Commercial aircraft sales were down 1% from the same quarter a year ago. We experienced lower sales on the Boeing 7-series as well as on the 787. Total Boeing sales of just under $18 million were down almost $5 million from a year ago. On the other hand, sales on Business Jets at $16.5 million were up over $6 million from last year. The big increases were on the Hawker 4000, the Challenger 300, and one other unannounced platform.

The commercial aircraft aftermarket, which seems to be a focus of a lot of attention these days, came in at $23.2 million. That's up 4% from the most recent quarter, but down 6% from the same quarter a year ago. Over the last five quarters, our commercial aircraft revenues have fluctuated between $21 million and $26 million. There are a number of reasons for this volatility. I'm not sure that you can connect any two points and call it a trend. For those who are concerned that this category of business will shrink because the airlines are taking aircraft out of service, we offer a couple of thoughts. First of all, commercial aircraft aftermarket revenues are 5% of our Company's total sales, so a little shrinkage won't kill us. In addition, many of the aircraft being removed from service are MD-80's, DC-9's, and 737's. These airplanes have a relatively small complement of Moog hardware and hardly any of our aftermarket sales depend on them. Based on the current trend, however, we are now forecasting that commercial airplane aftermarket sales for the year will be $90 million, down 5% from a year ago. Perhaps there will be a similar decline next year, but our strong position on newer and bigger airplanes should continue to support our aftermarket revenues.

For the total of '08, we're increasing our Aircraft forecast by $5 million to a new total of $662 million. The change is the net of an increase in F-35 revenues on the military side and the reduced level in the commercial aftermarket that we've just discussed.

Aircraft Margins

Margins in the Aircraft Group were an unusually low 6.9% this quarter. This compares to margins of 10.6% a year ago and 8.8% in the most recent quarter. In part this performance reflects a level of R&D substantially higher than we'd anticipated. R&D in the quarter was $19.2 million, up $1.5 million from the same quarter a year ago. R&D on the 787, at $8.6 million, was down from last year's $12.1 million, but up from last quarter's $7.3 million. Simply put, we are spending more on the 787 than we expected to. The effort to complete safety-of-flight, which is done, and to conduct the qualification testing of all the hardware we've designed is turning out to be more work than we anticipated. We entered this year thinking we'd spend $18 million in R&D on the 787 and our current estimate is that the $18 million will be more like $35 million. Our R&D expenditures directly depressed our margins in the quarter. In addition to that, we have, in the quarter, established a reserve of $1.8 million on our Boeing Commercial book of business. This change is intended to deal with two problems. One has to do with the schedule slip on the 787. Prior to Boeing's last reschedule, we were preparing to build, over the next 26 months, 221 shipsets of hardware. The latest Boeing schedule requires over that period delivery of only 61 shipsets. We have been building facilities, acquiring equipment and hiring staff to build the capacity to deliver three to four shipsets a month. Over the balance of this year and most of next, we'll be building one or two shipsets a month. As a result, we'll be absorbing excess overhead costs on a smaller production base. In addition to that, we have encountered availability problems with certain types of custom-designed components, most notably bearings. The suppliers are simply unable to support current production. The solution seems to be the choice between extraordinary expedite fees or the expense of requalification. We've estimated those impacts and established the appropriate reserve. Also, in the quarter, we've increased our estimate at completion for the A400M program by about $1.2 million to cover additional costs in electronic design and software verification and validation.
We do expect Aircraft margins to return in the next quarter to over 9%, a level we've seen in previous quarters this year. That would bring margins for the year to 8.6%.

Aircraft Forecast for '09

We're looking for modest sales growth in the Aircraft business in '09. We're projecting a big increase in the military aftermarket from $123 million to $141 million. This forecast is, for the most part, based on identifiable programs so were feeling pretty confident. The V-22 OEM sales will be up a few million dollars because of the increased production rate, but we're expecting lower revenues on the F-35. We're expecting that the F-35 will be $96 million in '09, down from $105 million this year. So, the net of those changes would bring the military aircraft sales to about $407 million. On the commercial side, we're expecting the Boeing 7 Series production to be about the same as this year. 787 revenues should be up over $6 million to $25 million. Our revenue at Airbus should be up $7 million to $27 million. Our Business Jet category should be up $5 million. And, the wild card will be the commercial aftermarket. If we maintain the '08 level, it will be $90 million. If there were a 10% decline, it would come in at about $80 million. So, considering that range of possibilities, we're forecasting commercial aircraft revenues in a range between $283 million and $293 million, which takes the total for Aircraft to a range of $690 million to $700 million. The low end is a 4% sales increase; the high end a 6% increase. We do expect a modest improvement in margins. We're planning on about 9% compared to this year's 8.6%. Aircraft R&D next year will most likely be similar to this year's $69 million.

Space and Defense Q3 '08

Space and Defense had another very good quarter. Sales of $63.5 million were up 33% from the year previous. Most, but not all of the $16 million increase, was the revenue from the recent acquisitions, QuickSet and CSA. Growth in the core business came about because of the development programs on the Constellation. The work on the Ares 1 Crew Launch Vehicle and the Orion Crew Exploration Vehicle totaled $7.2 million in the quarter compared to $600,000 a year ago. This is cost-plus development work on the programs that will replace the Space Shuttle System.

In the Defense Controls product line, the completion of deliveries at QuickSet on the Driver Vision Enhancement System were $4.6 million and replaced a similar amount of work in last year's quarter on LAV-25. QuickSet also generated most of the $5.8 million increase in our Homeland Security product line.