Mexico works to become a global leader in aerospace

With exports averaging a 15% annual growth rate over the past decade, Mexico is positioning itself as a global leader in the aerospace industry. According to US aircraft manufacturers Boeing, the number of commercial aircraft around the world is expected to double by 2035, translating into strong demand for manufacturing. This, in addition to the emerging military and space segments, is expected to become a major driver of growth for the sector, especially given the country’s highly skilled, bilingual and cost-competitive workforce. To better meet the current and future needs of the industry, the government and private sector have begun strengthening productive chains, investing in more efficient manufacturing processes and promoting technical specialisation and training.

Performance

Mexico’s aerospace industry is still relatively young, but aided by its proximity to major markets of the US and Canada, the sector generated an estimated $8bn in revenue in 2017, according to the Ministry of the Economy. Figures from the Mexican Federation of Aerospace Industries show the country is home to some 330 aerospace companies, operating in 18 states and employing more than 40,000 people. Sector exports totalled $7.1bn between 2005 and 2016, with the figure expected to hit $8bn by 2020. Meanwhile, total local production was valued at $3.06bn in 2017, representing an increase of 2% on 2016. The sector is expected to contribute 0.7% to GDP by 2020.

Mexico is also the world’s third-largest recipient of foreign direct investment (FDI) in its aerospace sector, behind the US and the UK, according to the Mexican Space Agency (Agencia Espacial Mexicana, AEM). Over the last decade, inflows totalled $2.54bn, surpassing those received by both the construction and agri-food sectors. Companies from the US, France and Canada account for 96.1% of total FDI and together have generated approximately 8100 jobs.

Progress in the aerospace industry owes much of its success to regional clusters, which mostly work in the same geographical area where they offer companies support, attract FDI, streamline production and develop human resources via training programmes. While there are several regional clusters, those in Baja California, Chihuahua, Nuevo León, Querétaro, Sonora and La Laguna stand out in particular.

“The aerospace industry in Mexico is young but dynamic,” Eduardo Muñoz, president of BSI México, told OBG. “It is helped by the existing suppliers who cater to other sectors such as automotive and medical devices. The added benefit of the aerospace sector is that its sophistication and high standards can have positive implications both directly and indirectly for local and smaller companies along the entire value chain.”

The government’s 2012-20 Strategic Aerospace Programme, Pro-Aéreo, aims to position Mexico within the top-10 countries in aerospace exports, creating more than 100,000 direct jobs and increasing the national content of goods manufactured for the aerospace industry to at least 50%. According to trade and investment promotion agency ProMéxico, growth in the aerospace industry is expected to focus on the introduction of advanced manufacturing practices.

Achieving these objectives will rely on developing both technology and sufficient human capital to handle the high degree of specialisation in the sector. To this end, the Ministry of Economy set up the Aerospace Advisory Board, comprising stakeholders from the industry, academic partners and related government agencies to promote FDI and the development of suppliers, human capital and technology.

Made in Mexico

Manufacturing is already on the up, with several companies having announced expansions in recent months. In February 2018 French firm Safran opened its 11th plant in Mexico’s Querétaro state. The $100m facility is expected to manufacture some 4000 turbine blades in 2018, with aims to increase this number to 20,000 by 2020. In October 2017 California-based sports aeroplane manufacturer Icon Aircraft started delivery on the A5 aeroplane consisting of airframes manufactured entirely in Mexico at its 27,870-sq-metre composites factory in Tijuana. During that same month, German firm Aerotech Peissenberg announced plans to build a $200m plant to manufacture turbine components for US conglomerate General Electric and engines for UK manufacturer Rolls Royce under the name of AT Engine México in Sonora, in a joint venture with Mexican company Grupo Punto Alto. Meanwhile, European multinational Airbus announced plans to double production capacity and significantly increase the 400-strong workforce at its Querétaro manufacturing facility over the next four years.

Plans for manufacturing are particularly significant to the development of the aerospace cluster in Querétaro, where industry insiders expect growth to reach into double-digits in 2018. “The aerospace sector will continue to expand, as some companies are hiring more personnel, and those that are already based in Querétaro are going to expand their operations,” Antonio Velázquez Solís, the director-general of membership organisation AeroCluster Querétaro, told OBG.

MRO

Also identified as a key industry segment is maintenance, repair and overhaul (MRO), especially given the demand for the replacement parts and the repainting of fuselages – tasks that are highly specialised and must comply with international standards. At Mexico City’s Benito Juárez International Airport, Mexicana MRO currently services aircraft from Airbus, Boeing, Dutch firm Fokker and Canada-based global aerospace and transport company Bombardier. It was the first factory in Latin America to carry out a full passenger-to-cargo refit of a Boeing 767. There are also a number of companies located in Querétaro dedicated to such work. “Mexico is perfectly positioned to become a regional hub for MRO services,” Marcos Rosales, former CEO of Mexicana MRO, told OBG. “First, its strategic geographical location bridging North and South America makes it easily accessible for most airlines in the hemisphere. Second, the quality of services offered is of an increasingly high standard that can soon compete with the services offered in the US.”

According to Rosales, long-term policies to support the advancement of the sector should focus on developing human resources and building links with educational institutions; creating more synergy between MRO and the manufacturing sector at large; and the implementation of new hardware and software solutions, which could improve efficiency by 20-30%. Rosales also stated that, although the private sector is a key enabler of innovation and development, strategic government-led implementation of public policy is fundamental to encouraging knowledge sharing and collective economic collaboration in aerospace clusters.

Increased Capacity

The growth of the MRO sector in Mexico also corresponds to the rising number of airlines operating in the country, especially with the entry of domestic low-cost carriers such as InterJet, Viva Aerobús and Volaris, the latter of which surpassed long-dominant Aeroméxico in passenger numbers for the first time in 2017, carrying around 1.1m passengers per month. US airlines have also expanded their routes to Mexico after the two countries signed a bilateral air transport agreement in late 2016 that eliminated route restrictions. The resulting drop in airfares further increased the number of passengers, while boosting competition and raising the standard of passenger services. “Competition should continue at a healthy rate now that airlines have more consistent and sustainable strategies,” Fernanda Reséndiz, vice-president of corporate development at Aeroméxico, told OBG. “For example, Aeroméxico’s fleet renovation and the incorporation of the Boeing 787 Dreamliner and 737 MAX will offer more services to passengers as well as lower carbon emissions and operating costs.”

Flight frequency will be increased with the planned opening of New International Airport of Mexico City (Nuevo Aeropuerto Internacional de la Ciudad de Mé xico, NAICM) in 2020, especially given that Benito Juárez International Airport is already operating at 50% over capacity. On completion, the $13bn airport will be the largest in North and South America and the second largest in the world, handling approximately 125m passengers per annum. The project has already prompted a number of Mexican airlines to order new aircraft.

The airport has not been without critics, however, with President-elect Andrés Manuel López Obrador backing an alternative airport to the north of the city and threatening to cancel the NAICM project.

However, not all industry stakeholders agree with this position. “NAICM is vital to both the city’s and the country’s development,” Carlos Frutos, former director-general at local firm TDM Consulting, told OBG. “If Obrador carries out his threat to review all contracts and possibly cancel the airport project, it would be similar to closing the door on one of the country’s biggest sources of foreign income – tourism.”

Space

The AEM with ProMéxico launched Orbit Plan 2.0 to boost its space capabilities in July 2017. Included in the plan are a number of objectives which would see Mexico expanding communications within Latin America by 25% and attaining 1% of the global space market by 2026, as well as placing in the top-three market shareholders in the world by 2036.

In order to achieve these targets, a number of strategies have been outlined, including the gradual development of Mexico’s industrial and scientific satellite production capabilities, the incorporation of the most up-to-date practices into the manufacturing chain, and the development of hardware and software design capabilities, according to ProMéxico.

Authorities are also working to build the domestic space industry in other ways, such as gathering international expertise and developing human resources. The state of Jalisco hosted 3000 delegates from 80 countries at the 67th International Astronautical Congress in its capital Guadalajara in 2016, while the state of Hidalgo is home to the Council of Science, Technology and Innovation, which launched a cargo-carrying nano satellite, NanoConect1, in November 2017. The project was developed in conjunction with the National Autonomous University of Mexico’s Space Instrumentation Laboratory and the Institute for Nuclear Sciences. According to ProMéxico, a key strength of the space industry is the availability of trained personnel, with local universities turning out three times more engineering graduates per capita than the US.

Outlook

Mexico was eager to embrace the aerospace sector, turning it into one of the three largest manufacturing industries in the country. As a location of low-cost manufacturing, high human resources and close proximity to significant trade markets, major global firms have continued to invest in plants, research centres and infrastructure. While ongoing trade negotiations between Canada, the US and Mexico over the future of the North American Free Trade Agreement could potentially have an effect on manufacturing as a whole, major sector stakeholders remain committed to moving forward by strengthening supply chains and integrating production processes. The sector thus looks set to remain on track for further sustained investment.

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The Report: Mexico 2018

Automotive & Aerospace chapter from The Report: Mexico 2018

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