Rockwell says aerospace aftermarket to improve

*Recovery to start out slow
*Pensions, incentive pay cited as profit headwinds
ATLANTA, Sept 2 (Reuters) - Avionics maker Rockwell Collins Inc (COL.N) is expecting the commercial aerospace aftermarket to start improving over the next year, with a robust recovery possible in 2011, the company's chief executive said on Tuesday.
As aerospace services and maintenance pick up, the second half of the company's next fiscal year that begins in October will likely look stronger than the first half, he added.
"What we in general see as the lay of the land is that business aircraft seem to be stabilizing, but we face two quarters of really, really bad comparables because of the shape of 2008," Rockwell Collins CEO Clay Jones told a Morgan Stanley investor conference.
Jones said Rockwell's current fourth quarter and the coming first quarter were expected to be low points of the improving cycle of the aftermarket, which accounts for 45 percent of the company's total commercial revenue.
Rockwell Collins supplies products for airplanes, including cockpit and cabin electronics. As plane makers have cut output and airlines have pared costs in the recession, Rockwell has seen weaker sales tied to original equipment and services. In July, it posted a 17 percent drop in third-quarter profit.
Jones said he expects airlines to boost flight hours toward the end of the company's next fiscal year, which will in turn spur more spending on maintenance and retrofit programs.
"That should position us very well out into '11 to see a full robust recovery in the aftermarket assuming the economy continues to do well," Jones added.
Still, the company said it expects pension expenses and the restoration of incentive pay programs that were deferred to be profit headwinds beginning with its next fiscal year.
Rockwell Collins shares were down 71 cents, or 1.5 percent, at $45.33 in morning New York Stock Exchange trading. (Reporting by Karen Jacobs)