Local aeronautics clusters in Mexico continue to grow

The global airline industry is facing serious challenges as demand for passenger aircraft across the globe grows; US manufacturer Boeing anticipated that a further 38,050 aircraft with a total value of $5.6trn will be required by 2034. From modest beginnings at the turn of the century, Mexico has developed a multi-billion-dollar aerospace industry, providing crucial parts to original equipment manufacturers (OEMs), although at present no commercial vessels are assembled in the country. Around 20% of Boeing Latin America’s parts and components are produced in Mexico, but the industry has ambitions to become a bigger global player and move higher up the value chain.

Up & Away

The growth of Mexico’s aerospace industry has been robust; the number of firms in the segment increased from 60 in 2005 to over 330 in 2016, according to Armando Cortés Galicia, executive director of the automotive and aerospace industry for ProMéxico, the national investment promotion agency. In 2016 exports were estimated at $7.5bn, up slightly from $7.3bn in 2015. A number of important clusters have developed. The largest, in Querétaro state, attracted 48.4% of the $3.18bn in foreign investment in the industry between 1999 and 2014, according to PwC. Baja California and Chihuahua are also home to dozens of firms, accounting for 12.5% and 11.2% of foreign investment, respectively, in 1999-2014. “Querétaro is an ideal location for developing an aerospace industry,” Richard Uber, former CEO of aircraft servicing firm TechOps México, told OBG. “The state government offers favourable financial incentives, while the low humidity works well for maintenance, repair and overhaul (MRO) operations, particularly for materials such as laminates.”

Under the Ministry of Economy’s Pro-Aéreo 2012-20 aeronautics industry development plan, the government is targeting $12bn in exports and the creation of 110,000 jobs by 2020. It aims to promote the segment by increasing government purchases of local products and working with international firms on strategic projects. It also commits to developing human capital by promoting aerospace career paths at universities and technical schools, and developing capacity through the creation of technology centres. “Aerospace companies benefit from Mexico’s large pool of qualified and inexpensive labour,” Cortés told OBG. “However, collaboration between the government, private sector and academia has been key to the growth of the industry.”

Wingmen

The aerospace sector demands different skills and increased training to those in the automotive sector. The private sector and academia have responded by developing training programmes based in major industry clusters. The National Aeronautical University in Querétaro (Universidad Nacional Aeronáutica en Querétaro, UNAQ) is the most emblematic example. The university began as a training centre for Bombardier, following the Canadian trains and planes producer’s $200m investment in a Querétaro facility in 2006. “In little over a decade, the growth of Querétaro’s aerospace cluster is staggering. With human capital being arguably the most important aspect in succeeding in aerospace, the presence of UNAQ is fundamental to its success,” Andrés Conesa Labastida, CEO of flag carrier Aeroméxico, told OBG, “The importance of the cluster concept cannot be underestimated, not only does it integrate the supply chain and reduce costs, but it also dramatically increases collaboration.”

Since formalising as a university in 2009, UNAQ has trained over 6000 technicians in a range of aviation-related specialities, with many graduating to work at OEMs such as Bombardier, Airbus Helicopters and TechOps. “A well-trained workforce is the best incentive an industry can offer to investors,” Luis Gerardo Lizcano, director-general of the Mexican Federation for the Aerospace Industry (Federación Mexicana de la Industria Aeroespacial, FEMIA), told OBG. “The development of UNAQ has been a notable success, but the other clusters have also developed training programmes to deliver qualified engineers and technicians,” he added.

Maintenance

Those new skills will be applied not just in assembly jobs, but also in aircraft maintenance. In mid-2016 France’s Airbus estimated that the current MRO market will grow by 4.6% per year to $132bn by 2035. With a pool of skilled labour, Mexico could become a regional hub for MRO in a rapidly expanding market. In March 2014 President Enrique Peña Nieto inaugurated TechOps México, a $55m joint investment between Aeroméxico and Atlanta-based Delta Air Lines. The 100,000-sq-metre facility is located in Querétaro, and is the largest MRO centre in Latin America.

Following the end of operations by Mexicana de Aviación, the country’s oldest airline, in 2010, the company’s maintenance operations were spun-off into Mexicana MRO. The firm has since opened its doors to third-party airlines and gained aviation maintenance and repair certifications in 14 countries. The business has grown from 90 aircraft services each year to an anticipated 90-100 services in 2017, according to Melesio Trejo, the firm’s base maintenance director. “The most important aspects of the MRO market are quality, price and turnaround time,” Trejo told OBG. “Mexico is highly competitive in all areas, and we are seeing increasing demand from Latin America and the Caribbean, which outsource work to us either for price reasons or due to their own lack of capacity.” Marcos Rosales, CEO of Mexicana MRO, concurred, underlining the key advantages compared to US-based MRO providers. He told OBG, “The US has a protectionist MRO industry that makes it difficult to compete. The location of MRO facilities in Mexico with equal standards and lower labour costs makes the country an attractive destination for airlines around the world. Additionally, the newly signed open skies agreement should open up more MRO business opportunities.”

Infinity & Beyond

Mexico’s aerospace ambitions extend well beyond the current focus on parts assembly and maintenance. One of the goals of Pro-Aéreo 2012-20 is to create a commercial aircraft with more than 50% Mexican content by 2020. In 2015 a prototype of a small, two-person vessel called the Pegasus PE-210A, designed and built using 100% Mexican parts, was unveiled by Oaxaca Aerospace. Future versions are set to be used by the Mexican Air Force for training and acrobatics. However, the design and construction of a commercial liner would require significant investment and commitment from the government.

The Mexican Space Agency (Agencia Espacial Mexicana, AEM), founded in 2010, has its sights set even higher. Under the AEM’s Orbit Plan, launched in 2012, several important targets are identified for the development of Mexico’s space technology industry. A shortterm goal is to have a 1% share of the global space industry by 2017. In the long term it aims to build a multi-functional, low-orbit satellite platform in which 50% of the critical technologies are developed in Mexico. “The next step for Mexico is to design and manufacture aircraft and satellites,” Gisela González Flores, director of security and defence for the Department of International Trade at the UK Embassy in Mexico, told OBG. “The industry has already evolved from being a customer to being a partner with foreign firms, and this works in the favour of exporters from the UK who are interested in Mexican manufacturing and are open to transferring technology and expertise.”

Base Jump

One key challenge in the coming years is expanding the base of domestic suppliers. In March 2015 FEMIA signed an agreement with the National Entrepreneur’s Institute to encourage small and medium-sized enterprises to become suppliers to the country’s aerospace clusters. If successful, the policy will allow for even greater Mexican content in the industry. Backed by major investment and strong government support in a rapidly growing global industry, the longterm prospects for the Mexican aerospace industry appear bright, especially given recent moves to develop both high-end technology and tier-3 suppliers. Although there is some short-term uncertainty brought on by US President Donald Trump’s rhetoric, industry leaders remain confident. US aerospace is highly reliant on Mexican-made parts, so restricting access to the Mexican market would likely be detrimental to US industry.