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Case Study: Aerospace Manufacturing

Industry: Aerospace Custom Component Manufacturing

Number of Employees: 150

Commonly Qualifying Tasks:

  • Design and development of new aircraft component designs, concepts, etc.
  • Development of new composite materials, alloys, etc.
  • Design and development of new components, tooling, etc.
  • Development and implementation of improved manufacturing process
  • Development of new manufacturing processes for new components
  • Creation of prototypes & execute first article production runs
  • Component testing & validation

An aerospace manufacturing company wanted to evaluate their activities to determine if their projects would qualify for the R&D tax credit. The company itself only designed about 30% of the components that they were producing and selling, the remaining 70% of their product offerings were components that were designed by their clients who lacked the manufacturing capabilities to mass produce the products themselves.

The study began with a review of all the financial information pertinent to the generation of the credit itself including tax returns, general ledger account records, wage information and material utilization records. Through interviews with Subject Matter Experts (SME) at the company, a clear path to production plan was outlined that applied to all the projects that they executed in any given year. This allowed for the evaluation and analysis of the individual projects.

Based on their product development cycle, the company’s R&D study identified several levels of qualifying development. The first level of qualification was at their executive level. This included the President of the company along with Division Managers. The biggest portion of their time that was qualified was split between direct project management and requirements/specifications definition.

In addition, the company’s work in designing and modifying designs to be more manufacturable was a big portion of the core R&D activity that was being performed on site by the engineering team. This team was also responsible for creating designs for everything from tooling to entire production processes. This made the engineering team the highest qualified group in the company.

Another big portion of the qualifying research expenses (QREs) was represented by the creation prototypes and first run articles. Prototypes were usually machined manually by hand and were often created multiple times throughout the design process to validate any changes made from iteration to iteration. In addition, once a final design was created, the company would produce anywhere between 50 to 100 pieces with their manufacturing process to ensure that the process itself would produce the quality of part that their clients were expecting. The materials for both the prototypes that were created by hand in addition to the first run articles were qualified for the credit which accounted for roughly 40% of their total raw materials expense during any given year.

Ultimately, the company was able to wrap up their study and qualifying roughly 70 of the employees whose wages were subject to credit generation. After adding the qualified supply numbers, the company was able to generate $4.5M in QREs resulting in a net benefit of $350K.

Alex Pak

Alex Pak is a Director at R&D Incentives Group who joined the team in 2015. His primary responsibilities include leading R&D tax credit projects including reviewing R&D activities, conducting interviews and creating documentation for defense of credits under review. His former experience includes five years of project execution and management for two tax consulting firms through which he was involved in the computation and defense of credits for a broad spectrum of companies in a wide variety of industries including engineering, manufacturing, department of defense contractors and software development firms among others.

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