how to enlarge a hole in cast aluminium from 1.08 to 1.312 inches?

I would clamp the 2 plates together then use an adjustable reamer in your drill press (or by hand). You should be able to pick up a set of adjustable reamers for ~$50 online. Or just the one you need for a lot cheaper.

I bought my set of adjustable reamers for a specific project then found all sorts of uses for them that I had never thought of. Mine aren't expensive but they still let me dial in holes to the exact right diameter.
 
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The part is about 24 inches long. I can enlarge the three small holes in the picture and mount the part on the milling attachment. The casting is sufficiently 'square' that the ring extension should align the hole properly.

Dan, if you want to bring them out to my shop, I'll do them for you. I'm around pretty much 24/7
 
you can use a boring bar chucked up in a 4 jaw chuck and offset 2 opposite jaws to act like a boring head and sneak up on the hole size desired, that's if you don't have a boring head. you can make a very accurate hole that way. but as listed above a mill with a boring head is the best. but you do what you have to get the job done. that's a pretty small fly cutter if you can fit it through that size hole, that's why I suggest a boring bar BILL
 
Quick update: Jim and I met at his shop. After measuring and repeat measuring we (really Jim) first used a CNC mill to extend the hole and then a reamer to machine it to size. This all went smoothly and the end result was a very clean new hole.
I then took the update fork arms home and pressed the needle bearings into the forks and reassembled the mount and telescope. The reason for doing this was the initial sleeve bushings would bind. With the needle bearings the movement is smooth throughout. A great outcome.
Pictures to follow.
 
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