North Charleston, S.C., is 400 mi. from Cape Canaveral, but as far as aerospace workers are concerned the two places are a world apart. At the Cape, NASA's space shuttle program dropped 3,200 contract workers the day after the final mission ended. Many of these are engineers who have little hope of finding similar work in Florida. The picture couldn't be more different in North Charleston, where Boeing has hired 4,000 workers for an assembly line that opened last month for its 787 jet. Suppliers feeding the new plant are expected to hire hundreds more.

The divergent fortunes of the two regions underscore the findings of the 15th annual Aviation Week Workforce study, a three-month examination of large and small manufacturers that collectively employ more than 90% of U.S. aerospace workers. As Boeing ramps up production of the new 787 and boosts output of its 737 by one-third by 2014, the company and its suppliers are planning to add thousands of jobs. The industry also is benefitting from equally robust production hikes at Europe's Airbus—a leading customer for U.S.-made aircraft components—and the development of new jets such as Bombardier's CSeries and Comac's C919 in China.

But on the defense and space side of the industry, layoffs are mounting. A government/industry space shuttle workforce that once stood at nearly 16,000 will fall to about 1,000 by the end of August. And government contractors such as Lockheed Martin have announced plans to cut thousands of jobs as they adjust for a leaner Pentagon spending environment. The fallout from these reductions is rippling through the supply chain.

It is, in short, a workforce in transition, and the end game is far from clear. When the new hires are weighed against the layoffs, the aerospace and defense (A&D) industry should add about 2,500 jobs in the U.S. this year, raising the workforce to 645,000, according to the study, which was undertaken by Aviation Week with the Aerospace Industries Association, American Institute of Aeronautics and Astronautics, and National Defense Industries Association. But that could easily turn net negative in 2012. The grim budget landscapes in Washington and European capitals do not bode well for future military budgets or the jobs that they underpin. And while U.S. aerospace employers are expected to fill nearly 32,000 positions this year—including replacements for retirements and job changers—that figure is forecast to fall to about 22,000 next year, a decline of more than 30%.

The good news is that A&D still holds plenty of appeal. Wages for U.S. aerospace employers increased an average of 3.2% last year, compared with a national average of 2.25% and just 1.7% in the information technology sector. Voluntary attrition rates among young A&D professionals, which hit a high of 22% in 2009, have receded to the single digits as hiring plummeted across the entire U.S. economy.

Aviation Week's second annual Young Professionals/University Students Study, undertaken in conjunction with the workforce study, also revealed some hopeful signs. While 35% of respondents in the young professionals survey are seeking a new job, just one in four is looking beyond his/her current employer. Analytical Graphics Inc., an Exton, Pa.-based company that develops software for national security and space systems, says its voluntary attrition rate runs at 3% a year. By contrast, turnover in the overall software industry tops 20% annually. Other key findings of the young professionals survey: 27% of respondents would like to stay with their current employer for at least a decade, and 56% would recommend the industry to others.

Meanwhile, pockets of private investment are energizing fields such as unmanned aerial vehicles and private sector space ventures, exciting and fast-moving projects that hold appeal to young professionals. “We have to learn how to re-do human spaceflight,” says Ben Herbert, an 28-year-old senior systems engineer at Orbital Sciences Corp. who joined the Dulles, Va., company as an intern four years ago. And even as funding for large new platforms dries up, smaller projects are shifting technology out of the lab and into the mainstream, supporting emerging defense and security needs ranging from biofuels to eliminating the “clutter” that wind turbines are creating with radar systems. “What we do matters, and that is why we do it,” says Haley Stephens, a 26-year-old writer for NASA.

There is also good news about the industry's demographics. A tidal wave of retirements that has been ominously forecast for several years has failed to materialize. While 20% of employees at companies with more than 50,000 employees will be eligible to retire next year—up from 14% this year—shrinking 401(k) accounts and declining home values have prompted many older workers to stay on the job longer than expected, giving senior managers more time to plan for a transition to a new generation of decision-makers. Industry leaders also believe that some employees are choosing to work longer, in large part because they don't see a need to cut a career short when they are still fully engaged, contributing and healthy.

The bad news is that the industry's attraction to young professionals could lessen as the shuttle program fades into history and cash-strapped militaries curtail development of new weapons systems. The young professionals study finds serious concerns within this segment as to whether the industry is committed to the research required to remain on the cutting edge. Beyond the Joint Strike Fighter, the U.S. has no next-generation fighter jets, helicopters or land vehicles in the development pipeline. “The jobs associated with developing and building things feed a thriving economy,” says Clay Jones, chairman/CEO of aircraft electronics supplier Rockwell Collins and a member of the Aviation Week Workforce Advisory Board. “But lack of investment in R&D by the government translates to an inability by the nation to develop and build all-new products.”

Investments are also declining in another key area—people—as companies reduce funding or change their policies toward backing continuing education. The shift primarily moves tuition reimbursement from an any-degree-any-employee approach to targeted funding, based on future job needs. Such cost-cutting measures could backfire because ongoing education is a top priority of young A&D professionals, even trumping pay. Young employees also perceive change is coming too slowly. More than half of the respondents to the young professionals survey expressed frustration that bureaucracy and internal politics are hamstringing the pace of decision making in their organizations.

With production of Boeing 737s potentially set to nearly double by the end of the decade and newer jets requiring mass production of cutting-edge composite parts, there also are concerns about the ability of suppliers to find enough skilled workers. During the commercial aircraft industry's downturn two years ago, “a lot of shops cut a couple of shifts out of their operations, and the younger guys were the first to go,” says Brad Campling, a managing partner at Stream, a Cincinnati firm that works with aerospace primes and their suppliers on process improvement. “Now, as companies are trying to take production back up, a lot of the older talent will be retiring.”

So far, though, companies appear to be filling the pipeline. At the industry's largest companies, 22% of workers are 35 or younger, nearly matching the 23% that are 56 or older. The demographics are even more encouraging at companies with fewer than 1,000 employees, where young professionals make up 33% of the workforce and older workers just 17%.

Companies may have closed the age gap, but not so the gender gap. While more than half of the overall U.S. workforce is made up of women, that figure is just 25% at large A&D companies, a figure that hasn't budged in a decade. Engineering enrollments reported for the 2009-10 academic year indicate that slightly more than 20% of engineering students are female. And only two major companies—BAE Systems North America and The Aerospace Corp.—are led by women. But a level or two down, the management matrix there is evidence that women are rising to key management posts. Three of the six business unit leaders at Lockheed Martin, for example, are female.

Large companies in the industry are also rethinking their recruiting strategies, revising long-held notions that an applicant should not even be considered if his or her grade-point average is below 3.2 and studying drop-out rates of engineering students, which are a key indicator of an academic program's quality. But signing the right talent is half the battle. Holding on to a young employee means keeping them motivated and providing them with a clear path to advancement.

“I come to work every day with a sense of mission and purpose,” says Enoch Long, a 2004 graduate of Temple University who was recently named manager of Northrop Grumman's Cyber Security Operations Center. “We have to defend our network from persistent threats. The second coolest thing about my job is working with talented people who motivate you to think outside the box and hold you accountable.”

—With Mark Carreau in Houston.