Makers of in-flight entertainment systems are bracing for an unprecedented downturn in their business, as the current slump in air travel has led airlines to cut back sharply spending on new planes and technology.

Passengers will still be able to tune into music and catch recent Hollywood movies. But sharply lower air traffic after the Sept. 11 attacks is taking a major toll on companies that make the equipment used for in-flight entertainment.

This year, global airline spending on in-flight entertainment is expected to drop for the first time ever, to roughly $1.95 billion from $2.02 billion last year, said Wale Adepoju, managing director of In-flight Management Development Center, a London-based consulting firm.

The projected decrease is a result of the Sept. 11 attacks, said Adepoju, who originally forecast an increase in spending to $2.2 billion. “We were seeing a slowdown in in-flight entertainment spending. It wasn`t anything exceptional in the aviation industry—but Sept. 11 made it a lot worse,” he said.

U.S. airlines have cut back flight schedules and laid off thousands of workers as they try to counter the sharp decline in travel. Several major airlines have also deferred delivery of new aircraft.

Experts believe the airline industry will post annual losses of more than $6 billion this year. Capital spending on anything but security will likely take a backseat, say aviation analysts.

“Airlines are under enormous budget pressures from all around, which puts pressure on airline suppliers including in-flight entertainment,” said Rob Brookler, a spokesman with the World Airline Entertainment Association in Chicago. Their organization is forecasting a 9 percent drop in annual airline expenditure from $2.1 billion last year.

“We believe it`s a temporary setback, but right now many of the airlines are delaying their new hardware investments,” said Brookler.

HARDWARE MAKERS HIT

Matsushita Avionics Systems, the world`s No. 1 in-flight entertainment systems provider, said it has seen a drop in new orders from airlines.

“Many are going forward with orders, some are delaying orders, and some are reconsidering,” said a spokesman for Matsushita, a unit of Japan`s Matsushita Electric Industrial Co. .

Aviation electronics maker Rockwell Collins Inc. recently said its in-flight entertainment business would see a 40 percent drop in revenues and lose money next year.

“In-flight entertainment is going to take the brunt of the blow of the commercial downturn,” said Rockwell`s Chief Executive Clay Jones in a meeting with analysts last week. “Flying airplanes safely and efficiently is the first priority—entertaining passengers and providing sources of brand loyalty, which is what an in-flight entertainment system does, is a secondary priority,” he added.

The spending slump has also hurt companies that make systems for in-flight Internet connectivity, a feature airlines were betting on to lure the lucrative business travel market.

Tenzing Communications, a privately held company that makes in-flight e-mail systems, has seen a slowdown in the rate of new customers, though its plans to deploy the technology are still on track, said Chief Executive Edward Nichol. The Seattle-based start-up laid off 60 people, or half its staff, in October.

Connexion by Boeing, the broadband Internet service of Boeing Co., redeployed 200 people, or one-third of its staff, in late September and is now in talks with airline executives who want to use the service to improve aviation security, said a spokesman. For example, Connexion may allot more bandwidth to airlines, which would allow real-time communication between the crew and the ground.

Indeed, after the Sept. 11 attacks, many makers of in-flight entertainment systems are now focusing on security tools. Matsushita Avionics Systems said it is working with Matsushita`s Panasonic companies to develop on-board video surveillance systems, which will be launched in 18 months.

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