, and related parts and components. Deliveries of civil transports will likely top 480 aircraft, for a value of $33.5 billion, and general aviation – particularly business jets – will add another $12.8 billion to sales. Looking beyond 2008, the current backlog of commercial aircraft orders gives us confidence that the civil aircraft sector will continue on an upward trajectory for at least an additional three or four years. On the other hand, sales to the Defense Department will show modest gains in 2009 from funds already appropriated; although how this Congress will handle FY08 supplementals could affect procurement accounts. Pre-presidential election politics, events in Iraq and new management at DoD will affect the composition and value of defense programs in FY08 and beyond. Finally, it would appear that we are on a modest upward cycle for the space sector, particularly as demand for commercial satellites is increasing.

Donaldson has been selected by Boeing to provide the HEPA cabin recirculation filter and electronic equipment (E/E) cooling filter for the new Boeing 747-8 Freighter and Intercontinental aircraft.

Donaldson will design, develop, and qualify the HEPA cabin recirculation filter and the E/E cooling filter. When installed, the new HEPA cabin air circulation filter will reportedly provides higher efficiency and an extended filter life due to its media design. Donaldson HEPA filters meet or exceed 99.97% efficiency on 0.3µm, the highest rating available for aircraft cabin recirculation systems, trapping dust, lint, smoke, bacteria, viruses, spores and other contaminants. The new E/E cooling filter will protect the avionics equipment from contamination, which can cause higher operating temperatures and can lead to equipment malfunction or failure.

The Boeing Company [NYSE: BA] recently announced that it has provided contracts worth more than $157 million to companies in Canada's Western provinces.

The announcement follows the Canadian government's 2007 order for four C-17 Globemaster IIIs, the first two of which already are in service with Canadian Forces.

As part of the C-17 acquisition contract, Boeing agreed to match the purchase price of the four aircraft with dollar-for-dollar investments back into the Canadian economy through a C-17 IB program coordinated by Industry Canada. Boeing already has identified more than 66 percent of its total C-17 IB program obligations.

Boeing will identify the remaining 34 percent of IB obligations over the next three years. Boeing also agreed to a collateral agreement that provides further industry benefits worth $750 million over 20 years for the in-service support of the C-17 fleet.

To date, Boeing has signed contracts with several partners based in Canada's Western provinces, including:

Boeing [NYSE: BA] and Spanish carrier Air Europa recently announced an order for eight Boeing 787-8 Dreamliners valued at $1.3 billion at list prices. The order, placed by Air Europa in 2007, previously was accounted for on Boeing's Orders & Deliveries Web site as an unidentified customer. Air Europa also acquired purchase rights for an additional eight 787s.

Air Europa, based in Palma de Mallorca, is the first Spanish customer for the 787 and will be the first carrier in Spain to offer passengers the unprecedented comfort of the 787 cabin interior while also being the first to reduce emissions by 20 percent with the 787's ultra fuel-efficient carbon-composite design and all-new engines.

The Boeing Company announced deliveries across its commercial and defense operations for the fourth quarter of 2007.

Major Programs	4th Quarter 2007	Total 2007
Commercial Airplanes Programs
737 Next Generation	80	330
747	4	16
767	3	12
777	25	83
Total	112	441

Integrated Defense Systems Programs
Apache (New Builds)	-	17
Chinook (New Builds)	3	10
C-17	4	16
C-32/C-40	1	3
F/A-18E/F and EA-18G	11	44
Satellites (Government & Commercial)	-	4
T-45TS	2	9
F-15	6	12
Delta II - Commercial	1	3

Boeing and Brazil's GOL Linhas Aéreas S.A, the parent company of Brazil's low-cost airlines GOL Transportes Aéreos S.A. and VRG Linhas Aéreas S.A., recently announced the airline has ordered an additional 40 Next-Generation 737 passenger airplanes. The airplanes will be included in Boeing's 2007 order total.

The order also brings to 127 the number of Next-Generation airplanes GOL has ordered since beginning operations in Brazil in January of 2001. GOL has also confirmed the purchase rights for an additional 40 737s, for a total of 167 737s in the company's projected fleet.

To date, 110 customers have placed orders for more than 4,400 Next-Generation 737s. Unfilled orders for the Next-Generation 737 exceed 1,900 airplanes, worth over $140 billion at list prices.

Boeing and Dubai Aerospace Enterprise (DAE) recently concluded all contractual obligations for the purchase of 100 airplanes valued at $10.9 billion at average list prices. DAE, a global aerospace, manufacturing and services corporation, and Boeing had previously signed a letter of intent at the Dubai Air Show in early November.

DAE Capital is one of six divisions in the DAE organization and offers clients a synergized cluster of aerospace services.

The Boeing Company recently announced that Vietnam Airlines and Vietnam Aircraft Leasing Co. (VALC) have finalized an order for a total of 12 Boeing 787-8s with a list value of approximately US$ 2 billion.

Vietnam Airlines will take four of the new airplanes and VALC will purchase the remaining eight Dreamliners, leasing them to Vietnam Airlines.

The combined Vietnam order pushes 787 order totals to 802. The order is included in 2007 totals and will be included in this week's Boeing Orders and Deliveries Web site update.

This is the second order for the 787 Dreamliner by the airline, following a previous order for four airplanes in 2005. The airline was the seventh carrier to select the 787, with an initial commitment in late 2004.

The order is the first ever placed by VALC, which is was formed last year by Vietnam Airlines, the Bank for Investment and Development of Vietnam (BIDV), the Vietnam National Oil and Gas Group (PetroVietnam), the Vietnam Shipbuilding Industry Group (Vinashin) and the Phong Phu Corporation.

The airline's first 787-8, from the previous order, is planned for delivery in 2009. Vietnam Airlines plans to operate a total of 20 purchased and leased 787s by 2015, and 28 Dreamliners by the year 2020, making the airplane a key element in the airline's international strategy.

Airbus' delivery of 453 jetliners in 2007 surpassed its previous year’s total by 19, and was made at the highest ever on-time rate and quality level, Airbus President and Chief Executive Officer Tom Enders said. Delivery rates in 2008 will reach 34 aircraft from its A320 single-aisle Family each month, along with eight A330/A340 widebodies monthly and one A380 approximately every 30 days, he added.

The A380s to be delivered in 2008 will go to Singapore Airlines, Emirates and Qantas, placing the 21st century flagship in service on routes around the world.

"As Airbus continues its ramp-up, our monthly rate in 2010 will be 40 A320 Family aircraft, 10 A330/A340s, and four A380s," Enders said in comments at Airbus' Toulouse, France Delivery Centre. "If you consider that one A380 represents eight A320s in terms of workload, you get an even clearer picture of what we have in front of us, and the amount of work this continues to generate for our employees and suppliers."

John Leahy, Airbus Chief Operating Officer Customers, said commercial demand will remain strong this year, although it will not be at the same level of 2007 - when Airbus achieved 1,341 net orders with a catalogue price value of at $157.1 billion. Order intake is expected to be above the 2008 delivery figure, which will exceed 470 aircraft.

Airbus has reportedly received orders worth around £4.5 billion from China Airlines and Indian based airline Kingfisher Airlines.

China Airlines, which is the largest airline in Taiwan, is believed to be buying 14 Airbus A350-900 aircraft with an option for another six in an order worth about £2 billion. It is thought the airline will use the planes on long haul flights to Europe, the USA and Australia from 2015.

The Indian media is reporting that Kingfisher Airlines, which has its headquarters in Mumbai in India, is buying up to 40 planes from Airbus in a deal worth around £2.5 billion.

At a press conference earlier this month, Airbus chief operating officer John Leahy said: “We are well positioned for the future as we see continued demand from areas that include India, China and the low cost markets”.

At the same press conference, Airbus president and ceo Tom Enders told reporters: “We have a huge – and high quality – backlog of more than 3,400 aircraft, filling our order book for something like six years. The demand will continue, as airlines seek environmentally efficient and economic aircraft”.

Airbus made headlines last year with the first flight of the new double decker superliner the A380 by Singapore Airlines. In late February Singapore Airlines is expected to take delivery of a third A380 which will enable it to start a daily service using the superjet between Singapore and Heathrow.

Further A380s will also be delivered this year to Emirates and Qantas. Airbus is hoping to deliver one A380 - the world’s largest passenger aircraft - approximately every 30 days this year, building up to four a month by 2010.

Lockheed Martin [NYSE: LMT] announced initial contract commitments to companies in Ontario that will lead to placing work with at least $175 million of Canadian content value in the region. These commitments are a result of the company’s industrial benefits obligation to Canada arising from the government’s purchase of 17 C‑130J Super Hercules aircraft, and stands as a testament to the quality of the high technology industry in this region. Today’s announcement is one of four regional announcements which combined will total the first 60% of the industrial benefits obligation under the contract. Lockheed Martin will continue to work closely with Industry Canada and Regional Development Agencies to identify Canadian capabilities for the remaining 40%.

“The addition of the C-130J program will allow us to build on what we are already doing in Canada. It is a tremendous opportunity to strengthen existing relationships in Canada, develop new ones, and work together to enhance the capabilities and expertise of Canadian industry,” said Ross Reynolds, Lockheed Martin vice president of C-130 programs. “Lockheed Martin has worked with more than 300 Canadian companies across all regions providing them with contracts worth more than $266 million USD in the last two years alone – outside industrial benefits obligations.”

The C-130J Super Hercules Tactical Airlift Capability project is part of the “Canada First” procurements and represents just the beginning of a much larger government endeavour to revitalize Canada’s defence capabilities. According to the Government of Canada, there are many more projects to come, each with a guaranteed 100-percent return on investment. Given the extensive capacity of Canadian industry, businesses from all regions of Canada are expected tobenefit.

The C-130J generates much greater operational efficiency than the older C-130s, such as Canada’s E and H model, by flying further, faster, with more payload and higher reliability. C‑130Js are currently deployed in several theatres and are operating at a very high tempo efficiently and reliably. C-130Js are being used daily for troop and equipment re-supply via ground delivery and airdrop, for air-to-air refuelling, ground refuelling and humanitarian relief.

With deliveries beginning in 2010 and all 17 aircraft delivered by 2013, Canada joins the growing number of nations with C-130J fleets – allied operators include the United States, the United Kingdom, Australia, Italy, Denmark and Norway. As of September 2007, a total of 196 C-130Js were on order, with 156 delivered.

Lockheed Martin Corporation (NYSE: LMT) reported fourth quarter 2007 net earnings of $799 million ($1.89 per diluted share), compared to $729 million ($1.68 per diluted share) in 2006. Net sales were $10.8 billion in both the fourth quarter of 2007 and 2006. Cash from operations for the fourth quarter of 2007 was $420 million, compared to $333 million in 2006.

Net earnings for the year ended December 31, 2007 were $3.0 billion ($7.10 per share), compared to $2.5 billion ($5.80 per share) in 2006. Net sales for the year ended December 31, 2007 were $41.9 billion, a 6% increase over the $39.6 billion in the comparable 2006 period. Cash from operations for the year ended December 31, 2007 was $4.2 billion, compared to $3.8 billion in 2006. Return on Invested Capital (ROIC) was 21.4% for the year ended December 31, 2007 compared to 19.2% in 2006.

The Corporation operates in four principal business segments: Aeronautics; Electronic Systems; Information Systems & Global Services (IS&GS); and Space Systems.

Net sales
Aeronautics	$ 3,004	$ 3,378	$ 12,303	$ 12,188
Electronic Systems	2,874	2,792	11,143	10,519
IS&GS	2,835	2,672	10,213	8,990
Space Systems	2,128	1,998	8,203	7,923

Total net sales	$ 10,841	$ 10,840	$ 41,862	$ 39,620

Segment operating profit
Aeronautics	$ 385	$ 383	$ 1,476	$ 1,221
Electronic Systems	360	364	1,410	1,264
IS&GS	275	227	949	804
Space Systems	236	187	856	742
*Segment operating profit*	1,256	1,161	4,691	4,031

Unallocated corporate, net	(41)	(91)	(164)	(261)

Operating profit	$ 1,215	$ 1,070	$ 4,527	$ 3,770