Charles Goulding examines the redistribution of aerospace suppliers to submarines, and how they can benefit from industrial 3D printing expertise.
Dealt a body blow by the 737 Max production stoppage, Boeing is now on life support resulting from the airline travel curtailment resulting from the coronavirus pandemic.
Thousands of multi-tier suppliers depended on seemingly insatiable demand from Boeing for their livelihood. The Boeing aircraft tier suppliers that range from small shops to major industrials like United Technologies need to find major customers who can benefit from their advanced products and manufacturing engineering expertise and newfound availability. Meanwhile, the Electric Boat subsidiary of General Dynamics needs to find a large supplier base for its new backlog in submarine orders.
Whether it is planes or ships, many of the applicable product offerings and skillsets are similar. Large aircraft and submarines require numerous high-precision components only available from leading machine shops, metal fabricators, injection molders, fastener manufacturers and electronics manufacturing. Both the Boeing and Electric Boat final products entail confined occupant spaces including food galleys that need to accommodate human passengers. Only recently just before the current crisis Electric Boat had major concerns regarding a clear shortage of qualified suppliers to meet their needs.
The aircraft industry has been a leader in 3D printing product design and production. Electric Boat has experienced a multi-year gap in large-scale submarine programs. This means that Electric Boat, if receptive to enhanced design concepts, can now catch up and reap the benefit of the Boeing supplier 3D printing expertise.
Examples of aircraft 3D printing product advancement applicable to submarines include fasteners, plastic parts, spare and replacement parts, and hybrid CNC / 3D printing machine tools.
Boeing suppliers who convert to making submarine components should be eligible for enhanced Research and Development tax credits for both the different products and the plant re-engineering necessary for the supply chain conversion.
The Research and Development Tax Credit
Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
Must be technological in nature
Must be a component of the taxpayer’s business
Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
Must eliminate uncertainty through a process of experimentation that considers one or more alternatives
Eligible costs include US employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, US contract research expenses, and certain costs associated with developing a patent.
On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and, startup businesses can obtain up to $250,000 per year in payroll tax cash rebates.
It is a highly unusual circumstance to see one large supply chain collapse while another suddenly arises to help fill the gap. Hopefully, some of Boeing’s supply chain vendors will be able to benefit from this unusual imbalance.