The miseries that air travelers suffered over the recent holidays could lead to a lift for aircraft makers in 2001. With passengers griping about crowded-to-capacity flights, airlines may have to spring for more planes, boosting the fortunes of both Boeing Co. (BA) and Airbus Industrie. Washington, meanwhile, is flush with a federal surplus and is expected to pony up more cash to modernize an aging Pentagon arsenal of weapons and planes. "There is stronger public support for national security and defense spending than I have witnessed in the last decade--and a greater ability to pay," notes General Dynamics Corp. (GD) Chairman Nicholas D. Chabraja.

It helps that the industry seems to have resolved the operational glitches that plagued it in recent years. Preliminary estimates from the Aerospace Industries Assn. show operating earnings on sales of both commercial and military hardware spiked upward 21% in 2000, to about $7 billion, on $143.7 billion in revenue. This year, the association predicts sales will rise nominally, to $145.3 billion, and "earnings are going to be up a lot," says analyst Paul H. Nisbet of JSA Research Inc.

Demand for civilian jets and related services will remain strong. The AIA expects Boeing to boost production of commercial airliners from 490 planes in 2000 to 530 this year. Revenues from sales of commercial jets should jump to $33 billion, from $30.9 billion in 2000. "Boeing will continue to do well," says Jon B. Kutler, president of Quarterdeck Investment Partners Inc., an investment bank specializing in aerospace. After production problems in the past few years, he says, "it's back in business."

A BUSH BOOST? The appetite for new planes is growing in both U.S. and foreign markets. The airlines' robust 2000 profits will help fund fleet upgrades. Meanwhile, recovering economies in Asia and high oil prices in the Middle East are spurring orders from those regions. Indeed, the only cloud on the U.S. horizon is the continuing good fortune of Airbus. Last year, the U.S. posted record aircraft imports and a drop in exports. This year exports could rise, but Airbus may still boost its market share.

On the military side, the picture depends largely on the agenda of George W. Bush. Investors, expecting that big boosts in defense spending will lift profits, have pushed the Standard & Poor's Aerospace/Defense Index up more than 35% through Dec. 22, compared with a 6% decline for the Standard & Poor's 500-stock index. But analysts warn that such enthusiasm may not be warranted. The key question is how the increased Pentagon dollars will be spent. JSA Research analyst Nisbet believes the Bush Administration will direct less Pentagon money toward activities such as drug interdiction and peacekeeping, freeing up cash for procurement. "Over the next four years, you're likely to see the procurement budget moving toward $90 billion, from $60 billion now," he says.

Other observers aren't so sure. S&P analyst Robert Friedman notes that Bush's top priorities are quality-of-life issues, such as improving poor military housing and pay--tasks that already account for about a quarter of the defense budget. "Those are very expensive issues to correct," he says.

Overall, the AIA predicts Pentagon aerospace buying will rise 5% in 2001, to $47.6 billion, with the aircraft component rising 3%, to $33.4 billion. Exports are expected to slow after the post-Persian Gulf war boom. And even if the brass throws more money to defense contractors, some programs may be targets for elimination. Bush has talked about skipping a generation of weapons, but hasn't spelled out what he means. And when Vice-President-elect Richard B. Cheney was Defense Secretary, he had few qualms about killing programs that were behind schedule and over budget.

Adding to the uncertainty is the widespread belief that there will never be enough money to bankroll everything on the drawing boards. "There are too many elephants to get through too small a door," says analyst Cai von Rumohr of SG Cowen Securities Corp. Among potentially vulnerable programs, analysts say, are the $223 billion Joint Strike Fighter, which Boeing and Lockheed Martin Corp. (LMT) are competing to produce.

On the whole, though, if Asian economies don't crater, Middle East nations continue to buy planes, and the U.S. budget surplus stays healthy, the aerospace industry is likely to gain a little more altitude in 2001.

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