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U.S. aerospace industry sees 10th straight growth year

By Jim Wolf

WASHINGTON (Reuters) - U.S. aerospace and arms companies are poised for 2.8 percent overall sales growth next year to about $224 billion, which would mark their 10th straight year of growth, barring steep Pentagon budget cuts, the industry's chief trade group said on Wednesday.

The forecast does not factor in so-called sequestration, a process that would lop about 10 percent off Pentagon arms purchases starting next month if Republicans and Democrats fail to agree on a new plan to pare federal deficits.

Exports of civil aircraft, engines and parts - which represent about 88 percent of all aerospace exports - are expected to account for most of the industry's sales growth in 2013.

The U.S. military aircraft sector, on the other hand, continues to shrink even as foreign sales of U.S. warplanes are booming.

Aerospace and arms companies, one of the economy's perennial bright spots, continued to lead the United States in the net export of manufactured goods, buoyed by strong civil aircraft sales, the Aerospace Industries Association said in its annual year-end review and forecast.

Exports rose 12 percent to an estimated $95.5 billion this year from $85.3 billion last year and are likely to grow during "at least the next several years" based on order backlogs, the AIA said.

Order books for civil aircraft makers such as Boeing Co , the world's largest maker of commercial jetliners and military aircraft combined, now contain a six- to seven-year backlog, the report said.

U.S. military purchases of hardware may decline slowly or be hit with indiscriminate, sequester-related cuts that could cause major disruptions in the supply chain, especially for smaller manufacturers, the AIA said.

Sequestration clouded the outlook for 2013 and was hard to factor in because of unknowns about how mandated cuts would be carried out, Marion Blakey, AIA's president and chief executive, told an industry luncheon.

"It's an industry that remains healthy despite the obstacles," she said.

For 2013, overall sales are projected to rise 2.6 percent to $223.6 billion from an estimated $217.9 billion this year. In 2012, the estimated total was up 3.4 percent from $210.8 billion the year before.

Leading U.S. aerospace companies and top Pentagon suppliers include Lockheed Martin Corp , Boeing, Northrop Grumman Corp , BAE Systems Plc , Raytheon Co and General Dynamics Corp .

Roughly $600 billion in combined U.S. tax increases and spending cuts are to take effect in January for fiscal 2013 alone - the so-called fiscal cliff - unless President Barack Obama and Republicans in Congress strike an alternative debt-reduction deal.

The across-the board spending cut, known as sequestration, would cull about $54 billion from U.S. national security spending with purchases of weapons nipped, the trade group said, an estimated 10.3 percent.

Demand for U.S. military exports is anticipated to remain strong for the few years, AIA said, citing concerns about Iran's disputed nuclear program as contributing to large purchases by oil-rich Gulf states, among other factors.

Similarly, growing Chinese defense budgets have led to significant new U.S. sales in Asia - deals that should more than offset ebbing sales to European countries that are trimming military spending, the report said.

The U.S. military aircraft sector continues to contract, falling 2.4 percent over the past year. It is projected to sink more than 10 percent in 2013.

Closure of Lockheed Martin Corp's F-22 fighter production line and decisions not to fund additional Boeing Co C-17 military transport plane purchases or development of a future strategic lifter, each took a toll.

As of 2012, no fewer than three key military production lines - for Boeing's C-17 military transport aircraft, its F-15 tactical fighter and Lockheed's F-16 multi-role fighter - are being sustained largely by international export demand.

(Reporting By Jim Wolf; Editing by Alden Bentley and Steve Orlofsky)

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