Charles Goulding and Peter Favata of R&D Tax Savers reexamine Boeing production delays and the impact of 3D printing.
Back in April of 2019, we wrote an article for Fabbaloo about how the Boeing Tier suppliers should consider expanding 3D printer use with the 737 Max production line delay.
Still Experiencing Delays
Little did we expect that months later, Boeing’s 737 production would still be suspended. This unprecedented supply chain disruption has caused Boeing to report the largest quarterly loss in its history and is now a crisis severely impacting all of the Boeing Tier suppliers. We continue to recommend that the Tier Boeing suppliers consider expanding their utilization of 3D printing.
More experience with 3D printing will help the Tiers be more efficient when the suspension is eventually lifted and production is resumed. 3D printers will also enable the Tiers to diversify their product line offerings. The ability to manufacture different and more components and parts may even be come more critical since Boeing’s CEO has recently indicated that if they can’t resume production in early fall 2019, overall production cuts may be necessary.
Putting Faith in 3D Printing
The grim reality is that some of the Tiers, particularly lower Tier machine shops, are increasingly unable to survive. Machine shops in particular are often family businesses with long standing senior owners without succession plans or the ability to withstand this kind of a body blow. Boeing itself has been greatly increasing 3D printing use and has made investments in 3D printing startups.
The November 7th, 2018 “Harvard Technology and Operations Management” article by Howard Hughes demonstrates that Boeing is already benefiting from 3D printing. The article references 20 Boeing sites using 3D printing producing more than 50,000 installed parts to date.
Boeing also invested in Digital Alloys in August of 2018. Digital Alloys is a company working to develop high-speed, multi-metal 3D printing systems. Boeing is well aware that its nemesis, Airbus, has successfully made widespread use of 3D printing and that they need to accelerate their 3D printing capabilities in order to remain competitive.
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-based contractor 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.
When Boeing’s production resumes we believe the Tier supply chain will have noticeably changed. Those Tiers that had the ability to utilize the suspension to make production process improvement investments including 3D printers, next-generation machine tools and robots will be the winners, and the losers will be marginalized.