Worldwide, the in-service commercial airline fleet forecasted to grow from nearly 25,000 aircraft at the beginning of 2022 to over 38,100 by 2032, an annual growth rate of 4.1%. The accelerated rate of new aircraft deliveries will result in a massive technology shift over the period and a post pandemic industry recovery after two years of turmoil. By 2032, 51% of the fleet will be new generation aircraft compared with 11% in 2022 and prepare a decade of growth for the industry.
The aviation industry will face several challenges during this period, beginning with a slower recovery for the business and international travel segment. The main challenge remains on reducing the environmental impact of aircraft through hybrid electric power, hydrogen engines or through improving power efficiency. However, these research and development efforts will have at least a two-decade deadline to be effective on commercial production. Today, the most effective tool available is sustainable aviation fuel (SAF), made from non-fossil feedstocks, however it still is much more expensive than conventional jet fuel for airlines. Research is also largely oriented towards digital to optimize time and increase security through projects like big data.
The Maintenance, Repair, and Overhaul (MRO) demand forecast shows that the recover to pre-pandemic levels should arrive by 2024. That’s why the annual growth in the second half of our 10-year forecast period will be 2.8%, from US$ 78.6 billion in 2022 to US$ 126.6 billion worldwide. To prepare for the large, forecasted growth in aircraft production, all OEM Aircraft MRO companies will be looking to increase efficiency through process improvements and new software.
However, very high-cost constraints and already tight margins could make it difficult for companies to align themselves with the types of development and innovation required to accommodate the elevated demand. Once production and transport costs are factored in, the remaining profit margin is quite low.
While there are many benefits to evolving across the board, doing so requires significant investment. Therefore, to encourage companies to grow in accordance with the rest of their industry, the U.S. government offers research & development tax credits at both state and federal levels. However, many companies eligible for these tax incentives are not currently claiming them. R&D encompasses so much more than what is commonly perceived. In fact, it is safe to say that most aerospace companies are performing activities in their daily operations that will qualify. This means they could be claiming funding for many activities they are currently performing, as well as for their planned projects.
When claims are prepared according to government requirements, the R&D tax credit can become a reliable source of funding for companies performing any of the following type of activities:
- Any activities that are involved in the design, development, or improvement of any new or existing processes, products, techniques, formulas, inventions, or software
- Any activities focused on improvements in performance, functionality, reliability, or quality are eligible.
Any of the following activities qualify for the R&D tax credit program:
Information Technologies
- Internal use software (ERP, SCM, CRM integration/development)
- Communication systems
- Customized repair and maintenance programs
- Efficiency and safety systems
Processes
- Metal forming, welding, and machining techniques
- Surface treatment and coating methods
- Heat treatment profiles and procedures
- Satisfaction with regulatory requirements
- Automated processes and robotics
- Manufacturing and tooling processes
Products
- Composite materials
- Alloys and powered metallurgies
- Optimization of strength and minimization of weight
- Increase product yield and decrease cycle times
- Commercial prototypes and first articles for testing and validation
FI Group is an international tax consultancy, specialized in the implementation of state and federal tax incentives and the research and development (R&D) tax credits for corporations. The FI team consists of CPA’s, engineers, IT, legal, and business operation specialists. With over 18,000 clients in 14 different countries in Europe, America, and Asia. Our client’s benefits exceed more than $1.5 B in tax savings annually.
If you want to have more information about the eligible activities of your company for R&D tax credit, please contact us.
By Bruce Kletsky, Managing Director of FI Group USA.
+1 630 947 6802
