Costly Oil, Slumping Dollar Spell Trouble For Airlines, Aerospace Companies

But there's a double-edged sword: The low dollar is forcing European companies such as Airbus to become leaner. "It gives them an incentive to get that much more efficient," says Pierre Chao, a senior fellow at the Center for Strategic and International Studies in Washington. "Then, when the dollar reverts, as it has a tendency to do, you suddenly end up with a very competitive European industry."

  • Moderating defense spending.
  • U.S. military spending is in its 10th consecutive year of above-inflation growth and has defied predictions of a slowdown for several years. Adjusting for inflation, the Pentagon's budget has risen 31% since 2000 -- and 58% if the cost of supplemental war funding is included.

    But current spending plans call for the core defense budget to decline in real terms after 2009, though the next president will help decide if that really happens. "Take out the war funding and there are a number of indications that suggest defense spending is flattening out," says budget analyst Kosiak. "Historically this is about as long a buildup as we've had."

    But while defense spending can't keep rising at a rapid clip, nobody expects a decline comparable to the 1990s "peace dividend" that followed the collapse of the Soviet Union and the end of the Cold War. And supplemental budgets for war funding in Iraq and Afghanistan continue to serve as a relief value to fund other defense priorities.

    "The angst level is rising steadily, yet the near-term outlook continues to be robust," says Chao. He admits he's been surprised by the resiliency of military spending. "Good things last longer than most people expect."

    With Robert Wall in Dubai.

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