Aerospace group worried by investment drop

A Eurofighter Typhoon flies over La Malagueta beach in Malaga, southern Spain, during an aerial exhibition, September 6, 2009.

LONDON (Reuters) - Britain's aerospace industry is worried that falling investment and looming cuts in defence budgets could weaken the sector even though revenue rose 5.4 percent last year to 22 billion pounds.

Defence accounted for just over half the industry's market share last year, figures from the AeroSpace, Defence and Security trade body ADS showed on Tuesday.

The revenue rise was driven by rising demand for defence and security equipment and by exports to the rest of the world, although new orders declined 10 percent from the previous year,

"Last year was tough for the whole aerospace industry given the wider context of the global downturn but these results demonstrate the resilience of the UK-based part of the sector," said ADS Chairman Ian Godden.

He warned, however, that spending had to pick up soon after investment in research and development (R&D) fell 7 percent to 1.74 billion pounds as companies became more risk averse.

"This current UK success and the strength to ride out the worst of the recession are based on long-term, sustained investment in the past, especially in R&D and workforce development," Godden said.

"A decline in such investment over the past two years in our surveys is a cause for concern, especially in the context of further cuts anticipated in defence ... the industry will have to reverse this now the economy is showing signs of picking up."

Exports accounted for around 70 percent of industry turnover last year, with exports to Europe up 10 percent and the rest of the world up 20 percent.

The Ministry of Defence said last month Britain would seek to boost defence exports to offset possible job losses after a sector review in the autumn that is expected to slash spending.

Analysts expect plans to buy Eurofighter Typhoon combat jets will probably be scaled down or scrapped as part of the cuts.

Britain has ordered 160 of the 70 million pound planes, which BAE Systems Plc (BAES.L), Europe's biggest arms contractor, is involved in making.

(Reporting by Kylie MacLellan; Editing by Michael Shields)