Based on our experience in the first half of '08, we have made some adjustments to our Aircraft forecast for the year. Clearly, the activity level on the F-35 will be sustained. We had thought that the work on the CTOL aircraft would be pretty much done by now and that on the STOVL, we'd be close to finished. As it turns out, the continuing support of the CTOL aircraft and the continuing work on the STOVL and the carrier version will carry on through this year, and we're now forecasting $95 million in revenue for the year, up from $75 million. We've increased our forecast for military aftermarket revenue to $123 million. We made some other small changes with the result that our military aircraft forecast is now $380 million, up $25 million from our last estimate. On the other hand, the reschedule on the 787 will reduce our revenues on that program by $7 million. The lower sales level on Boeing production aircraft reduced that forecast by $3 million. We're reducing our forecast on business jets by a little less than $3 million to a total of $61 million. And, given the slow pace of activity in the commercial aftermarket and the delay in 787 initial spares provisioning, we've reduced that forecast so that our commercial aircraft forecast is now $277 million, down $20 million from our previous guidance. So, in total, Aircraft goes up from $651 million to $657 million with the most significant adjustment being an increase in the cost plus F35 program.

Aircraft Margins

Given the product mix for this year and the continued investment in R&D, we have been looking for Aircraft margins in the neighborhood of 10%. This quarter margins were actually down to 8.8%, compared to the 10% level we achieved last year at this time. Margins in this quarter were not helped by the strong F-35 sales. If F-35 was at the same level as last year, margins in the quarter would have been closer to 10%.

For the last few quarters, we've been talking about R&D spending. Our Aircraft R&D expense in the quarter, just under $15 million, was about the same as last quarter even though we are spending more on the 787 than we had planned. R&D on the 787 in this quarter was $7.3 million, down from $9.4 million in the previous quarter. We had hoped to get through this year with only $19 million on the 787, but the stretched out program has resulted in a higher level of continued engineering activity than otherwise might have occurred. We are in qualification test on our equipment and we have had the typical qual test anomalies that have to be addressed. We do expect that as the year goes by, the spending on the 787 will decline. On the other hand, we have started R&D work on the A350. We spent almost $2 million in the quarter and we expect that that expense level will grow as the year continues. Given the increased expense on the 787, we are increasing our R&D forecast for Aircraft from $55 million to $61 million. However, reductions in other segments will offset this increase and the total Company R&D forecast remains at $103 million.

We expect that over the last two quarters, Aircraft margins will improve slightly and that we'll end the year at about 9.9% on the increased Aircraft sales. So, in terms of operating profit, we're expecting that Aircraft will come in very close to our most recent guidance.

In our Aircraft business we find ourselves in the midst of a period of unprecedented opportunity. We have positioned ourselves on key programs on both the military and commercial sides of the business --F-35, 787, A350. These programs will ensure our long-term growth and profitability. Our heavy investment in R&D over the last few years will continue in the near term. However, in the longer term, our margins will strengthen as these new platforms go into production.

Space and Defense Q2 '08

In our Space and Defense Segment, quarter two had a big positive and a big negative. Sales of $70 million were up a remarkable 48%. The huge increase was all the result of the acquisition of QuickSet International. In the quarter, QuickSet added $17.6 million of sales in our Defense Controls product area offsetting a $6 million reduction arising from the completion of the LAV-25 program, and a lull in sales on Future Combat Systems. The big positive was the sales increase at QuickSet, the result of the Driver Vision Enhancer (DVE) system. QuickSet is delivering this system to DRS for use on the MRAP vehicles. We had a huge delivery quarter. We delivered 5,000 units. So far this year, we've delivered over 6,700 of the 7,600 that were ordered. There are 840 left to ship.

In addition to the DVE program, QuickSet contributed $5.4 million in sales of surveillance systems to what we are calling our Homeland Security product line.

There were some other increases in our Space and Defense business. Sales of $6.7 million on the Constellation program more than offset a $2.3 million reduction in sales on Space Shuttle. Our Tactical Missile business was up over $2 million reflecting increased shipments of Hellfire and TOW missiles. Our satellite business was up slightly at $14.3 million. And the total of launch vehicles, strategic missiles, and missile defense was down slightly. So, the overall strength of the Space & Defense business is the good news.