Predictions suggest that the number of in-service commercial airline fleet across the globe will grow to 38,100 by 2032, up from just under 25,000 in early 2022. That’s a growth rate of 4.1% each year. As aircraft deliveries rise, we can expect a significant technological transformation, providing a welcome change from the impact of COVID-19 on the industry. Some forecasts suggest that 51% of airline fleet will be new-generation models in 2032, which is 11% more than in 2022. This is only skimming the surface of the growth and changes we can expect over the coming decade.
Yet although this transformation is exciting, it will also come with its fair share of challenges. One of them is the slow recovery of business and international travel. Many are reluctant to start flying again after the pandemic and the uncertainty surrounding what could happen.
According to a forecast from the Maintenance, Repair, and Overhaul (MRO), demand should return to its pre-pandemic levels by 2024. Therefore, the second half of the period from 2022-2032 should experience growth of around 2.8%, with worldwide revenue increasing from $78.6 billion in 2022 to $126.6 billion. It’s important for OEM Aircraft MRO firms to work on their efficiency, processes, and software in preparation to ensure they can produce the quantity of aircraft needed. Yet the tight profit margins and high cost constraints may mean that it’s difficult for companies to participate in the innovation and development levels to meet the rising demand — especially after considering the costs of transport and production.
Another significant problem remains the need to reduce the environmental impact of flying. This may be possible through improved efficiency or new technologies like hybrid electric power or hydrogen engines. But although researchers have identified a few potential solutions, it will likely take at least twenty years to be able to apply them to the commercial world.
Instead, we’re left with less effective options, such as sustainable aviation fuel (SAF): A fuel type consisting of non-fossil feedstocks. Even this is more expensive than standard fuel, so it may not be a realistic alternative.
Plus, most research is focused on security and digital solutions, such as ways to boost time efficiency and use big data to increase safety on planes.
The role of R&D tax credits
To meet the challenges outlined above, companies will need to carry out significant investment into the solutions needed. To encourage this investment and help aviation and MRO firms to remain competitive, the U.S. government provides research and development tax credits at both the state and federal levels.
Yet many businesses don’t take advantage of this initiative to boost their tax efficiency, perhaps because they’re unaware of how many of their activities could be classed as R&D. The average aerospace firm carries out operations every single day that could come under the research bracket, yet they fail to claim funding to reduce their tax bill.
When companies make the most of this provision and file proper claims, they can rely on the R&D tax credit as a funding source for many activities. This includes performance or quality improvements and or design and development activities related to software, inventions, products, techniques, processes, and formulas.
Here are some examples of activities that qualify:
- First articles or commercial prototypes for validation or testing
- Composite materials
- Weight reduction or strength optimization
- Product yield increases
- Cycle time decreases
- Powered metallurgies and alloys
- Robotics and automation
- Machining, metal forming, and welding
- Coating and surface treatment
- Heat treatment
- Satisfying regulations
- Security and efficiency software
- Communication programs
- Internal software (such as CRM, SCM, or ERP development or integration)
- Repair and maintenance systems