Has aerospace and defense (A&D) lost its luster for Eaton? No one can better answer that question than Alexander M. “Sandy” Cutler, the chairman and CEO of the 103,000-employee industrial giant. In the mid-2000s, A&D played a starring role in Cutler's drive to rebalance Eaton into a less cyclical, high-growth company. Eaton divested 45% of its old-line industrial operations and made a string of acquisitions in more dynamic businesses to reduce its exposure to volatile swings in the motor vehicle and residential construction markets.

Buoyed by strong demand in commercial aviation and defense—and purchases of major operations such as PerkinElmer's aerospace segments and Cobham's fluid and aero business—Eaton's A&D sales rose nearly tenfold in a decade, peaking at $1.8 billion in 2008.

Around that time, Cutler held an event for Wall Street analysts to tout the company's position as a major supplier of fuel systems, hydraulics, actuation controls and air distribution systems on platforms such as the F-35 Joint Strike Fighter, C-17, UH-60, Airbus A380, Boeing 787 and Embraer Phenom 100. “People in the company were asking, 'Are you ever going to do acquisitions in any business except aerospace?'” he recalls.

These days, the opposite question is being asked. Eaton has not made an A&D acquisition in six years, and aerospace accounted for just 8% of its sales in 2012, down from 13% in 2009. The company's aerospace unit did not have a major presence at last year's signature industry event, the Farnborough air show. Last month, at a Bank of America Merrill Lynch conference, the centerpiece of a presentation by Chief Financial and Planning Officer Richard Fearon was the recent $11.8 billion purchase of Cooper Industries, an electrical equipment supplier. He told investors that 2013 would be “the start of a new era for Eaton.”

Cutler insists aerospace will continue to play a prominent role in that new era, along with hydraulics and electrical products. “It's a really exciting time in the [A&D] industry,” he told Aviation Week during an interview at Eaton's headquarters in Cleveland. “Whether we look at the defense platforms or the commercial platforms, large or small, we're busy.”

While there is a lot of gloom about declining defense budgets in the U.S. and Europe, Cutler projects the overall A&D market will grow by 2% this year as an 8% increase in commercial sales more than makes up for a 6% decline in military sales. “As opportunities become available, it's an industry that we want to continue to grow in,” he says.

But don't look for the 60-year-old CEO to pull the trigger on any major A&D deals in the near term. Eaton took on $4.9 billion in debt to acquire Cooper and is just starting to assimilate the 33,000 employees that came with it. “We probably won't be active in the acquisition market for the next couple of years,” Cutler says.

He has retained the enthusiasm for commercial aviation he had when Eaton made its string of A&D acquisitions in the mid-2000s. Many of the questions suppliers had back then—such as whether Airbus and Boeing would develop new narrowbody jets in the near-term and which new entrants would challenge their duopoly in the single-aisle market—have been answered, he notes. Airbus and Boeing have opted to offer new engines on the existing A320 and 737, while new narrowbodies are coming from China's Comac (the C919), Russia's United Aircraft Corp. (the MS-21) and Canada's Bombardier (the CSeries). As aircraft production ramps up, Eaton hopes to raise operating margins in its aerospace business to 16% by 2015, up from 12.4% in 2012.

The future of the defense market, of course, is a very different story. “In 2008-09, there was a global recognition that developed nations all have a debt problem,” Cutler says. “Whether you go to the U.K., France or the U.S., the defense market has got to pull back substantially. Consumers and businesses have delevered, but governments have not.”

But while tough cuts will have to be made, Cutler believes essential programs will move forward. His list includes the F-35, heavy-lift helicopters, the U.S. Air Force's tanker and unmanned aircraft. “Not every company is going to see their military business go up,” he says. “But the opportunity on the platforms that continue is probably fairly handsome.”

And what about missing air shows? Cutler waves off a question about Eaton's low profile at Farnborough. “The real business doesn't get done at the show,” he says. “It gets done on the investments you make in R&D. That's where we've been really pouring on the coals in terms of putting money into new programs.”