Development of new products

DEVELOPMENT OF NEW PRODUCTS

Activities to develop new products relate to the preparations before their production launch.

The group dedicates substantial resources to new product development activities and traditionally distinguishes between:

• technological research and development or
• applied research and development.

The group’s active or completed development projects focus closely on products and, as such, mainly fall under the latter category.

These activities are part of projects that are contractually governed with aircraft manufacturers. They are technically and economically very feasible.
In certain cases, the group handles the complexity of the technological contributions necessary through joint ventures and partnerships with OEMs or leading companies in the aerospace structure and system integration industry.

The group’s commitment to this investment plan is crucial to its growth strategy and has proven to be a decisive factor in increasing its expertise, internationalisation and gradual entry to market segments as a global competitor.

In most cases, a development project begins with specific technologies provided by customers and moves forward to encompass the design stage, prototyping, tests and trials, then obtaining aerospace certification and beginning production.

Certain projects receive government assistance aimed at supporting innovation and technological development, mainly under the following legislation:

• Law no. 808 of 24 December 1985;
• Law no. 46 of 17 February 1982;
• Law no. 296 of 27 December 2006 (and Law no. 244 of 24 December 2007).

These laws, and especially Law no. 808/85 which relates to the sector, perform the irreplaceable function of meeting the high investment costs required by projects.

The accounting treatment for these costs, which is detailed in the notes to the consolidated financial statements (see RESEARCH AND DEVELOPMENT COSTS) and in the notes to the separate financial statements (same references), is in line with industry practice. It provides for the deferral of the costs until the results of development become available for use.
When this condition is met, which is unequivocally upon final certification of the aerospace product by the relevant authorities, the costs are depreciated on a straight-line basis over the estimated useful life of each product.
Moreover, the length of the cycle of innovation and actual economic prospects for products developed make it possible to separately identify, control and recover the investments from when they are incurred.
If these aspects cannot be adequately demonstrated, as in the case of activities conducted primarily for applied research, the costs incurred are expensed in the same period.

The areas in which the most recent new product development projects have been conducted coincide with certain specific business lines under the two operating segments:

• Aircraft SYstems,
• Aircraft SErvices.

The first operating segment (ASY), which corresponds to the Actuation and Landing Systems division, mainly relates to landing systems, for which the group is committed to extending its ability to integrate and design certain strategic sub-systems, such as electromechanical retraction actuators, wheels and brakes, steering commands and, more generally, innovation in materials and processes.
This segment also includes actuators and flight controls, in relation to which the group is focused on expanding its offer to encompass hydraulic and electromechanical servo-actuators, and, eventually, wire flight control.

The second operating segment essentially refers to the systems under the Cabin Comfort Systems business line, which has seen many advancements in vibration and sound reduction, infotainment and cabin comfort (i.e., air conditioning and humidity). In addition, it includes innovations in materials and components that can be used in interiors customisation, as well as ergonomics, style and industrial design solutions, the core business of Aircraft Services.

Information is provided below on the progress of the main projects, which, at the reporting date, were still underway or had been recently completed. The following section provides additional information about the projects eligible for assistance under Law no. 808/85 and already completed in the years prior to 2018/19.

A) AIRCRAFT SYSTEMS (ACTUATION AND LANDING SYSTEMS)

i. ELECTRO MECHANICAL ACTUATOR PROJECT
The project’s objective was the study, design and testing of an electromechanical actuator for retracting landing gear for helicopters weighing up to 4,500 kg, using technologies (electromechanical) more reliable than the more traditional ones (hydraulic) and eco-friendly materials featuring high structural stability of parts combined with weight reduction and lower energy consumption.
The project was carried out in collaboration with a business partner and the Department of Aerospace Engineering, University of Pisa. The project obtained the assistance provided for by the “Bando Industria 2015” call for proposals (new technologies for made in Italy products) granted by the Ministry of Economic Development. The stages of the project provided for under the “Bando Industria 247” were substantially completed and the definition of the industrial applications is underway. Some of the technologies developed are being applied in acquired projects that are at an advanced stage of completion (e.g., Steering M345) and in others that are in the roll-out stage which include the same linear actuator configuration (e.g., V345). The depreciation of the project costs and their recoverability is linked to the M345 programme.

ii. AW149 PROJECTS. SYSTEMS.
These projects cover different systems used on the multi-purpose AW149.
Following Leonardo’s (AgustaWestland) request, the group began designing a complete light and adaptive flight control and damper system in 2006, i.e., a system capable of changing its damping characteristics depending on the flight conditions.
This group of projects benefits from government assistance under Law no. 808/85 as it was “functional to national security”. The benefits received for this project under Law no. 808/85 total €10,944 thousand.
The project was completed in 2018. The customer only informed MAG in 2019 which and how many systems were installed on the AW149 aircraft eligible for government assistance and not on compatible aircraft such as the AW189.
At the reporting date, MAG recalculated the sales of systems, which come to a cumulative €1,060 thousand, and recognised the corresponding royalties totalling €212 thousand, €61 thousand of which pertains to 2018/19 and the remainder to the previous two years. The non-current portion of these royalties, amounting to €136 thousand, is classified under OTHER NON-CURRENT LIABILITIES.

iii. AW 609 CONVERTIPLANE PROJECT
This project began as a partnership between Leonardo (AgustaWestland) and Textron (Bell Helicopter), involving the study, design and development of a convertiplane, i.e., an aircraft with the mixed features of a helicopter and an airplane. The project has stopped and started over the years and went through a stage in which its content was partially redefined. The group’s share consists of the pitch control system which, given the complexity, the Agusta-Bell consortium assigned to the Hydraulic Research group (“HR”), the international leader of the primary and secondary hydraulic flight controls sector, along with control systems and flight commands with fly-by-wire actuator assist.
The group’s work was initially regulated by agreements with HR (Woodward Group), with a partial redefinition of the project after its full acquisition by Leonardo (AgustaWestland).
The skills developed by the group to date as part of this project have a technological focus, which is strategic for the group and has many potential positive effects.
This project benefited from government assistance totalling €12,144 thousand pursuant to Law no. 808/85, as it is”functional to national security”.
At the reporting date, the project was still underway and no sales have been made. Consequently, no royalties were recognised in this annual report.

iv. BELL 525 PROJECT (RELENTLESS). LANDING SYSTEM
This project involves the study, design and development of a complete hydraulic landing system for Bell Helicopter’s 525 Relentless, a medium lift two-turbine utility helicopter with a maximum take-off weight of approximately 21,000 pounds.
The group’s Canadian engineering department is mainly responsible for this project.
The OEM currently expects the project will be certified in 2020. The delay is due to the FAA’s backlog caused by the Boeing 737 Max issue.

v. AH160 PROJECT. LANDING SYSTEM – HYDRAULIC RETRACTION ACTUATION
This project involves the study, design and development of the main systems of the hydraulic landing gear and hydraulic retraction system for the AH160 (formerly X4) Airbus Helicopters’ new generation aircraft, which should replace the EC155 after the aircraft’s certification which is currently expected in late 2019.
The AH160 helicopter is a twin engine aircraft of medium size, in the 9,000-11,000 pound category, and is highly innovative in terms of technology, with the use of by wire commands, and noise and fuel consumption.
The retraction actuator assigned to the MAG Group is a back-up of the electromechanical actuator system developed by another supplier.
The group’s Canadian engineering department is mainly responsible for this project.

vi. HYBRID FLIGHT CONTROL SYSTEM (HFCS) PROJECT
The project involved the development of innovative solutions for small aircraft flight control, based on fly-by-wire functionalities, for the utilities, business, general aviation, aerobatics, trainers and UAV segments. The project, which was completed in 2015, is part of the Piedmont Region’s operating programme set out in FESR 2007/2013.
 
The results of the project are applied in the M345 aircraft’s retraction system the group is developing, particularly as relates to the steering commands.

vii. ADVANCED FLIGHT CONTROL SYSTEM (AFCS) PROJECT
The project involved the development of a new primary flight control system for trainer aircraft (AFCS).
The project was carried out as a joint venture with Leonardo (Selex Galileo S.p.A.), under an agreement with the Ministry of Defence – General Directorate of Air Armaments, which provided that the latter covered 50% of the cost. The first stage was completed with Italian Air Force approval.
During the year, the group obtained an extension to Europe and the United States of the Italian patent for certain elements of the system.

viii. M345 HET TRAINER AIRCRAFT PROJECT. LGS – FCS AILERON
The main project involves the development of the entire landing system for Leonardo’s (aircraft division) single-turbofan basic trainer, Alenia Aermacchi M345, including the hydraulic and electromechanical retraction interfaces.

The project merges and applies various group developments from other projects, particularly as relates to the actuator and retraction systems.
During 2016, the group was also awarded the development of hydraulic servo-actuators used in the rudder and aileron actuator gear.
Activities are currently expected to be completed during 2019/2020, with the launch of production. Some pre-serial items were delivered during the year.
The portion of investments directly attributable to the contracts for the development of landing gear is partly funded by revenue from customers.

ix. NEW MRLD AW139/AW189 PROJECT
This project involves the development of a new damper of the main rotor for AW139 and AW189 aircraft using LHD specifications.
This project was created in agreement with the operator Leonardo, which is involved in support in aircraft testing. The group completed all the activities it was responsible for in December 2019, while the customer still has to perform some in-flight checks, are expected to take place in the first quarter of 2020.

x. METEOR LANDING SYSTEM PROJECT
This project involved the development of a complete landing system for an UAV (Aerial Unmanned Vehicle) of Meteor Aerospace, the Israeli leader in the field of autonomous and remotely-controlled vehicles.
The project was completed during the year, funded in full by the customer.

xi. VRT-500 FIXED FLIGHT CONTROLS PROJECT
The project which is entirely funded by revenue from the customer, involves the development of a flight control system for the VRT-500 commercial aircraft of VR-Technologies, the engineering company of the Russian Helicopters Group.
The MAG Group is currently preparing a series of proposals for more of the aircraft’s systems.

xii. HURKUS “C” LANDING SYSTEM PROJECT
This project involves the study, design and development of a hydraulic landing system for Turkish Aerospace Industries Inc.’s new trainer derived from a small single engine aircraft called Hurkus “B” that the MAG Group completed in 2014.

xiii. V-247 LANDING SYSTEM PROJECT
This project involves the study, design and development of a complete landing system and the electromechanical retraction system for Bell Helicopter Textron’s multi-purpose, vertical take-off UAV (Aerial Unmanned) aircraft. The 247 project was conceived by Bell to meet the needs of the US military forces for a small (600-800kg) unmanned aircraft capable of flying at an altitude of less than 5,500 metres. These features mean the V247 follows on from Textron Group’s V-22 and V-280 vertical take-off projects.

xiv. LIGHT BUSINESS JETS LANDING SYSTEM PROJECT
This project involves the study, design and development of the main landing gear for a turbofan engine fixed-wing aircraft in the light jet category.
The project is entirely funded by revenue from the customer and should be completed in 2020.

B) AIRCRAFT SERVICES

a. CABIN COMFORT SYSTEMS

i. EMS INTERIORS PROJECT
This is a group of projects related to customised installations of medical, auxiliary and support devices and structures, for EMSs (Emergency Medical Systems) used in rescue helicopters, air ambulances and medical missions via air. The most recent projects involve the EMS versions of the Airbus H145 Striker and H160 helicopters. The group is also pursuing sales initiatives for these configurations.

ii. CABIN MANAGEMENT SYSTEM PROJECTS
Created within the family of cabin comfort projects, the project is aimed at integrating new technologies in line with consumer technological content. In the aerospace industry, the transfer of these technologies is often a problem given the safety requirements imposed by sector regulations.
The most recent developments concern wireless technologies, wireless remote control systems, mobile wifi, audio/video streaming and up-loading and position identification.
Specifically, additional developments were made during the year on the proprietary software I-FEEL.
The prototypes were subject to aviation standard tests (RTCA DO 160) while the industrial applications of such technologies are installed on multiple Leonardo, Airbus Helicopters and Bell Helicopter Textron platforms. The group also completed procedures to protect its main product brands in the cabin management systems, such as I-FEEL and MAGSylens, in the areas in which the group operates.

iii. B525 INTERIORS PROJECT
This project concerns the development of customised VIP interiors for the Bell 525 aircraft, with a test product also created which was unveiled at the major airshows. The aircraft’s certification was pushed out to late 2020.

iv. B505 INTERIORS PROJECT
This project concerns the development of customised VIP interiors for the Bell 505 aircraft. Launched in 2016, the project was completed at the beginning of the current year.

v. H160 VIP/FOOTSTEP INTERIORS PROJECT
This project concerns the development of configurations for the customised interiors of Airbus’s H160, as well as the electric footstep which the OEM offers as an optional in the VIP interiors version. It began during the year and is expected to be completed in the first half of 2020.

b. AIRCRAFT SERVICES

i. INDUSTRIAL DESIGN
The line of business that traditionally belongs to Aircraft Services focuses on style and innovative design, developed as part of the research into customised solutions for the luxury interiors of both helicopters and fixed-wing aircraft.
These activities partly complement cabin comfort developments, integrating innovative systems (e.g., cabin management systems). However, they also express an industrial design often associated with specific product brands.
Indeed, the group has launched a number of measures to protect product brands and proprietary design in the main areas in which MAG interiors are currently or may be sold. The procedure for the registration and publication of the three main product brands (MAGnificent, I-FEEL, Sylens and MAGSylence) under various legislations was completed over the last two years.

C) OTHER PROJECTS ELIGIBLE FOR ASSISTANCE UNDER LAW NO. 808/8585 – arrangements in place prior to the Ministerial decree of 3 July 2015 (Official Journal of the Italian Republic n. 223 of 25 September 2015)

The following section provides information about some development projects completed in prior years which benefited from assistance under Law no. 808/85 and are covered by the arrangements in place prior to the Decree of 3 July 2015 issued by the Ministry of Economic Development.

i. AW101 UTILITY PROJECT. FLIGHT CONTROL SYSTEM
The group currently provides the mechanical flight control system in a kit, comprising groups of rods, levers and mixers for this helicopter, in configurations that have undergone dramatic technological changes over time.
This project benefited from government assistance under Law no. 808/85, as it “related to national security”.
At the reporting date, total sales amounted to €28,452 thousand (2018/19: €1,543 thousand), while royalties totalled €1,665 thousand (2018/19: €90 thousand). Royalties paid totalled €516 thousand. The net payable of €1,059 thousand was classified under OTHER NON-CURRENT LIABILITIES and OTHER CURRENT LIABILITIES depending on the relevant due date.
The development cycle for this equipment was definitively completed in 2015/16, also as regards functional improvements. Accordingly, starting from that year, the residual benefits received pursuant to Law no. 808/1985 exceeding the capitalised costs began to be expensed. The portion pertaining to the reporting period recognised under other income is €10 thousand.

ii. AIRBUS A380 PROJECT. STEERING CONTROL MANIFOLD
This project was launched in 2002 for the customer Collins Aerospace (UTAS-Goodrich Landing Gear) for the design of a hydraulic component for the main landing gear of the Airbus A380. The main project was completed with the aircraft’s certification by EASA and the US FAA in December 2006.
Additional projects were subsequently carried out to improve the system’s functionalities, with changes to its configuration.
During the past two years, minor system upgrades were carried out and are still underway. They are expected to be completed in 2019.
This project benefited from government assistance under Law no. 808/85 as it was of “European interest” as defined by CIPE resolution of 26 March 2006.
 
At the reporting date, total sales amounted to €12,122 thousand (2018/19: €888 thousand), while royalties totalled €1,498 thousand (2018/19: €110 thousand). Royalties paid totalled €109 thousand. The net payable of €1,279 thousand was classified under OTHER NON-CURRENT LIABILITIES and OTHER CURRENT LIABILITIES depending on the relevant due date.

iii. AW149 PROJECT. INTEGRATED ENERGY DISSIPATION SYSTEMS
The project, which refers to the CCS business line, concerned the development of solutions that reduce acoustic impact inside the AW149 military aircraft cabin.
This project benefited from government assistance under Law no. 808/85, as it “related to national security”.
The benefits received for this project under Law no. 808/85 total €4,857 thousand. The customer Leonardo only notified how many of the systems were for the AW149 helicopter as opposed to other compatible helicopters such as the AW189 in 2019.
MAG recalculated the sales eligible for this project at the reporting, which come to a cumulative €740 thousand, and recognised royalties totalling €91 thousand, €65 thousand of which pertains to the previous two years. The non-current portion of these royalties, amounting to €58 thousand, is classified under OTHER NON-CURRENT LIABILITIES.

iv. CABIN INTERIORS & SOUND PROOFING PROJECT
The aim of this project was to develop interior soundproofing systems for a medium-sized civil helicopter with the use of noise-absorbing materials by studying acoustic models for the cabin structure.
Applied research and development activities were performed with the funding received under Law no. 808/85, with the project classed as “Other projects”, also known as “civil projects”. These activities were completed in 2009/2010, with the certification of the devices.
The amount of funding received pursuant to Law no. 808/85 totalled €3,467 thousand.
Starting from 2014/2015, MAG voluntarily began reimbursing the Ministry of Economic Development through the payment of amounts initially calculated on the basis of the amounts received as part of the sales plan originally foreseen in the granting concessions. During the year, the Ministry of Economic Development issued a decree dated 26 February 2019, rescheduling the repayment plan set out in article 9.10 of Ministerial Decree no. 173 of 14 September 2010 for those cases, like MAG’s, in which sales were more than 30% lower than the original forecast.
Under this new plan, the amounts will be repaid by 30 June 2032.
The total amount reimbursed at the reporting was €164 thousand.

v. FLIGHT CONTROLS PROJECT FOR MEDIUM-SIZED HELICOPTERS
This project was to design and carry out industrial research, pre-competitive development and pre-serial experimentation of mechanical flight controls for medium-sized helicopters. It was declared eligible for public financing under Law no. 808/85 with a resolution of the Committee for the Development of the Aerospace Industry of the Ministry of Economic Development (the Ministry of Production Activities) on 12 July 2002, which approved the overall three-year investment programme.
However, the Ministry of Economic Development issued a decree approving the granting of benefits for just one year.
The amount of funding received pursuant to Law no. 808/85 was €978 thousand for the year.
In 2014/2015, MAG voluntarily began reimbursing the Ministry of Economic Development through the payment of amounts initially calculated on the basis of the amounts received as part of the sales plan originally foreseen in the granting concessions, although no sales incorporating the newly developed technologies have been made.
During the reporting period, the Ministry of Economic Development issued a decree dated 26 February 2019, restructuring the repayment plan set out in article 9 of Ministerial Decree no. 173 of 14 September 2010 for those cases, like MAG’s, in which sales were more than 30% lower than the original forecast.
Under this new plan, the amounts will be repaid by 30 June 2032.
The amount repaid at the reporting date totals €18 thousand.

D) OTHER PROJECTS ELIGIBLE FOR ASSISTANCE UNDER LAW NO. 808/85 – as per the Ministerial decree of 3 July 2015 (Official Journal of the Italian Republic n. 223 of 25 September 2015)

On 11 January 2018, the Ministry of Economic Development notified MAG’s acceptance for assistance under Law no. 808/85 under the new arrangements introduced with Ministerial decree of 3 July 2015, for two projects:

i. LANDING SYSTEM FOR TURBINE AIRCRAFT PROJECT, relating to the technologies of the ALS business line of the Aircraft Systems SBU,

ii. AIRCRAFT SOUNDPROOFING SYSTEM PROJECT, relating to the technologies of the CCS business line of the Aircraft Services SBU.

Under the new legislative arrangements, the assistance qualifies partially (10%) as a grant and partially (90%) as a non-interest bearing loan with a repayment plan with pre-established equal instalments. The assistance had not been received at the reporting date.