Taking off: International aerospace firms are looking to set up operations locally

In the past 10 years, Morocco has emerged as an increasingly competitive base for aeronautic production. The kingdom’s aeronautic industry began to take off in earnest in 2001 when US manufacturer Boeing established a small operation preparing cables for Boeing 737 jets in coordination with the French electrical wiring producer Labinal SA. According to press reports at the time, Boeing managers were initially sceptical over the feasibility of the project, expecting productivity rates of only 30% of the industry’s norms, but efficiency rates reached 70% within the first two years.

MOVING FORWARD: Since then, Morocco has succeeded in attracting more than 100 aeronautic and components firms from around the world, including Safran, Daher, Zodiac Aerospace and Bombardier Aerospace, although 90% are of French origin. This has even led to initiatives to train the local populace through the Moroccan Aerospace Institute (Institut des Métiers de l'Aéronautique, IMA). Employing some 8000 Moroccans, the industry’s export turnover increased by 11% between 2010 and 2011, rising from Dh4.7bn (€417.8m) to Dh5.2bn (€462.2m), according to the Group of Moroccan Aerospace Industries (GIMAS). Of this, an estimated 82% of total aeronautics revenues came from exports in manufacturing, maintenance and wiring, according to a 2011 report by the Ministry of Finance. The industry has also enjoyed an annual growth rate ranging between 15% and 20% over the past several years, and has seen particular success in the area of components, where it has become the world’s fourth-largest producer of aircraft cabling. More recently, in June 2012 Bombardier signed an agreement with the Moroccan property holding and management firm Midparc Investment SA to purchase land for its new plant within the Midparc Casablanca Free Zone. Intended to complement the company’s existing production sites in Europe, technical work for the construction of the new factory began in the second half of 2012. Bombardier will invest $200m in equipment, construction, and start-up costs over the next eight years, with initial investments in the factory to be in the sub-assembly for simple structures, though specifics on the type of components to be produced were not finalised at the time of publication. Production will commence in 2013. By 2020 the Bombardier plant is expected to create 850 skilled jobs.

STATE INCENTIVES: The state has made the development of Morocco’s aerospace industry a priority under the National Pact for Industrial Emergency (Pacte National pour l’Emergence Industrielle, PNEI), which aims to create 220,000 new industrial jobs and boost exports by Dh95bn (€8.44bn) by 2015 through the promotion of strategic sectors. Among these sectors is aeronautics.

Under the PNEI, aerospace, electronics and defence manufacturers will be able to access greenfield and turnkey production sites at a new €500m industrial park, the Midparc Casablanca Free Zone, spread out over 124 ha outside Nouaceur. Midparc Casablanca will eventually contain 250 industrial units and provide manufacturers with a number of benefits, including a zero corporate income tax regime for the first five years of production, exemption from value-added tax and Customs duties, and the ability to repatriate profits and capital. After five years, corporate taxes will rise to 8.75% for the following 20 years until increasing to 17.5%. The Midparc initiative alone is projected to create 10,000 new jobs, aiding government targets to generate 15,000 jobs in the aerospace industry by 2015.

GLOBAL CONDITIONS: The global financial crisis and difficulties in the eurozone have dampened international investments as major industries such as car production and textiles experienced declining demand. Yet even in the midst of the uncertainty, Morocco has fared well, with FDI increasing by 60% to $2.52bn in 2011, after two years of investment shortfalls and surpassing average pre-crisis inflows between 2005and 2007.

According to Hamid Benbrahim El Andaloussi, the president of Group of Moroccan Aerospace Industries, the aeronautics industry has attracted about $350m in the last five years with 100 installed enterprises, ironically thanks in part to the global financial crisis. In 2008 management consulting firm McKinsey predicted in a report titled “The Growing Role of Emerging Markets in Aerospace” that aircraft producers would increasingly seek to increase their competitiveness by lowering manufacturing costs through the transfer of production activities to countries with lower labour costs.

Meanwhile, Aerospace manufacturers have also benefitted from stable demand from emerging markets in the Middle East and Brazil. Demand for planes in the next five years from the BRIC (Brazil, Russia, India and China) countries is anticipated to increase 8-10% each year and from Europe by 3-4% annually. In total, this amounts to an expected increase of 5% annual growth for the next 20 years, according to Benbrahim El Andaloussi.

These factors have helped contribute to impressive projections for the sector’s continued development, with expectations of additional contributions to GDP of Dh4bn (€355.6m) by 2015, facilitating the creation of 15,000 new direct jobs, according to the Ministry of Finance.

At the same time, Benbrahim El Andaloussi notes that the euro crisis has imposed new conditions of competitiveness for enterprises aspiring towards higher productivity at best costs. Therefore, the instalment of factories in Morocco can be understood as an action to introduce complementarity as opposed to competitiveness between European factories and Moroccan factories.

“The opening of plants in Morocco enables European enterprises to become more competitive through co-localisation, entailing the preservation of factories in Europe while establishing new ones in Morocco. This must not be confused with delocalisation, a process that implies the opening of new factories in Morocco at the expense of European plants. Through co-localisation, European companies can lower some of their production costs and enhance competitiveness, facilitating the expansion of activities both in European and Moroccan factories and ensuring that manufacturing processes are performed in a competitive, best cost area, as opposed to merely low cost areas,” Benbrahim El Andaloussi told OBG.

MIXED EXPERIENCES: Proponents of the potential for Morocco’s aerospace industry assert that the increased participation of multinational producers will facilitate the development of locally owned subcontractors and suppliers.

Since the arrival of French aerospace-component manufacturer Le Piston Français, the company’s director, Vincent Fontaine, has noted that aerospace materials, like advanced alloys, are increasingly easy to find and purchase locally, indicating “a big step for industrial development”.

However, French aerospace contractor Baccarat Precision has experienced another side of the Moroccan market. After receiving a major order in 2008 for cylinder explosive devices that blow open aircraft doors during emergency evacuations, managers were forced to reject every second cylinder due to manufacturing flaws, necessitating significant efforts to properly train Moroccan machinists.

Though education efforts helped shrink the rejection rate below 10%, efficiency is still not close enough to the target of a 2% rejection rate, rendering the business unprofitable, local manager Giancarlo Zanfonato told local media in 2012.

WORKFORCE FORMATION: In order to address shortfalls in technical knowledge, the state and GIMAS partnered up to establish the IMA in Casablanca in 2011. The centre will train operators, technicians and middle-management employees in the aerospace and aviation industries.

Following its opening in May 2012, IMA received over 1200 applications in the first three months; enthusiasm that will aid the institute in achieving its goal of training 800 workers per year by 2015.

“Today we are responding to the needs expressed by the industry for skilled workers. For example, Bombardier expressed a need for 850 technicians to complement its activities,” Benbrahim El Andaloussi told OBG. Moroccans employed in this sector earn approximately 15% above the national average monthly wage of approximately $320.

Bolstered by fiscal incentives, changes in international competition and investments in skilled labour, Morocco has made tremendous headway in its goal to establish itself as an attractive hub for aeronautics investments. With sustained growth expected from rising global demand for aerospace and defence products, the kingdom’s aeronautics industry is expected to develop rapidly over the next five years.