U.S. aerospace and defense sales continued to grow in 2011 and will see only a modest decline next year, according to a forecast unveiled Dec. 14 by the Aerospace Industries Association (AIA). But the association warns of potential continued troubles for the lighter end of general aviation.

AIA’s annual review and forecast found that sales of civil aircraft increased at a 3% pace, and sales of military aircraft grew even more—7%—as defense contractors reaped the benefits of contracts awarded in prior years. And the trade association expects aerospace industry sales will remain essentially flat in 2012. “But storm clouds are gathering” as nearly $1 trillion in cuts to defense spending due to begin in January 2013 draw closer. “2012 will be a tough year because of the uncertainty and unpredictability,” says AIA President and CEO Marion Blakey.

She says the impending cuts make it even more imperative that the Obama administration follow through with reforms to U.S. export control regulations that have hamstrung contractors from competing in overseas markets. “We are optimistic about export control reform,” Blakey says. “Our CEOs are looking outside our borders for growth, and export reform can really move the needle.”

A surge in orders for civil aircraft—primarily in the commercial sector—in 2011 should lead to continued sales growth in future years, offsetting some of the pain from defense cuts. AIA estimates that orders for U.S.-built civil aircraft will grow 23% this year to $107 billion. For the general aviation sector alone, AIA acknowledges that 2011 “proved to be a challenging year,” citing the lingering effects of the financial downturn along with the European banking crisis. “Light and medium jets remain an area of concern with the three-year downturn threatening to extend into 2012 and deliveries depressed for several key U.S. companies,” the association says.

Employment industry-wide was flat at 624,400 jobs, up from 624,000 jobs in 2010. But recruiting the next generation of workers in A&D remains a challenge. The U.S. educational system, from kindergarten through tertiary education, is not training enough engineers. On top of that, the unpredictability in the industry recently is causing young people to consider taking their skills and talents to other sectors, Blakey says. This “brain drain” could be the “intangible effect of budget cuts and sequestration,” she says.