Translating Industry Ambitions into Business Opportunities
Mexico has the opportunity to develop its aerospace industry by inserting itself into the supply chain, just like in the aviation industry, Francisco Mendieta, Director General of the Mexican Space Agency (AEM), told the Mexico Aerospace Forum 2017 on Wednesday at the Mexico City Hotel Sheraton María Isabel.
“The aerospace sector is the next frontier. In Mexico, we want to participate in this group of nations that uses space for social and governmental development,” said Mendieta.
Mendieta, the forum’s keynote speaker, said that in 2016 alone, the global aerospace industry generated approximately US$329 billion. Should Mexico participate with only 1 percent of its worth, it would account for the generation of over US$3 billion in the country. “The telecommunications sector offers important participation opportunities for Mexico, through which we could easily reach this 1 percent of participation in the global sector.”
Development does not come easy, but Mendieta mentioned that since 2012, when the AEM was created, it has been working to create public policies aimed at doing just that. “Mexico is about to present a public policy for satellites. Its goal is to develop satellite parts and to develop a supply chain, just as was done in the aviation industry.”
Although the aerospace sector offers significant opportunities in several niches, Mendieta said three key sectors stand out when deliberating Mexico’s participation. “Telecommunications, observation and GPS for transportation are three industry niches where Mexico could position and play a role.”
Particularly in the telecommunications segment, Mendieta said that the implementation of structural reforms undertaken in the current political administration had fostered development that had benefited the population. “MEXSAT’s satellites allow Internet access to the majority of the country’s population, mobile phone services and national security actions.”
Mendieta acknowledged that Mexico’s participation in the aerospace industry had been at best intermittent; however, the country’s expertise in information technologies could help lead the way. “Countries like Mexico, without deep experience in the aerospace industry can start to position themselves through the development of electronics and software.”
Though neglected for several years, Mendieta said the current political administration had recognized the value of the industry through the National Development Plan. “The development of the aerospace sector is embedded in the federal government’s ‘Prosperous Mexico’ guiding principle.” He added that AEM is focusing on developing regional capacities. “Using their IT expertise, Jalisco and Zacatecas will become development hubs.”
Mendieta said the market is enormous and that the agency aims to play a key role in the sector while contributing to the development of industry infrastructure and in training human capital, but that it cannot do it alone. “We have many things in our favor. In Mexico, the aerospace industry is a nascent sector, but we need to attract investment and to develop alliances.”
REVOLUTIONIZING COMMERCIAL AVIATION AND MRO SERVICES
Moderator: Yuri Salinas, Second Vice President of CANAERO
Panelist: Roberto Corral, Vice President and General Manager of Innocentro
Panelist: Rodrigo Vásquez, Director General of TAR Aerolíneas
Panelist: Marcos Rosales, Director General of Mexicana MRO
Panelist: Miguel Cardona , Commercial Director Mexico of Avianca
The Mexican aviation industry and its related services have experienced great growth in the last years. However, new challenges and trends are arising that will lead to opportunities, panelists at Mexico Aerospace Forum 2017 said on Wednesday in Mexico City. They warned that while air transportation supply and value chains comprise many elements, all players are chasing the objective of delivering the best possible service.
“The region has demonstrated an above-average dynamism,” said Yuri Salinas, Second Vice President of CANAERO. “We are growing at a 10 percent rate in Mexico and the number of aircraft that airlines receive grows by 14 percent yearly.” While each panelist agreed upon the importance of this growth and the impact it has on their segments, be it commercial aviation or MRO services, they pin this growth to distinct factors and underline a multiplicity of effects across the aviation industry and the trends to tackle.
Miguel Cardona, Commercial Director Mexico of Avianca, pointed out that Latin American aviation has rapidly taken off in the last four years due to factors that boosted regional connectivity. “The fact that Mexico has turned to Latin America has given foot for more services to be offered,” he said. “Intraregional connectivity boosts trade.” This turn to Latin America can be seen in the increased number of routes and flights between Mexico and Latin America. Rodrigo Vázquez, Director General of TAR Aerolíneas, however, had a different view. “In the last years, economic and tourism activities have boosted regional aviation,” he said.
Cardona explained that as aviation grows, so does the airport infrastructure in the region to meet the industry’s needs. “Airports are trying to follow us at this speed,” he said. “As we speak, NAICM, the Tegucigalpa and El Dorado airports are on their way. This will have a multiplying factor that entices airlines to acquire more aircraft and offer more services.” He expects Avianca to continue betting on increasing its routes while paying attention to millennials’ interest in experiences.
TAR Aerolíneas tries to generate connectivity synergies with local players across Mexico to diversify its products base for consumers and to harness growth. According to Rodrigo Vázquez, “cost reductions due to synergies with local actors must be translated into more attractive prices for customers as a form to boost air traffic in the country.” Another strategy that TAR Aerolíneas is implementing to make air transportation more efficient, “is developing routes that connect various regions of the country without having to go to through Mexico City,” he said.
According to Marcos Rosales, Director General of Mexicana MRO, the objective of MROs is the need to deliver services for airlines to fly, so a growing aviation industry and the introduction of new aircraft and aircraft technologies are spurring companies in this sector to deliver. “As aircraft operators acquire more aircraft with newer technologies, MROs are pushed to go over their own expectations to provide at a greater speed,” he said. “Aircraft technology surpasses MROs’ capacity to satisfy clients’ demands from a technical standpoint.” On the other hand, he finds changing regulations is a must to boost MRO services in Mexico. ”We need to comply with DGAC, but we also need to comply with foreign regulations and negotiate with governments to offer our services across the continent,” he said. “We do not need more flexible regulation because that can mean catastrophes, but homologated and standardized regulations.”
Rosales believes that since airlines sell flight seats and MROs sell technician manhours, if the MRO fails to deliver on time, aircraft will end up grounded. However, “the differentiating value that we should be looking at is not price, or turnaround time (TAT) but solving the various needs that clients have in the same plane.”
Roberto Corral, Vice President and General Manager of Innocentro, said MROs must ask themselves how to keep maintenance services lean, fast, fluid and lasting. He identified human capital as a key challenge to counter in the industry. “The regionalization of cities where now small cities need technicians and other aeronautical professionals pushes for more human capital,” he said. “At Innocentro, turnaround time is no longer an issue, but a problem for technicians. And it is very complicated for newly graduated technicians to solve problems.”
On the evolution of the Mexican supply chain in the aerospace sector, Rodrigo Vásquez, said this process is due to the growth in the number of aircraft. “Supply chains are about generating business opportunities for suppliers of services and products that want to participate in this chain and take part in the growth of the aviation industry,” he said.
Growth and Opportunity Areas in the Mexican Aerospace Sector
While projecting its total investment in Mexico, Bombardier never thought it would find such qualified labor in the country and the conditions for a prolific industry, Carlos Robles, President of the Mexican Federation for the Aerospace Industry (FEMIA) and Vice President of Bombardier Queretaro, said on Wednesday at the Mexico Aerospace Forum 2017 at the Sheraton Maria Isabel Hotel in Mexico City.
With 312 registered industrial facilities and close to 50,000 jobs created to date, the aerospace sector is one of the fastest growing in the country. According to Robles, aerospace has enjoyed an average annual growth of over 15 percent between 2004 and 2016. “Even though 100 percent of the aerospace companies focused on manufacturing 10 years ago, today 11 percent of the companies have MRO operations and 9 percent focus on design and engineering.”
Robles mentioned that Mexico is among the top destinations for FDI in the global industry with approximately US$33 billion. For 2017, he expects the industry to represent 60,000 jobs nationally and US$8 billion worth of exports, accounting for a 23 percent trade surplus.
National clusters such as Queretaro are already competing at a global level and Queretaro is now the fourth most important cluster in the global aerospace industry. However, the local production chain still has enormous opportunities to develop its Tier 2 and Tier 3 segments. “Approximately 90 percent of all Bombardier electric harnesses are manufactured in Queretaro,” said Robles. “Yet, these products have almost no Mexican content.”
FEMIA is already addressing the issue, helping local companies break into the productive chain. The association helps companies strengthen operations through trainings and certifications to later pair them up with larger providers and OEMs. “To date, we have arranged over 150 pairings between 55 suppliers and 23 buyers, representing over US$350 million,” says Robles.
Taking advantage of the opportunities in the supply chain is easy, according to Robles, and the sector’s growth will only make this process easier. In 2016, the country moved up the international trade ladder to become the sixth main exporter to the US, up from 10th previously. The US represents 79 percent of Mexico’s total exports, followed by Canada with 7 percent. “Mexico has a significant dependence on the US but that country also relies heavily on Mexican production,” he said. In terms of imports, the US accounts for 73 percent of the national industry’s supply, while France occupies second place with 8 percent of national imports.
Overall, Mexico is ranked 14th in the global aerospace industry and the goal for 2020, according to Robles, is to move up four positions and become the 10th most important aerospace hub in the world. “The industry’s development and the new investments will take us to total exports of US$12 billion and 110,000 jobs,” he said. “Moreover, our goal is to evolve beyond a mere low-cost manufacturing site and increase Mexican added value in manufacturing to 50 percent.”
Creating a Unified Industry and Integrated Supply Chain
Moderator: Carlos Robles, President of the Mexican Federation for the Aerospace Industry (FEMIA) and Vice President of Bombardier Queretaro
Panelist: Carlos Ramírez, President of Monterrey Aerospace Cluster
Panelist: René Espinosa, President of Chihuahua Aerospace Cluster
Panelist: Juan Carlos Corral, President of Aerocluster Queretaro
Panelist: Luis Azúa, General Manager of Textron International Mexico/Bell Helicopter México
Panelist: Roberto Corral , Vice President and General Manager of Innocentro in representation of Aerospace Alliance
Leadership in the aerospace sector must be taken by companies, but the joint efforts of the triple helix must continue to further the advance and competitiveness of the Mexican aerospace industry, panelists said at the Mexico Aerospace Forum 2017 as they reflected on the challenges and opportunities to creating a unified industry and an integrated supply chain.
“The private sector, government and academia must work hand in hand to promote the sector. It should not be a matter of competition but collaboration,” said Carlos Robles, President of FEMIA and Vice President of Bombardier Queretaro, during the panel discussion at the Hotel Sheraton María Isabel in Mexico City on Wednesday.
Robles was joined by Carlos Ramírez, President of Monterrey Aerospace Cluster; René Espinosa, President of Chihuahua Aerospace Cluster; Juan Carlos Corral, President of Aerocluster Queretaro; Luis Azúa, General Manager of Textron International Mexico/Bell Helicopter México; and Roberto Corral, Vice President and General Manager of Innocentro.
Azúa mentioned that even though Mexico has the technical capacities to comply with the demands from OEMs and Tier 1s for specialized processes, internal competition could reduce the country’s productivity. Monterrey Aerospace Cluster’s Ramírez said that in this regard FEMIA plays a key role. “FEMIA works to integrate the existing clusters in Mexico so they can work together and not see each other as competition.”
Chihuahua Aerospace Cluster’s Espinosa said that one possible strategy to promote a unified industry is the identification and mapping of the capabilities each region has. Corral added that communication is key. “It is not a matter of every state having its own aerospace cluster, it is a matter of joining efforts and communicating among the existing clusters.” Espinosa believes that the clusters’ efforts should be directed toward Mexico as a whole rather than specific regions. “We are one country, the only cluster that matters is called Mexico.”
To strengthen the aerospace industry, Corral suggested the government needs to develop a Mexican aeronautics policy that could be supported by the country’s Defense Ministry and by the navy. “The moment the government develops an aeronautical defense project, the industry will experience a quantum leap,” he said. Ramírez added that the government must not only accompany the private sector when developing new projects or looking for private investment, but must also work to develop regulations and facilitate processes for SMEs.
The development and integration of SMEs into the manufacturing chain of the aerospace industry is a challenge for both the private and public sectors and both have different responsibilities, said Espinosa. “SMEs need to understand several things about the aerospace sector, they have to understand in which niche they can participate, that it is an industry that requires several certifications and that in the best-case scenario, there is a seven to 10-year ROI.” He also mentioned that SMEs’ best chance to be successful in the industry is to find a sponsor. “SMEs can integrate into the traditional value chain with help from OEMs or Tier 1 companies that act as sponsors.”
Corral pointed out that in Queretaro, it had been the big OEMs and Tier 1s that had created their local supply chain, and that is something that can be replicated in other states. Azúa added that particularly in terms of certifications, OEMs and Tier 1 companies can play a key role.
But it is not just companies in the industry that could use help from OEMs and Tier 1s. “There are companies outside the aerospace sector that want to participate. We need to encourage them and convince them that betting in favor of the Mexican aerospace sector is worth it in the long-term,” Ramírez said.
Ramírez also said that companies, regardless of their size, need to integrate Industry 4.0 (I4.0) into their own processes. “We are late to the implementation of I4.0 practices. In only two or three years, those that have not adapted will be out of the game.” Azúa added that more than looking for automation, companies needed to strive for autonomation, which is automation with a human component.
Airport and Heliport Ecosystem Development
Moderator: Francisco Bautista, Leading Partner of Aerospace Industry at EY
Panelist: César Moreno, Director General of EnTEC
Panelist: Maricruz Hernández García,, Airport Director at DGAC
Panelist: Ernesto Niembro, Subdirector of Operations and Services for ASA
Panelist: Yousefh Pineda, Director General of CRAMEX Aviation
Panelist: Carlos Aguilar, Airport Administrator of AIQ
Aviation in Mexico has outgrown its key airports, specially AICM, which is saturated since 2014. Until NAICM is finished, regional airport infrastructure to jump in and support the growth of Mexican aviation. The participants of the Airport and Heliport System Development panel at Mexico Aerospace Forum 2017, agreed that an increase in airport connectivity will enable aviation to grow and the aerospace industry production will be boosted.
One of the main needs of Mexico’s airport system was outlined by Francisco Bautista, Leading Partner of Aerospace Industry at EY. “Regional airports must grow and develop soon because having to go through AICM and always taking off late is a little hell.” On this, Ernesto Niembro, Subidirector of Operations of and Services of ASA, suggested convincing airlines to operate more regional jets around the country. According to him, “An increase in connectivity will mean airports will experience more operations and raise its growth expectations,” he says. Niembro looks at the inauguration of the civil terminal in the Ixtepec military zone, which was used to transport help during the earthqueakes in Oaxaca, as an example of the importance of connectivity. He also pointed out that Cancun, Guadalajara, Monterrey and Tijuana are key nodes of future development.
Out of the whole Mexican airport system, the Intercontinental Airport of Queretaro is the existing key airport to look at in terms of its impact. Not only is it the fastest growing airport in the entire system, but according to Carlos Aguilar, AIQ’s Airport Administrator, “The airport has boosted the development of Queretaro as its masterplan determined the need to attract a company such as Bombardier to its industrial installations.” He explains that one of the requirements of Bombardier to install in Queretaro was the creation of an academic institution where aeronautic professionals could study and be trained, which today is UNAQ. According to him, the airport still offers space for growth as over 800,000 people travel by land to fly from AICM while they could use AIQ instead.
About the development of heliports in Mexico, César Moreno, Director General of EnTEC, said “Heliports are no longer an adapted roof or simple fields for helicopters to land or take off.” He explains that projects are increasingly adapting to the needed regulation. He expects that as more people adopt heliports in their buildings, those in charge of this kind of infrastructure will increase their compliance with regulations without jeopardizing the plans of the developer. “Heliports today are more about regulation compliance than about what a planner wants,” meaning developers cannot improvise a helipad.
On the other hand, Yousefh Pineda, Director General of CRAMEX Aviation, underlines that there are plenty airfields and aerodromes in small operations with only few operations. In them, he explains, people move from one town to the other by airplane because there are no road options. According to him, “A similar model can be applied to urban areas through helicopter-based connectivity.” For Mexico City, Pineda believes transportation through public heliports plausible, but says it is necessary for investors to trust and apply models of proved success that have worked in London and other cities as it could prevent having to sit in traffic. “An aerial taxi with itineraries and helipads in places such as AICM, Santa Fe and Polanco could help reduce traffic.” He is expectant about drone-type aircraft as he sees heliports will need to evolve and receive and operate these autonomous vehicles.
On the future needs of the airport and heliport systems, Maricruz Hernández, Airport Director at DGAC, says the DGAC continues working in the strengthening of Mexico’s airport infrastructure. “If Mexico City lacks public heliports, that is more related with the costs of building a helipad and its feasibility rather than with how long it takes to acquire heliport permits.” She underlines that as the public authority, DGAC has to develop regulations. However, she points out that DGAC needs to sit with the aviation and aeronautic industry to meet its needs.
Mexico’s Aerospace Future: How Do We Get There?
The aerospace sector has been among the several industries that have enjoyed the benefits of a skilled workforce and a strong network of free-trade agreements. But Francisco Navarro, Director General of Airbus Helicopters in Mexico, told the Mexico Aerospace Forum 2017 that Mexico’s future in the aerospace scene goes beyond simple manufacturing.
“Mexico is a best-cost country for Airbus. Its infrastructure and excellent geographical location are key for our operations, coupled with a trustworthy workforce,” he said during his presentation at the Hotel Sheraton Maria Isabel in Mexico City on Wednesday. “We are certain Mexico is on the verge of consolidating as an engineering and design hub.”
The challenge to meeting this goal, according to Navarro, is supporting the development of the local supply chain and of the companies that are already established in the country. “The fact that we have a successful manufacturing hub at the moment does not guarantee a thriving sector in the future,” says Navarro. The main opportunity for growth lies in areas such as metallurgy, machining, surface treatment and the development of structural materials.
“The lack of a local supply chain has forced us to lean on our global supply chain, which is less than ideal,” Navarro explained. The government needs to look beyond the big OEMs and Tier 1 suppliers and start worrying about the smaller Tier 2s and Tier 3s. Navarro added that financing is crucial in this process, as well as support from government agencies, such as CONACYT and INADEM. “Growth of SMEs will lead to more investment attraction and make Mexican exports more competitive.”
The aerospace sector must also lean on the experience of other leading manufacturing industries such as automotive and combine efforts from several sectors to enhance business opportunities. “We must gradually develop engineering operations that go hand in hand with our current manufacturing activities,” says Navarro.
Mexico has the goal of reaching US$12 billion in exports and becoming the 10th most important aerospace hub globally by 2020. However, the country must first improve its operational efficiency through investment in facilities and equipment. “OEMs are willing to make that effort, as long as we can count on support from the federal government, local associations and other institutions that collaborate in the industry,” he said.
Generating Aerospace Human Capital
Development of human capital with the appropriate abilities is crucial for continued investment in the aerospace industry, panelists said at the Mexico Aerospace Forum 2017, as they reflected on the challenges that the generation of human talent poses for the Mexican industry. “In an industry as specialized as aerospace, human capital is vital,” said César Fragozo, Head of Sectorial Development Unit for ProMéxico, during the panel discussion at the Hotel Sheraton María Isabel in Mexico City on Wednesday.
Fragozo was joined by Daniel Parfait, President of Safran Mexico; Jorge Gutiérrez, Dean of Queretaro Aeronautic University (UNAQ); Ricardo Iñurria, Director of Operations and Projects for Out Helping; and Esau Magallanes, President of CANACINTRA Queretaro.
Parfait said that when it comes to investment decisions, quality of human capital plays an important role in the decision-making process of companies. “Why do we invest so much in Mexico? The answer is simple, its quality workforce.”
Gutiérrez, said that the quality of Mexican workforce for the sector is the result of the close cooperation that exists between academia and the private sector. “Ninety-six percent of the students who finish one of our technical training courses graduate with a job. This is the result of the joint development of curricula and students’ abilities between the UNAQ and the sector.”
Iñurria said that even though there is talent in Mexico, companies are struggling to retain these valued employees. “Companies invest a lot of money and time training their workers, they now need to address their retention schemes.”
Magallanes added that lack of retention is a result of several factors; however, one of the most pressing is the lack of company identity among employees. “Starting in university, students must start developing an identity with companies.” UNAQ’s Gutiérrez said that part of his university’s job is the development of soft skills that can help its students generate a sense of belonging in their jobs.
The lack of company identity is not the only factor that generates retention, said Iñurria. “Companies tend to become fixated with salaries and the remuneration package as the main reason for personnel rotation, but there are so many other influencing factors, such as transportation and mobility.” Iñurria added that there are many people happy with their jobs, but that mobility issues take a toll on their life. “A three-hour daily commute becomes unsustainable and generates personnel rotation.” Parfait said a plausible solution is the development of areas near airports so mobility does not become a problem.
Additional challenges arise from the success of the industry. CANACINTRA’s Magallanes said, “we have an important shortage of manpower and we expect this to increase by 2020.” For Parfait, the success companies have had in Queretaro will lead to more companies establishing in the state, which will generate even more competition for skilled labor. “Demand is increasing; we have to generate enough workforce supply,” he said.
In addition to competition for talent, Parfait added that Industry 4.0 models are making the industry evolve in a rapid manner, “there is an important and fast evolution of needs in the industry.” Solving these evolving needs has become a priority for higher education institutions said UNAQ’s Gutiérrez, adding that the university is working towards making their study plans more flexible, “every company has different needs, the Ministry of Public Education and us has to work on improving our responsiveness to the new needs of the industry.”
New Technology for Space Exploration
During his closing presentation at Mexico Aerospace Forum 2017 in Mexico City on Wednesday, Rodolfo Neri Vela, the first and only Mexican astronaut, presented his views on the current situation of the Mexican aerospace industry.
Thirty-two years after Neri went into space, the astronaut pointed out how “this trip had a strong impact across various sectors in Mexico, particularly in the education segment.” But he lamented the current situation of space research and exploration in Mexico. “Because of different circumstances in our political life, Mexico did not follow up on the success it achieved 32 years ago,” he said. “Several countries have reached and overtaken us in terms of experiments in microgravity, space trips and presence at the International Space Station.”
The solution, he said, is to assign a greater budget to the Mexican Space Agency (AEM) and reform the Law of the Mexican Space Agency to turn it into an autonomous public organization. “It is necessary that the federal government gives due importance and the necessary funds to the Mexican Space Agency,” he said. Neri also underlined that once AEM receives these funds and liberties, it must be transparent about its performance because there is little knowledge about any concrete or tangible project conducted by the agency.
Neri said that although it would be absurd to compare Mexico with the US, when comparing to Spain, Argentina, Brazil or other countries similar to Mexico, there is a huge difference in terms of funds allocated for space programs. He explained that all these countries earmark some US$100 million yearly while Mexico only provides US$6 million. “A country that does not take care of higher education and innovation is destined to depend on technological transference and suffer constant currency devaluation,” he said.
Since Mexico is one of the 15 largest economies in the world, there is no reason to lag behind in space technology, Neri added. “There is a lot of talk about Mexico having a strong aerospace industry,” he said. “But in Mexico there is no aerospace industry in itself because no space projects are carried out.” He said it is time that Mexico takes the leap from a purely aeronautical industry to also work in space components.
While presenting his views on the current developments of space technology, Neri said that “in Mexico the bridge between the space agency and industry is nonexistent.” He proposed that Mexico start thinking of larger projects wherein AEM provides seed money for the industry to come up with innovations and that a certain percentage of Mexican-manufactured components be included in the country’s next generation of satellites. “I would love to see an autonomous space agency with its own researchers in several cities, including Guadalajara and Monterrey, and working closely on projects with NASA, ESA and other agencies,” he said.
Neri also pointed out the lack of female participation in space programs. Of the 600 people that have been to space, he said only 10 percent have been women. “May the next Mexican astronaut be a woman,” he said. “Or at least, may both a man and a woman be sent to space next time on behalf of Mexico.”
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