Mexico: Key to the Global Aerospace Supply Chain
The local aerospace industry is still small but it is growing at an accelerated rate thanks to its ideal location close to the US and a young but highly qualified labour force. Mexico’s trade agreements with over 45 countries and low manufacturing costs also make it an attractive option but there are still many challenges ahead.
“Mexico became one of the key players in the industry a short while ago. After this, companies started to see the country as a prospective industrial location,” said Managing Director of FEMIA Luis Lizcano at the Mexico Aerospace Forum 2019, held at Mexico City’s Hotel Marquis on Wednesday.
Mexico’s proximity to the US and the availability of talent have helped it gain a foothold in the global industry, Lizcano said. Unlike other industries, there are no logistics problems for aerospace and related costs are low compared, he added.
The country’s trade ties also play in its favor, Lizcano said. "At present, Mexico has a network of 12 Free Trade Agreements with 46 countries (FTAs). The country also actively participates in multilateral and regional organizations and forums such as the World Trade Organization (WTO), the Asia-Pacific Economic Cooperation Mechanism (APEC), the Organization for Economic Cooperation and Development (OECD) and ALADI"
However, Mexico’s authorities do not yet consider the industry as an area of opportunity, and this is a challenge. "In a span of 15 years, the industry has grown about 14 percent annually,” Lizcano pointed out. Mexico ranks 12th on the world stage with a 2 percent market share. “This demonstrates the great potential we have in the country. We have the production capacity for all systems, from motors to turbines.”
According to FEMIA data, the five regions in Mexico with the most aerospace development in recent years are Baja California, Queretaro, Nuevo Leon, Chihuahua and Sonora.
To face this challenge, Lizcano said the country needs a public policy for the industry to take full advantage of the capital it can attract. If this were to happen, Lizcano believes Mexico could manufacture its own airplane within a year. For its part, FEMIA launched the Supplier Development National Program for the Aerospace Industry, which is aimed at training people and supporting projects focused on the development of the industry.
“It is not a matter of providing incentives,” Lizcano said. “The aerospace industry is a sector of skills and knowledge, and as we are prepared for that, we will be better positioned. Currently, we have a lack of tier 2 and 3 suppliers. This represents an opportunity and it is just a matter of time,” he added.
Lizcano also highlighted that in the next 20 years, the industry needs to build 40,000 to 44,000 new aircraft, which is the equivalent of building twice the fleet that is currently operating in the world. Mexico, he said, should grab that opportunity.
“Traveling by plane is becoming increasingly popular. Every day, it is getting easier and cheaper and people who had never traveled by plane now do so. In the Asia-Pacific region, 17 new airports will be built in the next five years, nine of them in China. There is an urgent need for airplanes and airports,” Lizcano said.
Achieving Critical Mass in Manufacturing
Carlos Robles, Vice President of Bombardier Queretaro told the audience at the Mexico Aerospace Forum 2019 that three main clusters are boosting Mexico’s national and international strategies to strengthen the aerospace industry. “Each of the clusters is integrated and focused on developing strategies to improve their state’s industry but also work together in creating better conditions to help the industry grow,” he said at the Marquis Hotel in Mexico City on Wednesday.
The three clusters from Monterrey, Chihuahua and Queretaro agreed that the development of programs to address aerospace needs is one of the strategies that clusters are implementing together. “Together, we have identified three main areas that are key to boosting the sector: competitiveness regarding human talent, supply chain and investment,” said Claire Barnouin, Executive Director of Monterrey Aerocluster.
In addition, Managing Director of Aerocluster Queretaro Antonio Velázquez stressed that talent and consistency have been keys to state and regional strategies. “Human talent has been the basis of our success, along with the consistency of our actions across time to push the development of the sector.” He continued saying, “the establishment of the UNAQ in Queretaro and the sum of beneficial factors between the state and the cluster were decisive for Bombardier to establish in the state.”
For Chihuahua Aerocluster’s part, the contribution to the joint strategy has been the support for the country’s SMEs in the sector. “The support for SMEs has generated the appearance of companies to fill gaps that large companies and other existing companies have not been able to fill, thus strengthening the entire value chain,” René Espinosa, President of the Chihuahua Aerospace Cluster, said.
Despite the three clusters working together, each also saw particular areas of interest when trying to strengthen their value chain. Queretaro is focusing on taking decisions in a surgical manner for critical areas of the sector. “SMEs are key to the sector, so in the state these have preferential payment schemes and other benefits to ensure fair competition in the market with other players,” said Velázquez.
For Monterrey, communicating the benefits of the sector is the cluster's main support tool. "Sharing and communicating the opportunities of the aerospace sector has helped companies to enter and link up with the supply chain," said Barnouin. Although the strategy was planned for the aerospace sector, this benefit has spread to other sectors. "The cluster focuses on providing a wide range of services to different sectors. Thanks to this, other industries have learned from the aerospace sector, which has been the least affected by Mexico's economic recession," said Barnouin.
In the case of the Chihuahua Aerospace Cluster, the strengthening of the value chain has focused on mapping the companies and the areas they serve. “In 2013, the cluster created a route map of the different components and identified the local capacities established to know which other companies could complement the value chain,” said Espinosa. He stressed that the mapping has been a complex but necessary process to boost Chihuahua’s competitiveness.
Approaching the end of the discussion, moderator Robles highlighted that the Golden Aerospace Triangle, consisting of Monterrey, Chihuahua and Queretaro, will be crucial to the strengthening and national development of the industry. For Espinosa, “it is not necessary to have a cluster by state, but a proper representation and support that drives from the existing clusters to other states.”
In the same vein, Barnouin highlighted the importance of continuing to work on individual strategies that are tailored to the needs of each state. “Each of the states has, in addition to the opportunities and general challenges, particular characteristics. It is not possible to ignore local needs due to national conditions, but it is necessary to work on multiple schemes and levels.”
Queretaro Aerospace Hub: Best Practices and Next Steps
From 2009-2019, Queretaro received 50 percent of all aerospace investments in the country, an accomplishment that demonstrates the state’s resolve to get into the aerospace sector was well-placed, said Marco Antonio del Prete III, Minister of Sustainable Development of the state of Queretaro at the Mexico Aerospace Forum 2019 on Wednesday. “Seventeen years ago, it seemed absurd to build a new airport so close to other cities like Mexico City or Leon. Today, we can see that Queretaro’s aerospace capacities began from that visionary decision.”
Queretaro is the world’s fourth-ranked destination for aerospace FDI. The reason? “Queretaro has more than 80 companies and institutions focused on the industry, including two aerospace OEMs, 26 Tier 1 or 2 companies, five MROs, seven academic institutions, including UNAQ, which is the only aerospace university in the country, 12 R&D centers, 19 general services companies and four companies focused on developing new materials,” del Prete said during his presentation at the Marquis Hotel in Mexico City.
Bombardier was the first large aerospace company to establish in the state in the early 2000s. “The reasons behind Bombardier’s arrival to the state were not only the airport but the government’s willingness to establish the first and only university in the country focused on the industry.” This set the stage for companies such as Safran, Delta, TechOps and ITP to later arrive to the state. Seventy-two percent of Queretaro’s aerospace industry is focused on manufacturing, 11 percent on maintenance and 13 percent on research and development.
Queretaro Intercontinental Airport (AIQ) remains a cornerstone for the industry in the state, with an industrial park next to the airport, Queretaro’s Aeronautic University (UNAQ), a cargo area, passenger terminal and a military base in the near future. From 2013 to 2018, AIQ passenger traffic grew at a 50 percent rate.
Del Prete also confirmed that Queretaro Gov. Francisco Domínguez has conducted talks with President López Obrador to make AIQ an alternative for shipments into Mexico City International Airport (AICM). “Queretaro has direct cargo flights from Luxembourg and Hamburg, we are a DHL and FedEx international hub as well. The airport has a 10,000m2 storage capacity, including temperature-sensitive shipments. We have plans to expand that area to 18,000m2 so AIQ can receive shipments from AICM,” he said.
The state government also has started investing in Industry 4.0 projects to foster Queretaro’s advanced manufacturing capacities. “We recently began a three-party investment between General Electric, CIDESI and CONACYT to establish an additive manufacturing and 3D manufacturing consortium for the aerospace and medical industries. We are taking advantage of the GE design center in the state, which designs Boeing’s engines in partnership with Safran,” del Prete said.
Safety Key to a Peaceful Co-existence Among Santa Lucia, Toluca and Mexico City Airports
Every day, there are between 8,000 and 20,000 airplanes in midflight across the globe. A large number of flying aircraft at any given time is a constant challenge for pilots, airports, airlines, regulators, MROs and many other players in the aviation industry. While the sector is relentless in its pursuit of safety, the industry’s rapid growth will only bring more challenges.
In light of this situation, Mexico should grab the opportunity to offer a safer service through technology, especially with the expected Santa Lucia airport, Toluca and the Mexico City International Airport (AICM) working simultaneously, panelists said at the Mexico Aerospace Forum on Wednesday at Mexico City’s Hotel Marquis.
Deputy Director General of Aerocharter Benjamin Mejía pointed out, however, that the country has no growth plan other than air terminals, although the saturation in airports such as Guadalajara and Nuevo Leon will peak in 2021 and 2023, respectively. Some airlines, he noted, are already reporting 20 percent growth in passenger numbers.
Between 2017 and 2018, the number of accidents increased by 2.6 percent. But Mejía sees that as a marginal increase and believes the industry’s safety rating is still high.
However, as companies in Mexico grow at an accelerated pace and increase their capacity, there is a greater need for a couple of infrastructure and security. “Talking separately about infrastructure and security is not right. In Mexico, the aerospace industry has been constantly growing for 10 years,” Mejía added.
Gunthar Barajas, Vice President of Dassault Systèmes de México, suggested a key concern in terms of safety was the increasing prevalence of cyber attacks. “Currently in the sector, everything is connected. We must ensure that the information is not hacked. It is imperative to work on security issues,” he said.
While coordinating as much as possible, it is also imperative for Mexican companies to resolve these issues independently, added Mejía, who added that more educational facilities were needed. There are agreements with Airbus to develop high-level certifications at schools, but the number of schools is insufficient, he said.
Developing talent should be a priority if the industry is to continue growing, and more is needed in this area, said Barajas. “More pilots, engineers, flight attendants and other professionals are needed to continue driving the aerospace sector."
Speaking to the cancelation of the Texcoco airport project that rattled investors after the election of López Obrador, International TAX Partner at PwC Luis Muñoz said that it was imperative that the country regain the trust of investors. “Investors take into account connections and the ability to move passengers, which so far in 2019 total 80 million and represents a market of US$200 million. We need response, agility and strategies.”
FAMEX, Mexico Business Events Sign Alliance to Strengthen the Aerospace Sector
Major Gen. Rodolfo Rodríguez, President of FAMEX, said on Wednesday that Mexico Business Events would play a key role in the growth of the aerospace sector under a triple helix scheme for FAMEX 2021. “Mexico Business Publishing has become a strategic ally of FAMEX to boost the development of the aerospace sector. It will contribute to the growth of the most important Aerospace Fair in Mexico and Latin America: FAMEX,” he said during his presentation at Mexico Aerospace Forum 2019 at the Marquis Hotel in Mexico City.
To formalize the alliance, José Alejandro Ochoa Valencia, Municipal President of the Municipality of Colon in the State of Queretaro, Rodríguez, and Jeroen Posma, General Director of Mexico Business Events, signed an agreement before 150 industry leaders and top public officials gathered at the forum. Mexico Business Publishing is an independent provider of business information, industry data and marketing solutions in print, digital and online formats.
The next FAMEX will be held in Queretaro in 2021. “Queretaro is a representative state for the industry. It is ranked fourth globally in terms of aerospace FDI, houses the most relevant companies, it is one of the safest states, and it has the connectivity needed to communicate with the rest of the country,” Rodríguez said.
In its first edition, FAMEX 2015 attracted 240 aeronautical companies from 16 countries. Thirty-two aircraft were on display and 3,500 business meetings were held in Mexico City. Today, FAMEX has expanded significantly. "FAMEX 2019 was attended by 635 companies from 39 countries, with 61 aircraft on display and it generated 5,800 business meetings," Rodríguez said. "The last FAMEX made this event the most important fair in Latin America, while it also increased its scope by having Canada as a partner country," he added.
FAMEX 2021 will be supported by the Ministry of Economy, the Ministry of Foreign Affairs and the Ministry of Governance. “With the arrival of Andrés Manuel López Obrador to the presidency, the sector saw the arrival of new opportunities. The government has helped grow the sector, which has seen an increase in the number of passengers and overall increased its contribution to the country’s GDP,” said Rodríguez. “There is no doubt the sector will remain a key player in Mexico’s economy.”
Competition, Collaboration and Destination Marketing
Rather than offering a transportation service, airports and airlines need to deliver a customized experience for a more demanding customer profile, panelists at the Mexico Aerospace Forum 2019 said on Wednesday at the Marquis Hotel in Mexico City. The panel kicking off the afternoon session featured Ricardo Dueñas, Director General of Grupo Aeroportuario del Norte (OMA); Felipe Bonifatti, Director General of Mexico of Luftansa Group; Guillhem Mallet, General Manager of Air France-KLM México; and Cuitlahuac Gutierrez, Country Manager Mexico of IATA.
Mallet suggested that three actors are involved in improving flight routes and destinations: airports, airlines and public authorities. “Each one of these parties must assume part of the risk a new airport and a new route represents. This is a long-term project and we need to provide stability for its success. Consequently, we need to sit at the table and negotiate.”
Dueñas added that airport operators are a fourth element in this formula. “What we have done together is to look at the market and see how we can support each other to open new routes.” He explained that airlines and airport operators hold annual meetings where operators can make the case for some destinations to be taken into account. “Often, legal certainty and insecurity can be decisive factors when airlines choose new routes” he said.
Without a doubt, a growing tourism industry is shaping the plans for airlines. According to Gutierrez, “countries in Latin America and the Caribbean are fighting over every tourist.” Lufthansa already is planning an expansion, said Bonifatti. “This year, we opened a Barbados-Frankfurt direct flight three times a week. Next year, we will open 13 new routes in the Americas, all of them in tourist destinations. The industry is telling us to focus on tourism.”
The four big aerospace players agreed that Mexico’s demographic bonus will bring new challenges to both airlines and airports as globalization raises standards. “We have a more demanding customer than before. They are global,” said Dueñas. Regarding how airlines are preparing for this change, Mallet mentioned three important elements Air France-KLM is taking into account. “First, there is connectivity; second, passenger experience on the plane; and third, sustainability. For us, flying responsibly has become a priority.” For its part, Lufthansa’s focus now is on digitalization. “Our challenge is how do we incorporate digitalization into the travel experience of our users. The more digitalization helps to create customized travel experiences, the more we can attend the needs of new generations to travel instead of just being transported from A to B,” Bonifatti said.
Technology will also present new opportunities to increase customer satisfaction when going through airports. According to Dueñas, airport operators foresee a day when security checks are no longer necessary. “Twenty years ago, if you would have told people that you could travel only with your phone, it would have been unbelievable. Now, we can discuss having machines, cameras and sensors surrounding passengers as they walk through airport halls and if needed, they will be asked to undergo an inspection,” Dueñas said.
The two airline representatives, Mallet and Bonifatti, agreed that steps were needed to alleviate the saturation at Mexico City International Airport (AICM). “We focus on finding a balance between passenger satisfaction and costs,” said Mallet. “We operate a 380-model plane, with more than 500 seats. Infrastructure is key.” Bonifatti agreed that a revision of Mexico’s air space and infrastructure is needed. “Frankfurt airport was in a very similar situation to AICM in 1991. However, European airports constantly renovate their facilities and make plans to avoid any possible saturation. Every time I pass through Frankfurt, I see work going on at the airport,” he said.
Queretaro’s Colon: Engine of the Aerospace Industry
Queretaro is on its way to solidifying its position in the aerospace industry as a destination for investment and as a potential national hub. Colon, a municipality in the state with a strong industrial sector, is playing a key role, said Colon Mayor José Alejandro Ochoa at the Mexico Aerospace Forum 2019, held at Mexico City’s Hotel Marquis on Wednesday.
“Governments have to be investment promoters and generate employment through opportunities. In 2015, Colon had 16 companies and three industrial parks. Today, it has more than 74 companies and will close 2019 with 11 industrial parks, mostly focused on the aeronautical sector,” Ochoa said.
Ochoa is convinced that the generation of employment and strategies with academia will help to create a circular economy to attract greater investment. Queretaro is already ranked fourth worldwide in aerospace FDI. Colon itself is home to more than 120 foreign capital companies and generates around 10,000 jobs. “We have to believe in the potential of the country. In the US, labor is becoming scarce and Mexico is already training a specialized workforce.”
One project that seeks to potentiate investment is Emerald City, a complex with a perimeter of about 5km around the Queretaro airport that aims to encourage the mobility necessary for the development of the state. “This model attracted investment. There is a great future in the sector and Colon is going to continue betting on local sustainable economies,” he added.
But the municipality wants to cover all the angles and instil the trust necessary to encourage investment. To this end, the local government sought to improve its regulatory framework. “Procedures to mitigate corruption were simplified,” Ochoa said. “Now, the only way to justify an expense is to generate opportunities.”
Regarding the cancellation of the planned new international airport at Lake Texcoco that rattled investors, Ochoa expressed regret about the government’s decision but he believes it is going to be beneficial for the state as the Queretaro international airport will now grow in importance. “It will become an alternate airport, not just for cargo,” he said, adding that having the Mexican Air Force establish a presence in the area will be an added benefit.
What is Next for the Aerospace Sector in Mexico?
It’s time for Mexico to take the next step on the world’s aerospace stage, which means bolstering its capacities, said Jorge Gutiérrez, Dean of UNAQ, during the Mexico Aerospace Forum 2019 at the Marquis Hotel in Mexico City on Wednesday. “More than 90 percent of the country's industrial capacity comes from foreign countries. Mexico's next step will be to improve its local capacity to emerge as a world leader in the field.”
Gutiérrez moderated the event’s final discussion and sought each panelist’s view regarding what comes next in their respective areas and how their organizations aim to participate in this future scenario. Daniel Parfait, President of Safran México, stressed the seeds for the future of the aerospace sector have already been sewn. “We hope to continue to grow with the same energy and, in return, to see greater investment from both the private and public sectors to improve Mexico's capabilities globally,” he said. "A clear example that Mexico is growing is that when Safran started operating in the region, it had only five clients. Today, it has 40 companies."
In general, the industry needs more growth, but at the local level, companies are looking for ways to help SMEs transition into the sector’s value chain. Alberto Robles, LATAM Strategic Supply Chain Leader at General Electric Infrastructure Querétaro (GEIQ), believes “the industry is growing at an accelerated pace and perceiving a growing demand from the Asian continent. The industry needs to strengthen the participation of local providers, especially tiers 2,3 and 4, if it wants to solidify this transformation.”
The main obstacle for including SMEs into the value chain is their lack of a cooperative culture. “There is a resistance from small and medium-sized companies to comply with the industry’s certifications and norms. Although many SMEs have joined this initiative, there is still room for improvement,” said Juan Alberto Porras, Director General of CONCAMIN.
Gutiérrez asked the representatives of the Confederation of Industrial Chambers (CONCAMIN) and the Ministry of Economy, as key players in Mexico’s economy, how they support the development of local investment and development of local providers. CONCAMIN represents around 54 percent of Mexico’s GDP and its member companies employ the majority of workers in the country. “CONCAMIN has been an important actor in developing public policies that support the growth of the different economic sectors of the country and to guide the government to pay more attention to talent and SME development,” said Porras.
Sergio Silva, Head of the Economic Intelligence Unit at the Ministry of Economy, said the aerospace sector will continue to grow in the coming years. “Andrés Manuel López Obrador’s administration is aware of the importance of the sector and it is sure it will continue to grow in the coming 15 years to become a leader in the global market.”
Nevertheless, to consolidate this growth, there must be changes to how economic development is approached. "As far as industrial policy is concerned, we are seeking a stabilizing element that must be adapted to the new reality of the economy. Not to protect ourselves from external competition, but to integrate our economy into the global value chain," said Silva.
Our Networking Cocktails are a must for C-level professionals who want to expand their business, improve their contacts or who simply want to gain insights from other key stakeholders in their industry. By invitation only, these exclusive events provide enhanced networking and put you in front of the people and businesses that matter to you. Organized around specific topics and themes, our intimate Networking Cocktails are a value-added opportunity to discuss the latest trends and strategies impacting your sector.
Let us help you open doors to fresh opportunities.